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FASB and IASB chairs discuss global accounting standards

04 Dec 2012

At the 2012 AICPA National Conference on Current SEC and PCAOB Developments, FASB Chairman Leslie Seidman and IASB Chairman Hans Hoogervorst discussed global accounting standards and the future of IFRS in America and around the world.

Ms Seidman spoke first, making it clear that she was summarising her personal views, rather than the official position of the FASB or the FAF. She discussed the unique needs of US stakeholders, noting that short time frames and heavy regulation require clear, unambiguous standards. "I don't believe our system can function over the long run with only broad principles", Ms Seidman noted.

On the topic of convergence, the FASB Chairman stated that "a goal of 100 percent comparability (such as a single set) is not achievable in the near term, for very legitimate reasons, in some of the world's largest capital markets." She suggests that the FASB and IASB should complete the MOU projects, and going forward, the Boards should continue to have discussions with other standard setters to improve accounting standards and make IFRS, US GAAP, and other global accounting standards more comparable. Ms Seidman advocated for a "less formal approach to convergence", similar to what the IASB and FASB had done in the past, noting that "even though the relationship is bound to change, that does not mean we think convergence is over or that divergence will occur".

In his straight-talking speech, Mr Hoogervorst noted that IFRS has enjoyed a strong global impact for many years, and that the success of IFRS does not depend on US convergence. He said that the IASB and the world are looking to the US for a clear sign of their intentions with IFRS and that the US's current position for the need of "greater comparability" between the standards will not suffice. He (and the world) expected that the SEC would have made a decision on transition by now. Mr Hoogervorst made it clear that, in the future, US influence on IFRS will be "commensurate with its commitment to our standards". He discussed the results of the IFRS Foundation staff analysis which concluded that transition to IFRS in the United States would be successful.

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Latest exposure draft from IASB seeks to clarify depreciation and amortisation

04 Dec 2012

The International Accounting Standards Board (IASB) has published ED/2012/5 'Clarification of Acceptable Methods of Depreciation and Amortisation (Proposed Amendments to IAS 16 and IAS 38)'. The proposals would provide additional guidance on how the depreciation or amortisation of property, plant and equipment and intangible assets should be calculated, precluding the use of revenue-based methods.

The proposed amendments would introduce additional paragraphs into IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to clarify the interpretation of the largely equivalent concepts of 'depreciation' and 'amortisation'.

IAS 16 and IAS 38 require the depreciation or amortisation method to reflect the pattern in which an asset's future economic benefits are expected to be consumed.  A variety of methods may be used in meeting this requirement, and an entity is required to select the method that most closely reflects the expectation pattern of consumption of the future economic benefits embodied in the asset.  Common methods include the straight-line method, the diminishing balance method and the units of production method.

The proposed amendments would clarify that revenue-based methods of depreciation and amortisation cannot be used in meeting the requirements of IAS 16 and IAS 38.  This is because such methods reflects a pattern of generation of economic benefits that arise from the operation of the business of which an asset is part, rather than the pattern of consumption of an asset’s expected future economic benefits.

The premise behind the proposed amendment sees revenue as an interaction of two factors: quantity and price.  Unlike quantity (units), price is generally not directly linked to the consumption of the underlying asset, but instead reflects the market dynamics surrounding the goods and services the entity produces.

Previous IASB discussions on this matter included the consideration of research showing revenue-based depreciation or amortisation methods are sometimes used in two particular industries: service concession arrangements (which triggered the initial request for clarification on this matter to the IFRS Interpretations Committee) and in the media business (where revenue may be utilised as a 'surrogate' for viewer numbers when depreciating film and similar rights).  The Basis for Conclusions accompanying the proposals notes the limited circumstance when revenue could be used is when the use of a revenue-based method gives the same result as the use of a units of production method.

The proposed amendments also provide some further guidance in the application of the diminishing balance method, noting that information about technical or commercial obsolescence of the product or service output is relevant for estimating the pattern of consumption of future economic benefits of the asset and the useful life of the asset.

The amendments proposed in the exposure draft were original proposed to be included in the 2011-2013 cycle of annual improvements, which were published on 20 November 2012.  The IASB decided on separate exposure at its October 2012 meeting, partially on the basis of concerns noted by the Due Process Oversight Committee that the proposed amendments may not meet the annual improvements criteria.

The exposure draft is open for comment for a period of 120 days which closes on 2 April 2013.  The amendments are expected to be finalised in the third quarter of 2013.

Click for IASB press release (link to IASB website).

ESMA Chair discusses U.S. IFRS adoption, global consistency in IFRS

03 Dec 2012

The European Securities and Markets Authority (ESMA) has released the text of a speech given by Steven Maijoor (ESMA Chair) to a recent Audit Quality Symposium held by the Canadian Public Accountability Board. In the speech, Mr Maijoor reiterated many of his previous comments, including disappointment at a lack of a decision on IFRS in the United States, and consistency in application of IFRS on a global basis.

Consistent with his earlier remarks, Mr Maijoor noted "disappointment that there is no progress or clear sign of political will to keep IFRS adoption high on the agenda in the US" and that it would be a "shame to miss the opportunity" by the United States "walking away from IFRS".

In discussing the need for consistent application of IFRS around the globe, Mr Maijoor noted this is the "prime responsibility of issuers and their auditors, securities regulators can intervene when there are violations of IFRS in published financial statements" and discussed the recent European-wide initiative to outline consistent enforcement priorities.

Broadening the theme to global enforcement, Mr Maijoor noted ESMA efforts to improve liaison with regulatory and enforcement bodies and reiterated a need for "further deepening of our international co-operation".

Highlighting outcomes from enforcement activities, Mr Maijoor noted a need for improved disclosure as it "allows issuers to provide investors with high-quality information within a principles-based environment".  He went on to comment on the importance of entities making relevant disclosure in accordance with objective-based disclosure requirements (such as found in IFRS 7 Financial Instruments: Disclosures):

However, a principles-based environment can only survive if clear and entity-specific disclosures, re-assessed at the end of each reporting period, bring useful decision-making information to investors. If not, detailed prescriptive requirements would need to be developed and we all know that what is important today will not necessarily be so in the next financial year. The only way to avoid this is for issuers to stop providing boilerplate information directly mimicking the standards.

Click for the full text of the speech (link to ESMA website).

IVSC consults on valuation of investment property and public sector assets

03 Dec 2012

The International Valuation Standards Council (IVSC) has issued two due process documents seeking feedback on valuation topics. A discussion paper has been released on the valuation of investment property (particularly in meeting the requirements of IAS 40 'Investment Property'), and an exposure draft on the valuation of specialised assets used by public sector entities for service delivery.

Investment property

The Discussion Paper Investment Property seeks views on the valuation of investment property, both in the context of IAS 40 Investment Property and more broadly.

The IVSC has promulgated two standards that relate to investment property, namely IVS 233 Investment Property under Construction and IVS 230 Real Property Interests.

IVS 233 was made in response to constituent concerns about inappropriate techniques being adopted following the amendment to IAS 40 made in 2008 (arising from the 2006-2008 cycle of annual improvements) to require investment property under construction to be measured at fair value rather than cost, provided fair value can be reliably determined.  Some constituents argue that IVS 230 obviates the need for a separate IVS on investment property.

The Discussion Paper seeks views on issues such as the following:

  • Whether the definition of 'investment property' used in IVS 233 should remain consistent with that used in IAS 40, or whether the definition may not be optimal for non-financial reporting purposes such as transactions or asset management, as it is too specific to accounting rather than valuation purposes
  • How certain items attached to or associated with a property should be reflected in valuations of investment property, particularly whether, and if so when, the value of an intangible asset (such as rights) should be included in the value of a property interest
  • How any additional guidance should be promulgated by the IVSC, e.g. amendments to IVS 233 and/or IVS 230, the issuance of guidance in the form of a Techincal Information Paper (TIP), or in some other manner
  • Whether additional guidance is needed on applying the 'highest and best use' concept in the IVS Framework and IFRS 13 to investment property
  • Whether guidance should be given in areas where valuation problems arise in relation to investment properties, e.g. no or limited sales transactions, completed buildings remaining unleased, and the construction of discount rates
  • Whether the IVSC should attempt to set benchmarks that indicate whether inputs and valuations should include or exclude different types of tax or other costs
  • Whether a valuation report for investment property should state which level of the 'fair value hierarchy' in IFRS 13 the valuation of an investment property be placed. Furthermore, if the inputs fall within Level 3, whether the sensitivity analysis required by IFRS 13 should also be provided in the valuation report
  • Whether the IVSC should provide guidance on when it might not be possible to reliably determine the value of an investment property.

Comments on the paper close on 1 March 2013.

Click for (links to IVSC website):

Specialised public service assets

Specialised public service assets include buildings, structures, equipment and land used to provide transport, utilities and social, cultural and recreational services.

The IVSC's exposure draft Valuations of Specialised Public Service Assets responds to concerns that different approaches are being adopted by public sector entities for the valuation of specialised assets used for service delivery.  Issues arising include whether valuations should reflect the value the asset gives to society, taking sub-optimal uses in to account, reproduction or replacement cost as a basis for valuation, and how obsolescence should be reflected.

The exposure draft proposes a new Technical Information Paper (TIP) to provide guidance on these issues.  Topics discussed in the exposure draft include:

  • Whether the status of the owner of an asset as for-profit or not-for-profit should impact its valuation
  • The distinction between 'market value' (which should give the same outcome as 'fair value' under IFRS 13) and 'investment value' (an owner-specific value which may include measures relating to the public benefit created by or accruing to the asset)
  • Distinguishing between measuring the value of the asset and measuring the social value, ie the impact of that asset on either other assets or the wider community
  • Whether or not specialised public service assets such as roads, town squares, footpaths, public parks and gardens, informal recreational areas, etc are assets for which public users make no direct payment for access or us can be reliably measured
  • Proposing four principal categories of specialised public service assets, and providing examples of types of asset that fall within each of these categories.

The exposure draft also notes that the IVSC is also aware of a project being undertaken by the International Public Sector Accounting Standards Board (IPSASB) to introduce a Conceptual Framework which includes a review of measurement and valuation concepts for publicly owned assets.  However, given the long time frames involved in finalising the IPSASB's project, the IVSC has decided to propose guidance on the valuation of specialised assets.

Comments on the exposure draft close on 1 March 2013.  Click for (links to the IVSC website):

IASB webcast on classification and measurement — limited amendments to IFRS 9

30 Nov 2012

On 5 December 2012 the IASB staff will give a webcast on the proposals included in the recently issued Exposure Draft 'Classification and Measurement: Limited Amendments to IFRS 9', including a question and answer session.

Details of the webcast are provided below:

Topic: Classification and Measurement: Limited Amendments to IFRS 9
Date and time: Wednesday 5 December 2012
09:00 GMT and 13:30 GMT

Morning slot: web registration / listening by telephone
Afternoon slot: web registration / listening by telephone

Click for:

  • Our 28 November 2012 story on Exposure Draft ED/2012/4 Classification and Measurement: Limited Amendments to IFRS 9.

Stay Tuned Online – IFRS and UK GAAP update

29 Nov 2012

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues.

Each update lasts no more than an hour, and sessions are normally held three times a year, approximately at the end of March, July, and November. We intend to make a recording of each session available on IAS Plus for a period of at least four months from the date of the presentation.

The topics covered in the November 2012 webcast:

  • New consolidation rules for investment entities
  • Corporate governance developments
  • Narrative reporting and ‘joined up writing’
  • New IFRS reduced disclosure framework and an update on the future of UK GAAP
  • Other developments

To access the recording click here.

Deloitte comment letters on recent tentative agenda decisions of the IFRS Interpretations Committee

28 Nov 2012

Deloitte’s IFRS Global Office has submitted letters of comment to the IFRS Interpretations Committee (Committee) on four tentative agenda decisions published in the September 2012 edition of 'IFRIC Update'. We disagree with the observations of the Committee in its tentative decision on assessing 'continuing employment' under IFRS 3 and do not agree with the position taken by the Committee in relation to income and expenses arising on financial instruments with a negative yield. We generally agree with the remaining tentative agenda decisions but suggest a number of improvements.

Below is a summary of the comment letters:

IFRS 3 — Continuing employment

This issue concerns the appropriate accounting in accordance with IFRS 3 Business Combinations for contingent payments to selling shareholders in circumstances in which those selling shareholders become, or continue as, employees (specifically on whether paragraph B55(a) of IFRS 3 is conclusive in determining that payments to an employee that are forfeited upon termination of employment are remuneration for post-combination services).

Our comment letter makes the following observations:

  • We do not agree with the IFRS Interpretations Committee’s observation that an arrangement in which contingent payments are automatically forfeited if employment terminates should lead to a conclusion that the arrangement is compensation for post-combination services
  • We do not believe that either a desire to avoid divergence with US GAAP or to wait for the completion of FASB’s post-implementation review of FAS141R are appropriate reasons to reach a premature conclusion on this important issue
  • The need for a deeper consideration of this issue is illustrated by circumstances in which under the terms of a business combination all selling shareholders become employees and all consideration for their shares is forfeited upon termination of employment.

Read the full comment letter.

IAS 39 — Income and expenses arising on financial instruments with a negative yield – presentation in the statement of comprehensive income

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but do not believe that the absolute position taken (i.e. that these amounts are neither interest income nor interest expense) is appropriate as it assumes that the negative yield results from the issuer charging a custodian fee for safeguarding the holder’s money. This may not be the case in every scenario as there might be other circumstances leading to a negative yield.

Read the full comment letter.

IAS 28 — Impairment of investments in associates in separate financial statements

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda and with the conclusion that investments in subsidiaries, joint ventures and associates accounted for at cost in an entity’s separate financial statements in accordance with an accounting policy adopted under paragraph 38 of IAS 27 Consolidated and Separate Financial Statements (2008) or paragraph 10 of IAS 27 Separate Financial Statements (2011) are subject to the requirements of IAS 36 Impairment of Assets (although this conclusion differs from the Committee’s previous conclusion noted in the July 2009 IFRIC Update).

Read the full comment letter.

IAS 27/IFRS 10 — Non-cash acquisition of non-controlling interest by a controlling shareholder in the consolidated financial statements

This issue concerns whether the difference between the carrying amount and fair value of non-cash consideration for the purchase of a non-controlling interest should be recognised in profit or loss in the controlling shareholders’ consolidated financial statements.

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but note that the reference to IFRSs ‘generally requiring’ recognition of a gain or loss on derecognition of an asset in profit or loss could be enhanced by reference to the specific requirements of paragraph 68 of IAS 16 Property, Plant and Equipment and paragraph 113 of IAS 38 Intangible Assets.

Read the full comment letter.

IFRS Foundation publishes IFRS Taxonomy update for investment entities

28 Nov 2012

The IFRS Foundation has published IFRS Taxonomy 2012 interim release for investment entities.

On 31 October 2012, the IASB published Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), providing an exception to the consolidation requirements in IFRS 10 for investment entities. This IFRS Taxonomy interim release contain additional taxonomy items that reflect the amendment made by Investment Entities, but are not included in the core IFRS Taxonomy.

Click for more details (link to IASB website). Our dedicated XBRL page is here.

IASB publishes proposals for limited amendments to IFRS 9

28 Nov 2012

The International Accounting Standards Board (IASB) has released Exposure Draft ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9 (proposed amendments to IFRS 9 (2010))'. The proposed changes would introduce a 'fair value through other comprehensive income' (FVOCI) measurement category for particular financial assets.

The proposed limited scope amendments to IFRS 9 Financial Instruments are designed to:

  • address specific application questions raised by interested parties
  • consider the interaction of the classification and measurement model for financial assets with the IASB’s Insurance Contracts project
  • reduce key differences with the U.S. Financial Accounting Standards Board’s (FASB) tentative classification and measurement model for financial instruments.

The proposed new 'fair value through other comprehensive income' (FVOCI) measurement category would include certain financial assets when two conditions are met:

  • the contractual cash flows of the assets are solely payments of principal and interest and
  • the assets are used in a business model which is neither to exclusively hold nor sell.

In addition, a newly introduced paragraph clarifies that gains or losses on a financial asset in the new measurement category would be recognised in other comprehensive income, with the exception of impairment losses and foreign exchange gains and losses. Upon disposal, any gain or loss previously recognised in other comprehensive income (OCI) would be recycled to profit or loss for the period.

The application guidance for the ED includes several examples of financial assets with contractual cash flows that are solely payments of principal and interest on the principal amount outstanding and of when the entity’s business model may be to manage assets both to collect contractual cash flows and to sell.

The amendments proposed are a step back towards current requirements in IAS 39 Financial Instruments: Recognition and Measurement even though important differences remain.

Use of the new FVOCI category would be mandatory.

The Exposure Draft also proposes that only the completed version of IFRS 9 (including classification and measurement, impairment and general hedge accounting chapters) can be newly applied prior to the mandatory effective date with the exception that entities would be permitted to choose to early apply only the ‘own credit’ provisions in IFRS 9 once the completed version of IFRS 9 is issued. This means that the current choice regarding which version of the standard can be early applied would be dropped.

The comments on the exposure draft close on 28 March 2013.

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IFRS Foundation Education Initiative webcasts on non-financial assets

28 Nov 2012

The IFRS Foundation has announced that webcasts will be held on 12 December 2012 to explain how to use the IFRS teaching material that the IFRS Foundation Education Initiative is developing to support those teaching IFRSs to develop their students’ ability to make the judgements and estimates that are necessary to apply IFRSs. This session will focus on non-financial assets.

The objective of the education initiative is to reinforce the IFRS Foundation’s goal of promoting the adoption and consistent application of a single set of high-quality international accounting standards, taking into account the special needs of small and medium-sized entities and emerging economies.  The wider education initiative encompasses deliverables such as the annual briefing document on IFRS for chief executives, audit committees and boards of directors, and education material on IFRS 13 Fair Value Measurement.

The emphasis on framework based teaching is one of the three key projects included in the IFRS Education Initiative Plan 2012-2016 (link to IASB website).  Two one and a half hour webcast sessions focusing on teaching students non-financial assets will be held on 12 December 2012, at 9:30am and 3:30pm GMT.

More information and registration information is available on the IASB website.

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