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August

EFRAG publishes endorsement advice and effects study reports

29 Aug 2012

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letters and effects study reports on (1) 'Annual Improvements to IFRSs 2009–2011 Cycle' and (2) 'Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance' (Amendments to IFRS 10, IFRS 11 and IFRS 12).

In its evaluation of Annual Improvements to IFRSs 2009–2011 Cycle, EFRAG supports the Amendments made and recommends their adoption. EFRAG notes that the benefits of adopting the amendments outweigh the costs.

In a separate endorsement advice letter, EFRAG supports Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) for endorsement. In keeping with the fact that EFRAG recommended deferring the mandatory effective date of IFRS 10, IFRS 11, IFRS 12, IAS 27(2011) and IAS 28(2011) from 1 January 2013 to 1 January 2014, with early adoption permitted, EFRAG also recommends deferring the mandatory effective date of the amendaments to IFRS 10, IFRS 11 and IFRS 12 to 1 January 2014.

Click for:

  • EFRAG press release on Annual Improvements to IFRSs 2009–2011 Cycle (link to EFRAG website).
  • EFRAG press release on Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) (link to EFRAG website).

Links to the endorsement advice letters and effects study reports are provided in the respective press releases.

EFRAG draft comment letter on the comprehensive review of IFRS for SMEs

24 Aug 2012

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's 'Request for Information: Comprehensive Review of the IFRS for SMEs' that was published for public comment in June 2012. EFRAG suggested that a two-step approach to the review could have been useful: (1) a high-level review of the IFRS for SMEs' objectives, keeping entities in mind when considering the requirements of the standard, and exploring how it should relate to full IFRS, then (2) a more detailed exploration of how changes to full IFRS should be reflected in IFRS for SMEs. Because this approach was not used, EFRAG encountered many questions and is split on two fundamental issues.

Firstly, EFRAG was split on the weight that different factors (such as stability, changes in user’s needs and alignment with full IFRS) should have when amending the IFRS for SMEs.

  • View 1: IFRS for SMEs should only be amended when a problem has been identified through post-implementation reviews or there is other evidence that the standard does not work appropriately.
  • View 2: All available and relevant information should be considered when amending the IFRS for SMEs, such as identified problems and changes to full IFRS.
  • View 3: Most changes to full IFRS regarding measurement and recognition should also be reflected in the IFRS for SMEs as a result of the periodic reviews.

Secondly, EFRAG had differing views on including options in the IFRS for SMEs that would allow entities to apply accounting policies that would result in more similar outcomes to full IFRS.

  • View A: Options would increase the costs and complexity of the standard and the resulting financial statements would be less comparable.
  • View B: IFRSs for SMEs should include the same options for entities that are non-publicly accountable as for those that are, although they may be formulated in a simplified manner.

The draft comment letter also includes a 39-page appendix with questions for constituents related to the different views. Comments on EFRAG's draft comment letter are invited by 12 November 2012.

Click for:

  • EFRAG press release with link to the draft comment letter (link to EFRAG website).
  • Our previous story on the IASB's Request for Information: Comprehensive Review of the IFRS for SMEs.

IFRSs in your pocket 2012

22 Aug 2012

We have published the eleventh edition of our popular guide to IFRSs — 'IFRSs In Your Pocket 2012'. This publication provides an update of developments in IFRSs through the second quarter of 2012.

This 136-page guide includes information about:

  • The IASB organisation — its structure, membership, due process, contact information, and a chronology
  • Use of IFRSs around the world, including updates on Europe, United States, Canada and elsewhere in the Americas, and Asia-Pacific
  • Recent pronouncements — those which are effective and those which can be early adopted
  • Summaries of current Standards and related Interpretations, as well as the Conceptual Framework for Financial Reporting and the Preface to IFRSs
  • IASB agenda projects and active research topics
  • IFRS Interpretations Committee current agenda topics
  • Other useful IASB-related information

Please contact your local Deloitte practice office to request a printed copy.

Click to view IFRSs in your pocket 2012.

ESMA comment letter regarding the IFRS Interpretations Committee's agenda decision on GGBs

22 Aug 2012

The European Securities and Markets Authority (ESMA) has published to its website a comment letter to the IFRS Interpretations Committee regarding its tentative agenda decision on IAS 39 'Financial Instruments: Recognition and Measurement' and the accounting for different aspects of restructuring Greek government bonds (GGBs).

The comment letter is dated 26 July 2012, but was only made available by ESMA now.

In April 2012, ESMA had submitted a request to the IFRS Interpretations Committee asking to clarify the accounting of the exposure to Greek sovereign debt arguing that IAS 39 Financial Instruments: Recognition and Measurement does not offer enough guidance in this respect. ESMA wrote: "This results in difficulties to understand how the standard should be applied [...] and could raise enforcability issues."

After the Interpretations Committee tentatively decided not to add the issue to its agenda in May 2012, ESMA published the original submission, which also contained several suggested accounting treatments, in order to underline its point.

ESMA has now published its comment letter on the tentative agenda decision in which stresses its view once more:

European enforcers of IFRS note varying accounting practices for debt restructurings by lenders due to the lack of clear guidance which leads in turn to decreased comparability between financial statements

ESMA does not agree with the Committee’s conclusion not to add the subject to its active agenda nor to recommend the Board to perform further work. It now encourages the IASB to consider the concerns as part of its ongoing deliberations on IFRS 9 Financial Instruments.

Please click for:

ESMA publishes summary of responses to its consultation on materiality in financial reporting

17 Aug 2012

The European Securities and Markets Authority (ESMA) has published a summary of the responses received on its consultation paper on materiality in financial reporting. One of the main results of the consultation was that there is a potential need for further guidance on the application of the concept of materiality but that this issue should be addressed by the IASB, rather than ESMA.

In November 2011, ESMA published a consultation paper in order to seek comments from interested parties on their understanding of various aspects of materiality in an effort to contribute to a consistent application of this important concept in financial reporting. ESMA made available all comments received on the consultation paper in April 2012 and has now consolidated these into a summary of responses.

The main findings are:

  • The majority of all respondents believe that the concept of materiality is generally well understood, however, they see diversity in application.
  • Diversity in application was attributed to management judgement, separate perspectives of different stakeholder groups, and general difficulties in applying the concept to certain issues.
  • Many respondents believe that the application of materiality concept to disclosures could help address the problem of too many disclosures obscuring the reporting about an entity’s financial position and performance.
  • The majority of respondents were of the opinion that the principles to be applied in assessing materiality in interim and annual financial reports should be the same.
  • Respondents clearly indicated that if there is a need for further guidance on the application of the concept of materiality this issue should be addressed by the IASB.

Please click for access to the full summary of responses (link to ESMA website).

ESMA has decided to organise a public roundtable on materiality in financial reporting where some of the issues raised in the consultation paper will be further discussed. The roundtable will be held on 1 October 2012 in Paris. Please click for further information (link to ESMA website).

GRI releases further elements of proposed next generation sustainability reporting guidelines

17 Aug 2012

The Global Reporting Initiative (GRI) has released two additional exposure drafts related to its next generation of its Sustainability Reporting Guidelines ('G4'). These exposure drafts seek to improve the way companies report on anti-corruption and greenhouse gas (GHG) emissions in their overall sustainability reporting.

The release of the two additional exposure drafts follows on from an earlier exposure draft outlining the G4 project development process and the proposed significant changes to the current 'G3' guidelines.  The two topics covered by the new exposure drafts were signalled in the original draft.

Proposed new guidance on anti-corruption is designed to enable companies to report information on their policy, their publicly stated commitment to zero tolerance of corruption, their training of employees, governance bodies and business partners on anti-corruption, and their collective action initiatives towards combating corruption.

The exposure draft on GHG proposes new content for the G4 guidelines that are designed to more closely align GRI’s guidance with the GHG Protocol set of standards, jointly released by the World Resources Institute and the World Business Council for Sustainable Development, and the ISO 14064 standard produced by the International Standards Organization for Standardization.

Comments on the two new exposure drafts close on 12 November 2012.  Click for press release (link to GRI website).

2012 IFRS 'Green Book' — Coming Soon

16 Aug 2012

The IFRS Foundation has announced that A Guide through IFRS 2012 will be available in September 2012.

This volume (nicknamed the "Green Book") will include the full text of the Standards and Interpretations and accompanying documents (such as the Basis for Conclusions) issued by the IASB as at 1 July 2012 with extensive cross-references and other annotations. This edition does not contain documents that are being replaced or superseded but remain applicable if a reporting entity chooses not to adopt the newer versions early.

The new requirements since 1 July 2011 include:

The Green Book will sell for £90 plus shipping for the two book set (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

CFA Institute critiques SEC IFRS report

11 Aug 2012

The Chartered Financial Analysts Institute (CFA Institute) has published a brief summary of issues arising from the staff report of the United States Securities and Exchange Commission (SEC) on the possible incorporation of IFRS into the U.S. financial reporting system. The summary provides a critique of the report, pointing out a number of areas where the CFA Institute believes more analysis and evaluation is required.

The report, entitled Does the SEC have the will to find a way towards IFRS? notes that the final report is "comprehensive and organized" around a number of key themes, such as the costs and obstacles issuers would face in making a change from US GAAP to IFRS and the degree to which existing US GAAP is entrenched in U.S. regulatory regimes.

However, the report opines that "observations on investor preparedness, regulatory impact, issuer impacts, and human capital readiness offer commentary on the current state of affairs which, in our view, will evolve once a decision to adopt IFRS is made".  The report later concludes that in the CFA Institute's view "readers of the Final Report are left with data and observations but without an indication of how they will be weighed and evaluated".  The report laments the lack of analysis of whether IFRS is 'so sufficiently flawed' as not to be interests of investors, what exact modifications to IFRS would be needed to incorporate it into the US reporting regime, and whether issues of lack of comparability in IFRS is a greater obstacle than exists with multiple accounting languages.

The report outlines a number of analytical or evaluative questions that the SEC staff report does not answer, such as:

  • Which of the dimensions of the SEC IFRS Work Plan are most critical to a recommendation?
  • Which, if any, of the challenges are considered to be insurmountable and why?
  • What, if any, actions can or should be taken (and by whom) to address the challenges or obstacles, and over what time period?
  • To what degree should 'regulatory capture' of U.S. GAAP serve as an obstacle or deterrent to adopting accounting standards which are meant to serve investors rather than regulators?

The report concludes with the following observation:

Requiring most immediate attention, the Final Report leaves stakeholders wondering: What are the SEC’s next steps? Will there be a recommendation and what might be its timing? We believe it is imperative for the SEC to define the way forward, as failure to act or provide clear direction is, in substance, a decision not to incorporate IFRS. Rather than continued evaluation and delay, we believe investors would prefer the SEC to provide a path forward with an affirmative or negative decision.

Click for access to the CFA Institute report (link to CFA Institute website).

Additional resources related to the SEC report:

ACCA research report discusses effects of integrated reporting

08 Aug 2012

A report from the Association of Chartered Certified Accountants (ACCA) provides insights into the impact of integrated reporting on companies' corporate reporting, based on an academic study of recent experience in South Africa. The ACCA report contains a number of specific recommendations that could be taken into account by those developing the international integrated reporting framework, under the auspices of the International Integrated Reporting Council (IIRC), or otherwise.

The ACCA's report, presented as a discussion paper entitled Reporting pre- and post-King III: what’s the difference?, summarises the findings of a full academic report called Integrated reporting: the new face of social, ethical and environmental reporting in South Africa? written for the ACCA by Jill Solomon (King’s College London) and Warren Maroun (University of the Witwatersrand, Johannesburg).

Integrated reporting has been mandatory for entities listed on the Johannesburg Stock Exchange in South Africa since 2010-11.  The research analysed the corporate reports of ten major South African companies, including a number of resources companies,  immediately before (2009) and after (2010–11) the introduction of mandatory integrated reporting.

Some of the findings of the research included:

  • Integrated reporting sees significantly more social, environmental and ethical information included in corporate reports, and in more places throughout the report - although this sometimes leads to repetition which is seen as a significant weakness
  • The impact of integrated reporting on the way that social, environmental and ethical information is disclosed can be characterised by the following themes: the crucial importance of materiality; an evolving discourse of risk and risk management; an increasing tendency towards quantification; the emergence of new reporting items; the emergence of new sections in the reports; and the increasing integration of social, environmental and ethical considerations into corporate governance structures
  • Companies have shifted from reporting that is aimed exclusively at their shareholders to reporting that expounds the directors’ claimed belief in stakeholder accountability and stakeholder engagement.

ACCA’s analysis offers five recommendations for the development of integrated reporting, based on the academic’s findings:

  1. The way in which information is set out could be more concise to avoid repetition
  2. The form of reporting could be extended to incorporate more feedback from consultation with stakeholders regarding social and environmental issues and corporate responsiveness to feedback
  3. Organisations should solicit the views of their major stakeholders about the social, environmental and ethical information (and underlying policies and practices) that they report and include these views within integrated reports
  4. Academics can and should play a significant role in researching the integrated reporting framework and its applicability
  5. Academics should, can and do play an important role in educating potential managers and users in integrated reporting through university and professional education in which they are involved.

Click for more information (link to ACCA website).

IFRS Foundation publishes Formula Linkbase 2012

07 Aug 2012

The IFRS Formula Linkbase 2012 is now available for download on the IASB's website. The formula linkbase was developed to (1) improve the data quality of IFRS taxonomy filings and (2) provide additional guidance to better understand the IFRS concepts and their meaning from a financial reporting and a technical perspective. This version of the formula linkbase is updated from the formula prototype released in October 2011. The 2012 formulae are designed to work with the IFRS Taxonomy 2012. Most of the improvements from the previous version are related to the content.

The formula linkbase can be used with software packages supporting the XBRL formula specification 1.0 and allows for additional validations of the reported facts. Developed in a generic manner, the IFRS Formula Linkbase 2012 can be used directly on the filings created, based on the IFRS Taxonomy (instance documents) or the company specific extensions to the IFRS Taxonomy (filer extension taxonomy and instance document). Guidance documentation for the formula linkbase is also available.

Technical changes in the 2012 version include (1) positive and negative formula validation is placed in separate files, (2) redundant members in the filter for the Dimension aggregation formulae are removed and (3) precondition expressions in the validation are  simplified (earnings per share formulae).

Click for the press release to access the Formula Linkbase 2012 on the IASB's website.

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.