Deloitte comment letter on discussion paper on business combinations under common control

30 Apr, 2012

Deloitte's IFRS Global Office has submitted a letter of comment to the European Financial Reporting Advisory Group (EFRAG) and the Organismo Italiano di Contabilita (OIC) on their 'Discussion Paper Accounting for business combinations under common control'.

The main goal of the EFRAG's paper published in October 2011 is to create a discussion on the current lack of guidance and the resulting differences of accounting under IFRS for business combinations between entities under common control.

We support the EFRAG's initiatives on achieving this goal. However, we believe the EFRAG could achieve more by being part of a formal working relationship with the IFRS Foundation.

Click for a full summary and our comment letter on the EFRAG's discussion paper.

Deloitte IFRS podcasts on leases, revenue recognition, and financial instruments projects

30 Apr, 2012

Randall Sogoloff, Leader for Communications in the Deloitte IFRS Global Office, provides an update on the leases, revenue recognition, and financial instruments projects.

SME Implementation Group publishes two final Q&As

27 Apr, 2012

The IASB's SME Implementation Group (SMEIG) has published two final questions and answers (Q&As) on the IFRS for SMEs. Q&As are non-mandatory guidance.

Q&A 2012/03 Fallback to IFRS 9 'Financial Instruments' states that the option of applying the recognition and measurement provisions of IAS 39 instead of Sections 11 and 12 of the IFRS for SMEs refers to IAS 39 exclusively. SMEs are not permitted to apply IFRS 9.

Q&A 2012/04 Recycling of cumulative exchange differences on disposal of a subsidiary states that the cumulative exchange differences that arise on
translation into a presentation currency are prohibited from being recognised in profit or loss on disposal of the subsidiary.

These two Q&As are expected to be the last Q&As published by the SMEIG for the time being as the IASB has committed to undertaking a post-implementation review of the standard and first steps for this process are already being prepared.

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Panel discussion with Sir David Tweedie, Bob Herz and Paul Cherry on the future of accounting

27 Apr, 2012

On April 24, the American Institute of CPAs (AICPA) and the Institute of Chartered Accountants of Scotland (ICAS) hosted a panel discussion entitled 'Shaping the Future: Lessons from Accounting Standards Leaders' that featured the former chairmen of the Canadian Accounting Standards Board, the Financial Accounting Standards Board and the International Accounting Standards Board.

The discussions at this invitation only event touched on the big questions of:

  • US adoption of IFRSs, where Sir David claimed that the world is waiting for the US to move and has been doing so for a long time;
  • Small and medium-size entities in the US, where the Financial Accounting Foundation (FAF) is expected to decide in May whether a separate council for accounting by private companies will be created;
  • Integrated reporting, where the Chairman of the IASB's IFRS Advisory Council Paul Cherry had to admit that there is a certain reluctance regarding this topic among the Council members; and
  • Political pressure on standard setting processes, where Bob Herz stated that it is simply not realistic to wish for a world where politicians do not try to influence standard setting.

So far, the hosting organisations of the panel discussion have published the following information:

  • AICPA: A section on media and photo coverage as well as information on the panelists and moderators is availbale on this dedicated page (link to AICPA website);
  • ICAS: A short summary of the event is already available here (link to ICAS website); a full report of the debate, including video clips, is expected to be posted soon.

The Bruce Column — Ringing the changes in telecoms accounting

26 Apr, 2012

Mobile phones are a boon to mankind. But when it comes to revenue recognition all manner of problems arise. Robert Bruce, our regular, resident columnist, looks at a way out of the current entanglements.

Change is rapid. But often the consequences and ramifications of change take much longer to be properly assimilated into business and management thinking. We are good at bright ideas. We are quite good at implementing them. But changing the way we see things afterwards is often the slowest part of the process. And this is why the issue of revenue recognition and the telecoms business has proved so intractable.

What are needed are principles which can cope with flexibility and still make sense. And that flexibility needs to reflect the nature of the industry. The ways in which mobile phone services are sold are in a constant state of flux. They change with astonishing rapidity on a day by day, week by week, basis. But the way that the business is accounted for may be hung up, if that is the right thing to say about a phone business, on the old model, the old way of seeing the business. Once upon a time you bought a land-line phone and paid for its use. The phone was a solid fixed bit of equipment which didn’t change from the day you bought it to the day, often many, many years later, when it got chucked out. Now the reasons for deciding on a particular mobile phone are based on the services it can provide and the way it can be used. They are just as much, if not more, about what you expect to be able to do with it. And that too changes on a rapid basis and, reflecting that, so do the phones. Most telecom companies say they are in the business of selling airtime, not phones.

And that is why at a basic level many telecoms companies believe the problem with the current revenue recognition proposals are that they stumble over the issue of the phone and not the service. They may source new customers directly by offering a free or subsidised handset in return for entering into a contract or through an agent who provides the handset and then charges the telecoms company for introducing the customer. Economically, the two arrangements are very similar but under the proposals in the exposure draft they would be accounted for very differently (through reallocation of subsequent billings to recognise revenue for providing the handset in the former case and by recognition of a contract cost asset in the latter). And even then the timing of profit recognition might be very different even where the two contracts would ultimately produce the same total profits.

And then there are the practical issues. Telecoms companies are driven by market forces and changing circumstances. The deals for customers change with astonishing rapidity to cope with this. Telecoms companies believe the handset is not the driver. It is simply the cost of getting the customer. And it is this maelstrom of ever-changing contracts which would make it so hard to apply the exposure draft in its current form. It would mean calculating everything contract by contract. But this is a business with millions of customers all doing different things at different times. Contracts are changed, upgrades are provided, usage patterns alter. Computer software can be written to cope with that. But that is expensive and it is not a quick solution, particularly in an industry which has grown by acquisition and where companies operate on a whole range of patched-together legacy systems.

During the current programmes of roundtables to discuss these issues it would make sense to recognise that the telephone business has changed significantly over the years. One idea aired in recent discussions that could help recognise the change in the business is to capitalise the handset discount given in a directly sourced customer contract as a cost of obtaining that contract. This would enable a consistent profile for revenue from calls, texts and data and consistent profit recognition between directly and indirectly sourced customers.

The whole revolution which mobile phones have brought about is an extraordinary one and an easy one. And it also goes to show that people are remarkably happy to embrace change if it brings them astonishing benefits. What this revenue recognition debate has done is highlight the need at times of such great change to recalibrate our own minds to properly understand the nature of a business and reflect the economics of the business in the way it is accounted for.

Robert Bruce
April 2012

Sir Callum McCarthy appointed as a Trustee of the IFRS Foundation

26 Apr, 2012

The Trustees of the IFRS Foundation, responsible for the governance and oversight of the International Accounting Standards Board (IASB), today announced the appointment of Sir Callum McCarthy to serve as a Trustee.

Sir Callum currently serves as a non-executive director of Industrial and Commercial Bank of China, IntercontinentalExchange and the UK HM Treasury. Between 2003 and 2008 he served as Chairman of the Financial Services Authority (FSA), the UK financial services regulator.

The appointment, approved by the IFRS Foundation Monitoring Board, begins immediately and will expire on 31 December 2014. The term is renewable once.

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Chairman Hans Hoogervost speech on XBRL

25 Apr, 2012

On 25 April 2012, Chairman Hoogervost gave a speech on XBRL during the IFRS Taxonomy Annual Convention held in London.

In his speech, the chairman gave a high level overview of the potential benefits of XBRL. He notes that XBRL can potentially supplement financial statements to give users an extract of only the information they need, eliminate re-keying of financial information, and allow users a choice of which language to use.

Chairman Hoogervost also noted that XBRL should not define the Board's standard-setting activities and that additional work needs to be done before XBRL is more widely used. The chairman outlines three XBRL priorities, which will help it gain wider acceptance:

    1. Ensure IFRS Taxonomy is of the highest quality.
    2. Be more sensitive to XBRL requirements throughout the lifecycle of the board's standard-setting activities.
    3. Work with members of the XBRL community to improve the technology.

Click to view Chairman Hans Hoogervorst's speech (link to IASB website).

IASB meeting in May will take place in Norwalk

25 Apr, 2012

The IASB has announced that the joint IASB / FASB meeting in May will now take place in Norwalk and not in London as originally advised.

The meeting will still run 21 to 25 May 2012; the new venue is the FASB office in Norwalk, CT. An agenda for the meeting or meeting papers are not available yet, however registration as an observer is already possible on the IASB website.

Summary of the April 2012 DPOC meeting

23 Apr, 2012

The IASB has posted to its website a summary of the 13 April 2012 Due Process Oversight Committee (DPOC) meeting.

The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

Please click for a summary of the meeting (link to IASB website).

Results from the meeting of the G20 Finance Ministers and Central Bank Governors

22 Apr, 2012

On 19 and 20 April 2012, the G20 Finance Ministers and Central Bank Governors met in Washington D.C. to assess progress on the financial regulatory reforms.

In the run-up to the meeting organisations such as the IFAC and the Private Sector Taskforce (PSTF) urged the G20 to continue their push for financial regulatory reforms and to follow through on earlier recommendations.

The PSTF strongly encouraged the G20 to implement all of the 15 recommendations presented in its 2011 report with a strong emphasis on its first two recommendations, encouraging the G20 to:

  • Continue to focus on regulatory convergence in the financial sector, ensuring that G20 nations work together to identify and narrow gaps in regulatory practice; and
  • Discourage nations from implementing unilateral national regulatory reforms that are inconsistent with international standards and that widen—rather than narrow—the convergence gap.

The International Federation of Accountants (IFAC) urged the G20 to take action against inconsistent, unreliable public sector financial reporting: “For the last ten years IFAC has consistently promoted the need for better financial reporting and financial management in the public sector. The sovereign debt crisis has given rise to a very significant number of policy developments at an international level, but this issue has yet to be adequately addressed. The use of IPSASs by governments worldwide will improve the quality of financial information reported by public entities, which is critical for investors, taxpayers, and the general public.”

On 20 April, the chairman of the Financial Stability Board (FSB) reported to the G20 Finance Ministers and Central Bank Governors on progress in the financial regulatory reform programme. He reported "solid progress [...] in the priority areas identified by the G20 Leaders at Cannes and reiterated by Ministers and Governors in Mexico this past February." The FSB report was accompanied by  a joint report from the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) on their progress in converging their standards, together with a report on enhancements to the governance of the IASB. The Boards stated that they are "close to completing the MoU programme" and expect to issue final standards on the remaining projects by mid- 2013.

In the communiqué published after the meeting, the G20 Finance Ministers and Central Bank Governors reaffirmed their commitment to international convergence and regulatory reform: "We assessed progress on the implementation of our financial regulatory reform agenda as outlined in our February 2012 Communiqué in order to deliver on our commitments looking ahead to the Los Cabos Leaders’ Summit, and reaffirmed our commitment to common global standards by pursuing the financial regulatory reform agenda according to our agreed timetable in an internationally consistent and non-discriminatory manner." They also commented on the completion of the IASB/FASB MoU programme: “We support [...] the efforts of the IASB and FASB to achieve convergence to a globally accepted set of high quality accounting standards and urge them to meet their target of issuing standards on key convergence projects by mid-2013, at the latest, in order to achieve a single set of high quality international accounting standards” (emphasis added).

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