We agree that the triennial review of the IFRS for SMEs should be comprehensive in its scope, but believe that some underlying principles for making changes to the Standard would be beneficial in ensuring that a consistent approach is followed and that the IFRS for SMEs remains coherent in its approach and its relationship to full IFRSs.

The letter outlines that we believe that the following principles should be followed:

• The IFRS for SMEs should not be amended to reflect changes in full IFRSs as complex and significant as the revised requirements on consolidation, accounting for joint arrangements and measurement of fair value included in IFRS 10 , IFRS 11 and IFRS 13 respectively before those changes are effective. Rather, the suitability of a significant new standard should be assessed for its suitability for incorporation into the IFRS for SMEs once a track record of its application under full IFRSs emerges. The post-implementation review of the new standard may provide an opportunity to make this assessment
• Any incorporation of a full IFRS standard into the IFRS for SMEs should retain the integrity of the conceptual model applied in that standard
• In assessing the suitability of a full IFRS standard for incorporation into the IFRS for SMEs, the Board should (as noted in the October 2010 Guide to the IFRS for SMEs) take into account the costs to, and the capabilities of SMEs to prepare financial information before moving to any more complex model
• Reversal of the IASB’s decisions to include simpler requirements in the IFRS for SMEs than are included in full IFRSs should only be considered where there is clear evidence that this is necessary.

The letter also comments on other issues, such as local public authorities being best placed to judge how the financial reporting framework for entities using the IFRS for SMEs is applied in their jurisdictions, the need to articulate clearly the type of entity for which the IFRS for SMEs is designed, and the drafting process for any amendments to the standard.

Click for access the comment letter.

The issue of how an investor should account for other net asset changes arose from consequential amendments to IAS 28 Investments in Associates made in 2007, which removed explicit guidance previously in that standard.  The issue was initially considered by the IFRS Interpretations Committee, who recommended the IASB make a limited scope amendment to IAS 28 Investments in Associates and Joint Ventures (2011).  IAS 28 (2011) carries over the core equity method requirements from the earlier version of IAS 28 and is effective from 1 January 2013, meaning the previous version could not be amended prior to it being superseded.

The proposals in ED/2012/3 would require an investor to recognise in its own equity its share of the changes in the net assets of the investee that are not recognised in profit or loss or other comprehensive income of the investee, or that are not distributions received.

Examples of transactions of an associate or joint venture which may result in other net assets changes include:

• issues of additional share capital to parties other than the investor
• buy-backs of equity instruments from shareholders other than the investor
• writing of a put option over the investee's own equity instruments to other shareholders
• purchase or sale of non-controlling interests in the investee's subsidiaries
• equity-settled share-based payments.

The calculation of the amount recognised in equity may also reflect the change (if any) in the investor's ownership interest caused by the transaction giving rise to the other net asset change, e.g. a reduction in ownership interest because of the issue of shares by an associate to other shareholders.

The proposed approach would effectively reinstate the requirements of IAS 28 prior to the 2007 amendment and as such is a short-term solution to address diversity in practice until such time as the IASB gives broader consideration to the equity method of accounting.

An effective date for the amendments will be announced after exposure.

The ED contains an alternative view by on of the board members who believes  that the amendment is inconsistent with concepts of other IFRSs (IAS 1, IFRS 10), and would cause serious conceptual confusion. This board member is of the opinion that this short-term solution would not improve financial reporting but would instead undermine a basic concept of consolidated financial statements.

The exposure draft is open for a comment period of 120 days, and closes on 22 March 2013.

Click for:

• IASB press release (link to IASB website).
• IFRS in Focus — Proposals for limited amendments to the equity method.

The term of all members of the EFRAG Supervisory Board expired late September 2012. Following the recommendations of the EFRAG Governance and Nominating Committee, the EFRAG General Assembly appointed and reappointed in its meetings of 25 October and 20 November the 14 private sector members of the EFRAG Supervisory Board. All members are appointed for a 3-year mandate. The public policy members of the EFRAG Supervisory Board, including the Chairman, will be announced in December following the conclusion of the EC nomination process.

Please click for a list of all private sector members of the EFRAG Supervisory Board on the EFRAG website.

In this edition, IASB board member Paul Pacter discusses the amendments to investment entities. The newsletter reviews the four main issues the IASB had to consider while developing the amendments. The four main issues were:

• How should investment entities account for their investments?
• Which entities should qualify as investment entities?
• Should a non-investment entity parent consolidate an investment entity subsidiary?
• What disclosures should investment entities make?

Click to view 20 November 2012 — Paul Pacter: Investors, preparers and the IASB agree on consolidation exception for investment entities (link to IASB website). All Investor Perspectives are archived on the IASB's website.

The IASB's annual improvements project provides a streamlined process for dealing efficiently with a collection of amendments to IFRSs. The primary objective of the process is to enhance the quality of standards, by amending existing IFRSs to clarify guidance and wording, or to correct for relatively minor unintended consequences, conflicts or oversights. Amendments are made through the annual improvements process when the amendment is considered non-urgent but necessary.

The Exposure Draft proposes changes to the following pronouncements:

The proposed effective date for the amendments is for annual periods beginning on or after 1 January 2014, although entities are permitted to adopt them earlier.

The Exposure Draft does not include proposals in relation to the use of the revenue-based depreciation and amortisation under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, as the IASB decided at its October 2012 meeting to separately expose these proposals.

The proposals follow on from the proposals for the 2010-2012 annual improvements cycle, where an Exposure Draft was issued in May 2012, with finalised amendments from that cycle expected in the second quarter of 2013.

The Exposure Draft is open for comment for 90 days, with comments closing on 18 February 2013.

Click for:

• IASB press release (link to IASB website).
• Deloitte's IFRS in Focus newsletter on the Annual Improvements exposure draft.

The report identifies seven fundamental principles for enhancing risk disclosure which underpin the recommendations made and are considered to provide a framework for future work on risk disclosures and a benchmark by which banks can judge the quality of their current and future disclosures.

On 2 November 2012, the IASB published a press release welcoming the report saying that it "complements our own efforts to enhance transparency and the usefulness and comparability of financial statements". The IASB has also announced that it will consider the EDTF recommendations as it develops new financial reporting disclosure principles in the conceptual framework project.

During the session with the IASB (Wednesday, 21 November, 11.00-12.00 GMT), the EDTF will therefore focus on areas of particular interest to the IASB. The following points are mentioned in the presentation (quoted from the slide deck):

• EDTF consistent with paragraphs 7 and 31 of IFRS 7
• Disclosure can be made in audited accounts, MD&A or Pillar 3
• Principles and recommendations build on existing GAAP and other disclosure requirements
• Reflects current risk issues focussed on banks
• Recommendation to describe the policy for identifying impaired loans, including how the bank defines impaired, restructured and cured loans as well as explanation of the loan forbearance policies
• Reconciliation of movement in impaired loans
• Maturity analysis of assets and liabilities on a residual contractual maturity basis
• Encumbered assets table
• Package of liquidity and funding recommendations and usefulness of consolidated cashflow statement

Please click for access to the full slide deck on the IASB website. Registration for the webcast of this session is possible through the IASB page for the November IASB meeting.

As part of its ongoing work into the 'shadow banking' sector, the Financial Stability Board (FSB) is undertaking a process of reviewing reforms of securitisation markets, an important alternative source of funding for the banking sector which can play a role in supporting economic growth. As part of this process, the FSB requested that IOSCO conduct a stock-taking exercise on certain aspects of securitisation and develop policy recommendations as necessary.

The report covers a broad range of topics and recommendations focused on the core topic of securitisation markets, such as information provided to investors, standardisation and convergence of regulation and terminology, and the prudential treatment of securitisation arrangements.

In discussing accounting issues, the report notes the current deleveraging occurring in the banking sector, and the contrast with the need for consolidation "to avoid any form of shadow financing".  In developing the recommendations around accounting, the report goes on to say:

Besides in a context where Basel III is going to phase in the introduction of a mandatory leverage ratio requirement for all Basel Committee on Banking Supervision member jurisdictions in the midterm, accounting, and differentiated impacts that may result from differences in accounting regimes, balance sheet presentation, and domestic regulatory adjustments can have significant impact. Accounting regimes and in particular, the use of International Financial Reporting Standards and the use of U.S. generally accepted accounting Principles can lead to large variations if a level playing field is not maintained. Thus IOSCO would urge standard setters and authorities to work closely together to ensure that from accounting and prudential perspectives that the combination of rules for consolidation of SPVs shown on the balance sheet and subsequent prudential treatment applied on this basis achieve consistent and similar outcomes.

Click for access to the full report (link to IOSCO website).