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2011

IFRS Foundation translation update

18 Dec 2011

The IFRS Foundation has announced the publication of a Japanese translation of the IFRS for SMEs, and a Spanish translation of an additional module if the IFRS for SMEs training materials.

The translations are:

  • Japanese translation of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) 2009. The Japanese translation is available on the IASB's Access the IFRS for SMEs page (registration required).
  • Spanish translation of Module 7 'Statement of Cash Flows' of the IFRS for SMEs training materials. These are available on the IASB's Spanish language training materials webpage (freely accessible).

IASB, FASB and CFA Institute webcast on revenue recognition

18 Dec 2011

On 12 January 2012 at 15:00 GMT, the IASB, FASB and the CFA Institute will present a webcast about the proposals on revenue recognition.

More information is available on on the CFA Institute's website.

Deloitte IFRS Podcast on offsetting of financial assets and financial liabilities

16 Dec 2011

A new Deloitte IFRS Podcast has been issued discussing the IASB amendments to IAS 32 'Financial Instruments: Presentation' that provide clarifications on the application of the offsetting rules, and the amendments to the disclosure requirements in IFRS 7 'Financial Instruments: Disclosure' requiring information about all recognised financial instruments that are set off.

In the podcast, Randall Sogoloff, Leader for Communications in the Deloitte IFRS Global Office, and Andrew Spooner, leader of Deloitte's global IFRS financial instruments team, discuss the effects of those amendments relating to offsetting of financial assets and financial liabilities.

The podcast is available for download here (26 mins 11.5 mbs) or via iTunes; it is one of a series that will be posted to IAS Plus.

The Bruce Column – 2011: A year of growing optimism over IFRS

16 Dec 2011

Robert Bruce, our regular, resident columnist, takes a look at a global survey which shows that acceptance of IFRS is bringing stability and lower costs. The year could be coming to an end on a note of optimism.

Amidst all the debate over technical arguments in the world of IFRS one larger point is often missed. Draw back from the cut and thrust over the minutiae of standard-setting and you can see a growing and very important trend. In the words of Helen Brand, chief executive of the global accounting body, ACCA: 'As countries have gained experience in using global accounting standards, their support has tended to increase'.

She made this point in her introduction to a recent ACCA report called 'Toward Greater Convergence: Assessing CFO and Investor Perspectives on Global Reporting Standards'. And she went on to say that she hoped that SEC would take this into account as it approaches its decision over US adoption of IFRS because adoption would, she said: 'give a tremendous boost to the cause of financial reporting and, more importantly, the world economy'.

It is this economic argument which tends to get lost in the technical detail. 'As more and more countries use IFRS', says Ian Welch, Head of Policy at ACCA, 'companies have got to grips with it and are now getting the benefits. Both users and preparers are seeing the benefits which flow through in terms of reducing the cost of capital and it is encouraging that they are seeing such practical value'.

All this is the result of time and experience. And oddly the process has been helped by the financial crisis of the past few years. That has demonstrated the nature of global integration and the need for global regulation. And you can't have that without global standards.

The ACCA survey covered 163 senior executives, mostly CFOs and investors, and in-depth interviews with nine further senior people from around the world. And the findings show IFRS as having well and truly come of age. 'About two-thirds of investors and more than half of CFOs say they view IFRS more positively in the wake of the crisis', says the survey. And Russell Picot, chief accounting officer at HSBC, made a more specific point. 'One major effect of the global financial crisis is that the US moved to a basis of consolidation which is much closer to IFRS', he said. 'US accounting practice previously permitted more structures to be held off balance sheet than IFRS and during the crisis this caused users some confusion. European banks were on one basis and US banks were on a fundamentally different basis'.

And the survey also shows that the financial crisis really brought home to people the costs of not being on IFRS and how the implementation costs were worth the effort in terms of the benefits derived. 'We are all very good at being able to identify costs and put a price tag on conversion', said Anne Simpson, head of corporate governance at CalPERS, the giant US investor vehicle that is the California Public Employees Retirement System. 'But should we be visited by horrors like the financial crisis and realise we've not invested sufficiently in quality accounting and auditing, then the cost runs to billions. Billions were wiped from the CalPERS portfolio. These are the sort of numbers we should be looking at when people complain about costs'.

And the hidden costs of not using IFRS are huge. Russell Picot of HSBC said that 'a significant cost reduction' would arrive from operational streaming when IFRS and US GAAP eventually become properly harmonised. 'In the US they run the operation with IFRS numbers', he said of HSBC. 'But they have an unusual technical issue in that they present their business segments using IFRS numbers and then reconcile to US GAAP'.

The survey also underlined the advantages that accrue to mature users of IFRS. James Singh, CFO of Swiss food giant Nestle, pointed out that: 'Where the benefit comes is in using a single standard for performance measurement both inside and outside the company. From a regulatory standpoint it's an efficient way of preparing accounts'.

And it is all about consistency. 'As a multinational company', said Singh, 'we can't afford to have different accounting standards in different locations'. 'One of the great benefits,' said Picot, 'has been a single set of numbers by which the group is run. It's done away with the Tower of Babel of different reporting and accounting languages that we had before'. It is also all about simple but useful disclosure. 'We don't have much sympathy for those that say disclosure is too much like hard work', said Anne Simpson of CalPERS. 'This is all information that management should have and it should be available at the touch of a button'.

The possibility of integrated reporting also entering the mix looks, from the survey, as though it is being investor-led. 'Investors', the survey found, 'are twice as likely to believe that this would encourage better decision-making'. On the other hand CFOs reckoned it provides a clearer picture of overall performance. 'Investors and the analyst community are more inclined and influenced on a cash-flow basis, whereas companies like ourselves are influenced by cash flow and by performance measurement that sooner or later ends up in the balance sheet', said Singh of Nestles. 'We have to have the right kind of focus to drive sustainable performance in the business. If you're only cash-flow focused, you are more short-term oriented'. And some CFOs, like Anders Pehrsson of Swedish engineering giant, Atlas Copco, simply recognise and provide what the market wants. 'We've taken the initiative and are issuing reports instead of being chased by investors for information', he said.

There is a growing feeling that a no-nonsense, grown-up, approach is what is required all round. 'We are seeing high quality accounting and auditing as a market fundamental, something that has a systemic benefit', said Anne Simpson of CalPERS.

This year has been an uncertain year. But IFRS has come through as a mature system. A length of familiarity with IFRS reduces the arguments about difficulty. Companies, particularly those in Europe, have largely settled into a growing knowledge of its usage and the extended benefits which flow from that. There is an optimistic feel to the markets moving forward, as people as diverse as Anders Pehrsson in Sweden and Anne Simpson in California show.

Robert Bruce
December 2011

Related links

IASB amends offsetting rules in IAS 32 and amends disclosure requirements

16 Dec 2011

The IASB has issued amendments to IAS 32 'Financial Instruments: Presentation' that provide clarifications on the application of the offsetting rules.

The joint offsetting project between the IASB and FASB was intended to address the differences in their respective accounting standards regarding offsetting of financial instruments.

However, the FASB decided to retain the current US GAAP guidance. Therefore, the Boards decided to jointly focus on developing converged disclosure requirements to allow financial statement users the ability to more easily compare financial instruments exposures under IFRS and US GAAP.

Additionally, the IASB decided to amend IAS 32 to clarify certain aspects because of diversity in application that was identified during the IASB constituent outreach.

The project to amend IAS 32 focused on four main areas:

  • the meaning of 'currently has a legally enforceable right of set-off'
  • the application of simultaneous realisation and settlement
  • the offsetting of collateral amounts
  • the unit of account for applying the offsetting requirements.

The amendments to the disclosure requirements in IFRS 7 Financial Instruments: Disclosure require information about all recognised financial instruments that are set off in accordance with paragraph 42 of IAS 32. The amendments also require disclosure of information about recognised financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The IASB believes that these disclosures will allow financial statement users to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with an entity's recognised financial assets and recognised financial liabilities, on the entity's financial position.

The amendments to IAS 32 are not effective until annual periods beginning on or after 1 January 2014. However, the new offsetting disclosure requirements are effective sooner - for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. The amendments need to be provided retrospectively to all comparative periods.

Click for:

Deloitte IFRS Podcast on the deferral of the effective date of IFRS 9

16 Dec 2011

A new Deloitte IFRS Podcast has been released, discussing the IASB's deferral of the effective date of IFRS 9 'Financial Instruments'.

Randall Sogoloff, Leader for Communications in the Deloitte IFRS Global Office, and Andrew Spooner, leader of Deloitte's Global IFRS financial instruments team, discuss the IFRS 9 Deferral. The podcast is available for download here (12 mins 5.5 mbs) or via iTunes; it is one of a series that will be posted to IAS Plus.

IASB defers effective date of IFRS 9 and publishes modified transition disclosures

16 Dec 2011

The IASB has published amendments that defer the mandatory effective date of both the 2009 and 2010 versions of IFRS 9 'Financial Instruments' to annual periods beginning on or after 1 January 2015.

Prior to the amendments, IFRS 9 was mandatorily effective for annual periods beginning on or after 1 January 2013. Early application is still permitted.

Instead of requiring restatement of comparative financial statements, entities are either permitted or required to provide modified disclosures on transition from IAS 39 to IFRS 9 on the basis of the entity's date of adoption and if the entity chooses to restate prior periods. An entity that adopts IFRS 9 for reporting periods:

  • beginning before 1 January 2012 is not required to restate prior periods or provide the modified disclosures
  • beginning from 1 January 2012 until 31 December 2012 may elect to either restate its prior periods or provide the modified disclosures
  • beginning on 1 January 2013 or thereafter is not required to restate prior periods but is required to provide the modified disclosures.

Much of the information required in the modified disclosures is consistent with existing disclosures in IAS 8 and IFRS 7. However, the amendments also require reclassification disclosures in IFRS 7 (as amended by IFRS 9 (2009)) on transition from IAS 39 to IFRS 9 regardless as to whether they would normally be required due to a change in business model. Reclassification disclosures and other disclosures required when initially applying IFRS 9 are expected to allow reconciliations between the measurement categories in accordance with IAS 39 and IFRS 9 and individual line items in the financial statements or classes of financial instruments.

 

The IASB is deferring the mandatory effective date of IFRS 9 because of the delay in the expected timing of completion of the remaining phases of the financial instruments project. The Board intends to allow entities to apply all phases of the financial instruments project concurrently. Also, the Board considered the effective date of the standard on insurance contracts which is currently being developed. Furthermore, at its November 2011 meeting, the IASB tentatively decided to re-open IFRS 9 to address potential application issues in IFRS 9 and consider the interaction between IFRS 9 and the tentative decisions made on the insurance project. Additionally, the IASB will consider the FASB's model on the classification and measurement of financial instruments.

 

Click for IASB press release (link to IASB website).  An IFRS in Focus newsletter has also been published on the changes.

Accounting rules for European micro entities eased

16 Dec 2011

The European Parliament has voted to considerably simplify life for more than 5 million of the smallest companies in Europe.

In February 2009, the European Commission tabled proposals to reduce burdensome accounting rules for Europe's smallest companies – so-called "micro entities". From next year, it will be possible for Member States to radically simplify the way in which micro-entities prepare their accounts. When it comes to publishing accounts, governments will be able to create a "one-stop-shop" which would see micro-entities only having to send their accounts to the tax administration, which would in turn be responsible for passing the accounts onto the Company Registry. Today, in many countries micro-entities have to file a full set of financial statements, including the balance sheet and profit and loss account, and are required to disclose this through publication in a national gazette.

This simplification ties in with the European proposals for revising the Accounting Directives and the Transparency Directive published in October 2011.

Please click for:

Additional notes from the December IASB meeting

16 Dec 2011

The IASB's regular monthly meeting is being held on 13-16 December 2011 in London, part of it a joint meeting with the FASB. We have posted additional Deloitte observer notes from the sessions on financial instrument impairment and insurance contracts

Click through for direct access to the notes:

Wednesday, 14 December 2011 (earlier sessions)

Thursday, 15 December 2011

  • Insurance contracts (IASB-FASB)
    • Policyholder participation
    • Measurement of options and guarantees embedded in insurance contracts
    • Cash flows that existing contracts require to be paid to future policyholders
    • Discounting of insurance liabilities for incurred claims

Notes from the further sessions will be posted as they become available.

Click here to go to the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Further notes from the December IASB meeting

14 Dec 2011

The IASB's regular monthly meeting is being held on 13-16 December 2011 in London, part of it a joint meeting with the FASB. We have posted Deloitte observer notes from the sessions on leases held on the Tuesday and Wednesday of the meeting.

Click through for direct access to the notes:

Tuesday, 13 December 2011 (earlier sessions)

Wednesday, 14 December 2011

  • Leases (IASB-FASB)
    • Cancellable leases
    • Rental income recognition for investment properties
    • Disclosures for leases excluded from the receivable and residual approach

Notes from the Wednesday session on financial instrument impairment will be posted soon.

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

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