2011

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FRC wants to bring audit closer to investor needs

10 Feb, 2011

In a speech given at the European Commission conference on financial reporting and auditing today, Stephen Haddrill, chief executive of the UK Financial Reporting Council, said, that it is high time to close the gap between what audit does and what users expect from an audit of the financial statements.

According to Mr Haddrill investors must be given more information about the prospects of the company and a better picture of the future of the business and of the judgements made in the course of the preparation of the financial statements.

Here is an extract:

In short, we want investors to learn about the business and its future from the directors; we want the directors to say more about the things that really keep them awake at night; and we want to empower auditors to challenge management by requiring them to say whether the Board have really given a balanced and fair view on these matters as well as on the accounts.

[...]

And we need an audit profession that [...] is not afraid to challenge management. One that is sceptical of assertions made without apparent good foundation – that does not see its role as confirming management's view, but identifying the truth.

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Directors urged to go "beyond compliance" in 2011

10 Feb, 2011

The need for directors to seize the opportunities in regulatory change, such as IFRS, has been highlighted as a key consideration for 2011.

A new publication, Directors' Alert: 11 Issues for 2011 – Ever-increasing demands, discusses boards' responsibilities around involvement in organisational strategy, and oversight and management of risk. Consistent with similar themes in an earlier story, in discussing regulatory change, the ever-growing reach of IFRS is identified as a key consideration and opportunity.

An extract:

...a growing number of jurisdictions are moving to International Financial Reporting Standards as standard setters such as the FASB and IASB seek to harmonize financial reporting around the globe. While compliance with these rules is obviously important, organizations will distinguish themselves by taking a "beyond compliance" approach and determine how regulatory changes can create competitive advantage. This is particularly important if changes have the potential to affect the organization's strategy, supplier relationships, customer expectations or other market behaviors that may affect the organization's growth or ability to attract investor capital.

Click for Directors' Alert: 11 Issues for 2011 – Ever-increasing demands (PDF 470k).

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Agenda for the February 2011 IASB meeting slightly changed

10 Feb, 2011

The agenda for the IASB meeting next week has been slightly changed: The sessions on Friday have been pulled forward by half an hour.

Please click for the updated agenda.

 

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Hans Hoogervorst discusses the objectives of financial reporting

09 Feb, 2011

Hans Hoogervorst, Chairman of the Board of the Netherlands Authorities for the Financial Markets (AFM), and future chairman of the IASB, spoke in Brussels today on the objectives of financial reporting.

In his speech, Mr Hoogervorst discussed "to which audience financial reporting should primarily be directed" and whether accounting standards should only serve the goal of transparency, or should they have a "financial stability objective". During his discussion on the role of accounting standard setters in creating transparency and stability, he stated:

So accounting standards can make a very important contribution to stability by providing maximum transparency, and by avoiding artificial noise.

However it is important to keep this in perspective. Stability should be a consequence of greater transparency, rather than a primary goal of accounting standard-setters. For this, accounting standard setters simply lack the tools. For example, they cannot set capital requirements for the banking industry. This instrument belongs to the prudential regulators who do have stability as their main mission.

What accounting standard setters can also not do is to pretend that things are stable which are not. And, quite frankly, this is where their relationship with prudential regulators sometimes becomes testy. Accounting standard setters are sometimes suspicious that they are being asked to put a veneer of stability on instruments which are inherently volatile in value.

Click for text of speech (link to IASB website).

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GRI responds to EC consultation on disclosure of non-financial information

09 Feb, 2011

The Global Reporting Initiative (GRI) has submitted a reply to the public consultation of the Services of the Internal Market and Services Directorate General of the European Commission on stakeholders' views on ways to improve the disclosure by enterprises of non-financial information (e.g. social and environmental).

In line with other responses GRI states that companies' stakeholders, including directly affected communities and the public at large, need comprehensive and credible information on corporate social and environmental impacts to identify problems with and monitor progress of the companies they deal with. GRI observes that the current system does not create a level playing field among business, as in most EU countries reporting by companies on their non-financial impacts is voluntary. Yet GRI also warns that the European Commission need not "reinvent the wheel" since there already are "guidelines that enable all companies and other organizations to produce comparable reports on their sustainability performance". According to GRI what is needed is mandatory application, not new standards.

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Dick Sluimers appointed IFRS Foundation Trustee

09 Feb, 2011

The IFRS Foundation, the oversight body of the International Accounting Standards Board (IASB), has announced the appointment of Dick Sluimers as a Trustee of the IFRS Foundation.

His term begins immediately and expires on 31 December 2013. Mr Sluimers is Chief Executive Officer of APG Group, a Dutch-based provider of asset management, administration and communication services for pension funds. Please click for IFRS Foundation press release (35k).

 

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World Economic Forum discusses integrated reporting

08 Feb, 2011

The 2011 Annual Meeting of the World Economic Forum (WEF), recently held in Davos-Klosters, included a session entitled 'Accounting for New Realities: Redesigning Corporate Reporting'.

Participants debated the merits and challenges of adopting a new framework for an integrated corporate reporting system for the 21st century. Coming out of the global financial crisis, there is an ongoing debate on the relevance of corporate reporting and whether it should include such externalities as environmental, social and governance performance. Increasingly, companies are producing, mostly on a voluntary basis, corporate social responsibility or sustainability reports, but these can vary widely in relevance and quality, largely because there is no global standard.

A summary of the outcomes from the session is reproduced below (with the kind permission of the WEF):

Key points

  • There is a certain degree of deficiency in today's corporate reporting models
  • Any new accounting format should focus on internalising externalities, such as environmental and social impacts
  • Good thought leadership is needed to further the debate on developing a concise, comprehensive and comparable integrated reporting framework.

Source: World Economic Forum Annual Meeting 2011

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Monitoring Board releases report on governance review for public consultation

07 Feb, 2011

The IFRS Foundation Monitoring Board has released for public comment a document Consultative Report on the Review of the IFRS Foundation's Governance.

In April 2010, the Monitoring Board commenced a review of the governance structure supporting International Financial Reporting Standards (IFRSs) as a set of high quality, globally accepted accounting standards.

The fundamental question for the review is whether the current governance structure effectively promotes the standard-setter's primary mission of setting high quality, globally accepted standards as set forth in the Constitution of the IFRS Foundation, and whether the standard-setter is appropriately independent yet accountable.

The report is open for public comment until 8 April 2011. The timetable for the Monitoring Board review is as follows:

  • 7 February 2011: Report published for public comment
  • Late February — early March 2011: Public roundtables in Asia, Europe and the Americas:
    • Asia: TBD
    • Europe: 3 March 2011, Brussels
    • The Americas: TBD
  • 8 April 2011: Comment deadline
  • April - June 2011: Development of an action plan for implementation of the proposals, giving consideration to the comments received, and publishing of a feedback statement on those comments
  • Early third quarter 2011: Final action plan (the Monitoring Board will seek to coordinate this effort with the Trustees' Strategy Review)

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Agenda for the February 2011 IASB meeting

07 Feb, 2011

The IASB will hold its monthly meeting for February 2011 at the IASB offices in London from 14 to 18 February 2011. The third, fourth and fifth days of the meeting are joint meetings with FASB.

You can access the agenda on our February 2011 IASB meeting page. We will also post Deloitte observer notes on this page as they are available.
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Research shows impacts of IFRS adoption on global funds flows

04 Feb, 2011

A recent research paper tests the theory that mandating a uniform set of accounting standards such as IFRS improves financial statement comparability that in turn attracts greater cross-border investment.

The working paper, The Impact of Mandatory IFRS Adoption on Foreign Mutual Fund Ownership: The Role of Comparability, examines the change in foreign mutual fund investment in firms that began using IFRS after its mandatory adoption in the European Union (EU) in 2005, which the authors term a potential "real effect" of accounting.

The findings in the paper suggest that the effects of improved comparability associated with mandatory IFRS adoption on cross-border investment depend both on the institutional environment that shapes firms' reporting incentives (strong implementation credibility through the regulatory environment and management incentives) and on the extent of increased number of industry peers using the same accounting standards (uniformity).

With the current global debates on the implementation of IFRS in a number of the world's major jurisdictions (e.g. the United States and India), the paper is a timely reminder of how the objectives of IFRS might be best achieved.

Click to download the paper (PDF 372k). We have posted the paper with the kind permission of the authors, Mark DeFond (University of Southern California), Xuesong Hu (University of Oregon), Mingyi Hung (University of Southern California) and Siqi Li (Santa Clara University).

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