We comment on the presentation of items of OCI

30 Sep, 2010

Deloitte has submitted a comment letter on Exposure Draft ED/2010/5 Presentation of Items of Other Comprehensive Income.

The ED proposes to require that all entities present profit or loss and other comprehensive income (OCI) in separate sections of a single continuous statement. This would amend IAS 1, which currently allows entities a choice of presenting results of operations either (a) in a single, continuous statement similar to the proposal in the ED or (b) in two separate statements — an income statement and a statement of comprehensive income. We do not object to the amendments proposed in the Exposure Draft. However, we are convinced that some fundamental principles need still to be discussed (see box below). Click to Download our Comment Letter (PDF 23k). All of our past comment letters are Here.

Whilst we do not object to the proposals in the ED, we would like to stress that the Board has not yet concluded on the fundamental principles of what constitutes performance, what represents Other Comprehensive Income (“OCI”) and the conceptual basis for whether items in OCI should or should not be recycled. The Board should continue to consider these issues as part of its Financial Statement Presentation project and the outcome of the ED should not in any way pre-empt the outcome of these discussions. Although the Board has chosen to limit the scope of the ED to OCI presentation matters, in our view it would have been preferable to address the broader conceptual issues related to performance and OCI and recycling in advance of addressing the presentation of OCI.

Staff draft of a forthcoming IFRS on consolidation

30 Sep, 2010

The IASB has posted to its website a staff draft of a forthcoming IFRS on consolidation that reflects the tentative decisions made to date by the IASB.

The draft IFRS has been prepared by the staff of the IASB for the board's project to replace IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities with a single standard on consolidation. The staff draft reflects the cumulative tentative decisions made by the board, concluding with the meeting in May 2010. The board's deliberations are complete, apart from considering the effective date of the forthcoming IFRS. However the tentative decisions reached may be subject to change before the board issues the final consolidation standard.

The Financial Accounting Standards Board (FASB) will hold public roundtables on 25 October 2010 to elicit input from its stakeholders and help the FASB decide whether to proceed with an exposure draft that is consistent with the IASB's published requirements.

Click for:


IVSC issues discussion paper on valuation uncertainty

30 Sep, 2010

The International Valuation Standards Council (IVSC) has released Discussion Paper Valuation Uncertainty.

This paper summarises the Board's preliminary views on the nature and causes of valuation uncertainty and on how this should be communicated to valuation users. The Board will consider responses to this paper in deciding whether amendments are required to the proposed new International Valuation Standards1 and whether a project should be undertaken to consider the development of technical guidance on possible methods for estimating a quantitative measure of uncertainty. Comments will be accepted until 24 December 2010.
Click for Discussion Paper Valuation Uncertainty (link to the IVSC website, PDF 637k).

IASB proposes severe hyperinflation amendment to IFRS 1

29 Sep, 2010

The International Accounting Standards Board (IASB) today published for public comment an exposure draft 'Severe Hyperinflation', a proposed amendment to IFRS 1 'First-time Adoption of International Financial Reporting Standards'.

The amendment proposes guidance on how an entity should resume presenting financial statements in accordance with International Financial Reporting Standards (IFRSs) after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. According to the proposed amendment an entity that has been subject to severe hyperinflation would be allowed to measure assets and liabilities at fair value and use that fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position.

The exposure draft is open for comment until 30 November 2010. Click for:


The Bruce Column — Great expectations in October

29 Sep, 2010

As we approach the point in October when the SEC has promised to give us a progress report on its thinking on allowing US companies to join with the rest of the world in using IFRS it is worth remembering precisely where it is coming from.

For this we have to read the runes. And that means looking back at the carefully worded, and equally carefully timed speeches which the SEC gives official status by placing them up on their website. For the detail of the work plan which the SEC is currently pursuing, and on which it will opine sometime in October, you go to a speech made by Paul Beswick, Deputy Chief Accountant in the SEC's Office of the Chief Accountant, in Pasadena in June. That gives you all the detail you need about what work the SEC staff have been doing, and continue to be doing.

For the thinking behind this work you go to a speech that the SEC's Chairman, Mary Schapiro, made in May in Boston. She was talking to the CFA Institute, the analysts, and interestingly enough she chose to deal with the myths. Her arguments were based on the idea that while the big issues of financial reform reverberate around the headlines, discussion about accounting standards "is often limited to specialized journals and a handful of websites for people who can tell a repo 105 from a 401(k)".

This column doesn't offer that sort of test to its readers. And it is my mission to provide good and lively discussion of any IFRS issues going. But I take Schapiro's point. Without drawing attention to the debate and without too much information available coverage is going to dwindle away. She agrees. "Perhaps because of this lack of coverage, and because of the complexity of a comprehensive accounting review and the resulting deliberate pace", she said, "a number of myths have sprung up, many suggesting that that our commitment to a single set of high quality accounting standards is not particularly strong".

To counter this she then went on to deal with the myths, one by one, and to "let you know that you can't always believe what you hear". These myths and what she said about them are important. It is in the detailed rebuttals of the myths that one can start to understand where the SEC is coming from.

Schapiro's first myth was that the SEC's commitment to global accounting standards was not as strong as it should be. Her rebuttal to this is a simple referral to a commitment to convergence given in a previous statement in February: "The Commission continues to believe that a single set of high-quality globally accepted accounting standards will benefit US investors and that this goal is consistent with our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. As a step toward this goal, we continue to encourage the convergence of US GAAP and IFRS and expect that the differences will become fewer and narrower, over time, as a result of the convergence project."

So the answer is convergence. And that is the answer to her second myth as well. Her second myth is: "The US may be committed, but it's dragging its feet regarding adoption of IFRS". She makes two points here. Convergence is far from complete and due process needs to be safeguarded. In particular she said, and remember this was back in May, that: "While the FASB and the IASB have been working diligently to reach common solutions to difficult financial reporting issues, US GAAP and IFRS are currently not converged in a number of key areas. These include the accounting for financial assets (the very types of securities at the center of the financial crisis), revenue recognition, consolidation principles, and leases".

Four months on some of these are being attended to but the point is that these are complex issues and solutions are hard to come by. And this runs directly into another Schapiro point. "Processes put in place by the FASB and the IASB to ensure the integrity of the final standards should be respected in both spirit and letter", she said. "Giving short shrift to process and testing, would increase the risk of poor decisions. We are committed to convergence. But we are committed, above all, to a convergence exercise that yields high-quality improvements to accounting standards".

This problem leads naturally to her third myth: "The United States is fixated on process". This, she said, is simply "inaccurate" Her point is that: "The United States understands the importance of process to a successful conclusion". And she defines that importance: "We will not accept shortcuts that undermine our larger goals or risk compromising the achievement of high quality global standards". So the process is there to ensure the quality.

But she recognises that there are other threats to quality. "A critical part of the standards-setting process is ensuring that the IASB and the FASB are shielded from undue political or commercial pressure, particularly now, as they work to finalize a number of their current joint projects", she said. And she then went on to point out that the Monitoring Board of the IASB, of which she is a member, is critical to achieving the best possible results.

At this point she had just one myth left that she still wanted to demolish: "America is protecting its parochial interests". Her answer to this myth was, again, forthright. "No", she said. "What we are protecting are the interests of the investors in our markets, and we always will that's what the Securities and Exchange Commission does", she said. "When investors from anywhere across the globe participate in our markets, they come under the SEC's umbrella of protection".

And she also made it clear that the umbrella of protection did not extend to protecting home markets alone. "But even with this protection, we can and must continue working together across borders", she said. "The global economy is too intertwined and too interdependent to tolerate parochial interests".

The lesson would seem to be that the goal of one global system of financial reporting standards is not simply dependent on the will of the standard-setters and regulators. It is also inevitable because of the cross-border nature of business anywhere across the globe.

Schapiro's conclusion to her speech was suitably precise. "Creating a system of high-quality, globally accepted accounting standards that benefits American investors and investors around the world is a detailed and challenging task", she said. "But it is a task we have been eager to embrace, and to which we remain fully committed".

So that is the context in which the forthcoming October progress report should be seen. It does weigh somewhat heavier than the comparatively spritely IASB might prefer. At the World Standard-Setters conference in London last week the IASB Chairman, Sir David Tweedie, made it clear in his opening words that: "Convergence is not adoption — it is just a means to adoption". But now we must all wait and see and, properly informed, weigh up the forthcoming update from the SEC.

Robert Bruce
September 2010

Related links



IASB Live webcast on completion of Phase A of Conceptual Framework

28 Sep, 2010

On Wednesday 29 September IASB staff will present a live webcast introducing the first phase of Conceptual Framework.

This will follow the publication of the first phase of the Conceptual Framework later today. The webcast will be followed by a question and answer session. There's no charge to attend the web presentation, but you need to register to participate. You can do this now or any time before the presentation. If you register now, the provider will automatically remind you of the presentation nearer the time. You can listen to the webcast over the internet or by telephone. For the convenience of participants in different time zones the IASB has scheduled two slots for the webcast:
  • Topic: Conceptual Framework – Phase A: Objectives and Qualitative Characteristics
  • Date and time: Wednesday, 29 September 2010, 10:00am / 4:00pm (UK time)
  • More information on the webcast and registration:
  • More information on IAS Plus: For our agenda project page click here.
Additionally, the IASB has uploaded a podcast on the issue. Financial journalist Robert Bruce interviews IASB Member Philippe Danjou and IASB Technical Manager Li Li Lian on the latest developments regarding the first phase of the conceptual framework. You can access the podcast here (link to IASB website).

IASB and FASB complete first stage of conceptual framework

28 Sep, 2010

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) today announced the completion of the first phase of their joint project to develop an improved conceptual framework for International Financial Reporting Standards (IFRSs) and US generally accepted accounting practices (GAAP).

The objective of the conceptual framework project is to create a sound foundation for future accounting standards that are principles-based, internally consistent and internationally converged.

Work on the framework project is being carried out in stages. As each chapter is finalised, the relevant paragraphs in the Framework for the Preparation and Presentation of Financial Statements that was published in 1989 will be replaced.

Today the chapters 1 The objective of financial reporting and 3 Qualitative characteristics of useful financial information were published. Chapter 2 will deal with the reporting entity concept. The Board published an exposure draft on this topic in March 2010 and the comment period ended on 16 July 2010.

While the IASB has revised the portions of its framework as described above; the FASB has issued Concepts Statement 8' to replace Concepts Statements 1 and 2'. The IASB document is available for eIFRS subscribers only; the FASB document, containing also the chapters The Objective of General Purpose Financial Reporting and Qualitative Characteristics of Useful Financial Information is freely available on the FASB's website.

Click for:


International survey of CFOs' view on narrative reporting

27 Sep, 2010

ACCA (the Association of Chartered Certified Accountants) in partnership with Deloitte has conducted a survey into the views of CFOs in leading listed and public interest' companies across nine markets on the challenges around narrative reporting, specifically in annual reports.

Hitting the notes, but what's the tune? is now available on the ACCA's Website.

231 CFOs of publicly accountable entities in Australia, China, Kenya, Malaysia, Singapore, Switzerland, the UAE, the UK and the USA were interviewed. Their views form the majority of the report. The main findings were then discussed with seven CFOs and various investor representatives, and a report on each of these interviews is also included in the report.

Two findings from the survey are especially striking:

  1. CFOs are between a rock and a hard place. They are seeking to communicate to shareholders but at the same time they have to meet all the legal and other requirements placed on them. Therefore, the top response (65%) on what CFOs would like to see for the future was more discretion and less regulation. 19% favoured more regulation.
  2. The second most popular answer on what would improve the usefulness of narrative reporting disclosures was an external auditor opinion on the narrative. 58% of CFOs supported this.

Click for:


IASB announces change of date for Tokyo insurance roundtable

27 Sep, 2010

On 16 September 2010 the IASB and FASB announced that they would hold a public roundtable on Insurance Contracts in Tokyo, Japan on Tuesday 7 December.

The IASB has announced that this meeting has been rescheduled and will now take place on Thursday 9 December. Information on how to register to attend this meeting will shortly be published on the Insurance Contracts project page (link to IASB website).


Notes from special September IASB meeting

24 Sep, 2010

The IASB met in London on 24 September 2010 for the special meeting for the month.

The topics discussed were as follows (click through to detailed Deloitte observer notes for that topic):

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting. The next IASB meeting is expected to occur on 5 October 2010.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.