March

The European Securities and Markets Authority issues summary of IFRS decisions

08 Mar, 2011

The European Securities and Markets Authority (ESMA) has issued summaries of its IFRS decisions on the classification of financial liabilities, government grants, presentation of financial instruments, income tax, classification in the cash flow statement, intangible assets and share-based payments.

Click for the full report (PDF 362k).

EFRAG urges IASB and FASB to agree on a joint timetable for finalising a converged financial instruments standard

08 Mar, 2011

The European Financial Reporting Advisory Group (EFRAG) has sent a joint letter to both the IASB and the FASB in which it calls on the two bodies to concentrate on agreeing a timetable for producing a finalised converged financial instruments standard.

EFRAG says that: 'Reaching agreement on a converged financial instruments standard appears again to be a realistic goal that IASB and FASB can achieve jointly. While it may not be possible to finalise hedge accounting requirements before the end of 2011, agreement on the classification and measurement, impairment and offsetting requirements before the end of 2011 is certainly an achievable and valuable goal'.

It says that recent efforts by the FASB show 'strong signs of the FASB's willingness to work actively towards a converged standard for the accounting for financial instruments'. Then it points out that: 'In the meantime, IASB has not yet defined possible requirements for portfolio hedge accounting, consistent with the objective set for hedge accounting to reflect hedging strategies implemented following an entity's risk management. In its comment letter on the IASB Exposure Draft Hedge Accounting, EFRAG expects to express the view that the IASB should not finalise a standard on the general hedge accounting model, before developing a model for portfolio hedging'.

It concludes by saying that: 'We urge the two Boards to continue their joint efforts to develop a converged high-quality financial instruments standard – with careful consideration of EFRAG's recommendations to that purpose — and agree on a new joint timeline for the finalisation of such standard, consistently with the G20 requirements'.

Please click for EFRAG press release (link to EFRAG website) and the letter (PDF 89k).

World Economic Forum report focuses on sustainable investing

07 Mar, 2011

The World Economic Forum (WEF) has released Accelerating the Transition towards Sustainable Investing – Strategic Options for Investors, Corporations and other Key Stakeholders.

The paper asks 'What are key pathways for investors, corporations and other key stakeholders in the investment value chain to accelerate the transition towards sustainable investing?' The report notes that financial markets have great potential to accelerate the transition towards sustainable business practices and sustainable models of economic development, to further stimulate the integration of environmental, social and governance (ESG) factors into mainstream investment analysis.

Whilst the report focuses on a wide range of possible initiatives, accounting bodies are seen as key players in developing standards for ESG disclosure and stimulating integrated reporting.

Click for access to the report (link to WEF website).

Latest IFAC survey reveals key focuses for the accounting profession

07 Mar, 2011

The International Federation of Accountants (IFAC) has published its Fourth Annual Global Leadership Survey.

IFAC received 123 responses to the survey from a total of 94 member bodies and associates in 73 countries and jurisdictions, as well as five affiliates, regional accountancy organisations, and groupings.

Some of the key findings of the survey include:

  • The following issues for the accounting profession were rated as very important or important by 90% or more of respondents:
    • protecting the reputation of the profession (100%)
    • transitioning to International Standards on Auditing (ISAs) (96%)
    • addressing the needs of SMEs and SMPs (95%), addressing auditor independence (91%)
    • developing guidance to support the implementation of international standards and corporate governance principles (91%)
    • progressing corporate social responsibility, including sustainability (91%)
  • IFAC has a key role to play in convergence and leading the way in the global adoption and implementation of standards, with IFAC seen as the umbrella organisation for international standards in the areas of auditing and assurance, education, ethics, and public sector financial reporting
  • In the wake of the financial crisis, IFAC should proactively support and restore public confidence in the profession and the value of audit and other services provided by accountants
  • A significant number of respondents reported that governments in their country had adopted or were in the process of adopting accrual accounting and/or IPSASs
  • There is a clear need to have a effectively enforced global code of ethics – taking local culture into account – to protect the fundamental qualities of the profession, particularly relating to independence

Click for IFAC press release (link to IFAC website).

The Bruce Column — The perennial challenges of leasing

04 Mar, 2011

The prospect of putting all operating leases on balance sheet has led to concern over the scope of the proposals, and not solely over the number of short-term and possibly immaterial leases subject to asset and liability recognition and measurement.

Understandably, the definition of 'a lease' itself has become a greater topic of concern than before, with many currently unclear on how to tell the difference between leases and what most people would see as service agreements. At a recent meeting of the Global Preparers Forum, the discussion was bedevilled by CFOs wanting to know if outsourcing or franchise arrangements were caught, for example. They aren't, was the emphatic IASB response.

The bewilderment does not stop there. Today there are two types of leases: operating and finance leases. As the Boards debate further the more than 750 comment letters they have received, they have tentatively decided there should be two types of leases: finance leases and 'other than finance' leases. They have also decided tentatively that, for 'other than finance' leases, the pattern of expense recognition in profit or loss should be straight-line; that is, exactly the same as under current operating lease requirements. This may resolve the issue for lessees of recognition of a higher expense in earlier years of a lease on all leases but it is difficult to understand the full effects of 'other than finance lease' accounting without an understanding of its mechanics which are as yet undetermined by the Boards. Annuity amortisation of the right-of-use asset would be one way of achieving a straight-line charge but would also be at odds with permitted patterns of amortisation under IFRSs today.

A straight-line charge also reopens the question of whether the 'other than finance lease' expense in the statement of comprehensive incomes could be presented as 'rental' expense or part rental and part finance cost, or whether a split between amortisation and finance cost will be required. The more one contemplates the reintroduction of what looks like a very familiar operating/financing distinction with different profit and loss treatment for leases currently called operating, the greater the complexity of application appears to become. It is difficult to suppress a thought that perhaps the costs do not outweigh the benefits.

Then there is the question of renewal options and contingent rentals. The exposure draft said both were simply measurement issues. On renewal options the Board has stepped down with a tentative decision to only include renewal options where there is a "significant economic incentive" for an entity to exercise the option. This is a clear change from the proposed lease term as the longest possible lease term more-likely-than-not to occur including an assessment of all options to renew. It appears similar to the existing "reasonably certain" threshold for renewal/extension options. However, unlike today, reassessment of the lease term would be required.

On contingent rentals, it is less clear, at least for some types of contingencies, what the Boards intend. The exposure draft required a probability-weighted expected outcome approach. The tentative decision now is to include all variable lease payments that are "reasonably certain" of being paid in the measurement of a lessee's liability and the lessor's receivable. But, how do you determine, for payments contingent on usage or performance, the amount that is reasonably certain of being paid? This revised threshold may work for contingent rent based on an index. But for rent contingent on retail sales, say over a twenty-year period, how do you forecast the "reasonably certain" figure? Some say the likely decision is that it will be based on whatever is thought probable. But a notable observation during the joint discussions of the Boards was that the 'probable' threshold itself is problematic. To one Board member it can mean greater than 50%, to another greater than 80% probability.

It is the perennial problem of standard-setting: the theory can be difficult to fault but the application in practice is rather different. And the IASB has been somewhat taken aback by the comments, feedback and outreach responses. Some investors have surprised the Board by saying that they don't mind if a lease is on balance sheet or not and that they don't really need the additional information the exposure draft would give them. Small wonder that – as the IASB revealed at the Global Preparers Forum discussion – analysts are telling the Boards they've never had such lobbying from preparers.

In the first instance, the Boards have tentatively reconfirmed the right of use model for lessees for all lease arrangements and, under this model, 'other than finance' leases will end up on balance sheet when the standard is finalised. But how is far from clear, and the existing distinctions, guidance and approaches in IAS 17 unwittingly gain credibility. Furthermore, while the Boards decided in January to consider both the lessee and lessor sides of the equation as they re-deliberate, they are only scheduled to begin to consider lessor accounting specifically from April.

As we said in a previous column looking ahead to the leasing exposure draft last year: 'It is all going to be complex, and it is going to be hard work'. In the IASB podcast summing up its most recent deliberations on the topic Board member Steve Cooper concluded by saying that the IASB was 'trying to be pragmatic'. That is always a good objective.

Robert Bruce
March 2011

Related links

 

 

Deloitte summary of IPSASs

03 Mar, 2011

Deloitte has published a booklet summarising the provisions of all International Public Sector Accounting Standards (IPSAS) outstanding at 1 February 2011. Those summaries are intended as general information and are not a substitute for reading the entire Standard.

Click to download Deloitte's IPSAS Summary Booklet(PDF 408k).

 

Conclusions of the February 2011 Trustees' meeting

03 Mar, 2011

The February 2011 Trustees' meeting was held on 10 and 11 February in Tokyo, Japan.

The Trustees have released a summary of the conclusions reached:
  • The IFRS Foundation will open an Asia-Oceania liaison office in Tokyo during 2012.
  • The Trustee Vice-Chairs will remain as acting co-Chairs while the search process for new Chair of the Trustees proceeds.
  • The Chair and Vice-Chairs of the IFRS Advisory Council were reappointed.
  • The Trustees reviewed the progress of the ongoing strategy review following the publication of a consultation document for public comment in November 2010.
  • The Trustees received reports of the Due Process Oversight Committee and of the IASB Chairman.

Detailed explanations of the conclusions reached can be found in this press release (PDF 38k). The next meetings of the Trustees will be in London on 30-31 March 2011, in New York on 13-14 July 2011 and in Paris on 12-13 October 2011.

World Accounting Summit to be held in Dubai

02 Mar, 2011

The World Accounting Summit is to be held on 21-24 March 2011 in Dubai.

The Summit brings together senior representatives from the global standards setters and major accounting associations as well as principal advisers to multinational companies and key users and preparers of financial statements.

Highlights of this year's summit include:

  • consideration of IFRS Adoption internationally with convergence case studies from Australia, India, Japan, Pakistan, Singapore and the United Kingdom
  • key IFRS and XBRL developments
  • industry-focused panel sessions on key IFRS projects
  • a workshop on IFRS for the not-for-profit sector.

Ian Mackintosh, Vice-Chairman Designate IASB (former Chairman, Accounting Standards Board, UK) and Robert P Garnett Chairman of the IFRS Interpretations Committee (Board Member of the IASB from 2001 to 2010) will represent the IASB amongst others. Several representatives from Deloitte member firms will also be participating, including Veronica Poole (Global Managing Director — IFRS Technical, Deloitte UK) and Abbas Ali Mirza (Chairman of the World Accounting Summit & Chairman of 21st Session of UNCTAD/ISAR, Deloitte Dubai).

Click for Summit Brochure (PDF 964kb). The website for the Summit is www.accountingsummit.com.

Notes from the additional March IASB meeting

02 Mar, 2011

The IASB held an additional meeting in London on 1-2 March 2011, which was a joint meeting with the FASB.

We've posted the remaining Deloitte observer notes from the meeting (click through for direct access to the notes):

Tuesday, 1 March 2011

Wednesday, 2 March 2011

  • Insurance Contracts (continued from previous day)
    • Financial guarantee contracts
    • Field testing results
    • Information session on uncertainty in the measurement of insurance liabilities
    • Acquisition costs
    • Information session on presentation
  • Leases
    • Right-of-use model
    • Scope of the leases standard
  • Effective Dates and Transition Methods
    • Summary of comments

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

Notes from Day 1 of the additional March IASB meeting

02 Mar, 2011

The IASB is holding an additional meeting in London on 1-2 March 2011, which is a joint meeting with the FASB.

We've posted Deloitte observer notes from one session from the first day of the meeting (click through for direct access to the notes):

Tuesday, 1 March 2011

  • Insurance Contracts
    • Locking in the discount rate
    • Discounting non-life contract liabilities
    • Scope

Notes from the other sessions on revenue recognition and financial statement presentation will be posted soon.

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

Agenda for 10-11 March 2011 Interpretations Committee meeting

02 Mar, 2011

The IFRS Interpretations Committee will meet at the IASB's offices in London on Thursday and Friday 10 and 11 March 2011 (morning only on 11 March).

You can access the agenda on our 10-11 March 2011 Interpretations Committee meeting page. We will also post Deloitte observer notes on this page as they are available

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