The paper examines ten misconceptions of IFRS, which are:

1. IFRS practise a generalised "fair value"
2. IFRS are intended to reflect the global financial value of the company
3. IFRS deny the concept of accounting conservatism
4. IFRS give prominence to economic reality over legal form
5. Directors can’t make head or tail of IFRS financial statements
6. The IFRS financial statements do not reflect the business model
7. Financial instruments will soon be "full fair value" thereby maximising earnings volatility
8. The "fair value" is always defined as "market value" even when markets are illiquid
9. The treatment of business combinations is irrational
10. IFRS create accounting volatility that does not reflect the economic reality.

The views expressed in this paper are the personal views of Mr Danjou and not the official views of the IASB. The paper is available on the IASB website, initially in French only, with the IASB indicating an English translation will be forthcoming in due course.

Update

On 21 February 2013, the IASB has made available an English translation of the paper.

After publishing the Conceptual Framework for Financial Reporting 2010 on 28 September 2010, incorporating Chapter 1 and Chapter 3 of the planned new Conceptual Framework, the IASB effectively deferred further work on the joint project with the FASB in late 2010 until after other more urgent convergence projects were finalised. As a result of the IASB's Agenda Consultation project, the IASB decided in September 2012 to reactivate the Conceptual Framework project as an IASB-only comprehensive project.

Because of the paramount importance of the new Framework for the development of new standards and the revision of existing standards and the fact that it will have to be considered when dealing with issues that are not addressed in the standards, the new Framework will have long lasting and substantial influence. Therefore, EFRAG, ANC, ASCG, OIC and FRC want to make sure the European views are among those considered in the development. The strategy document published today aims at

1. illustrating some of the major issues that will arise in the process of developing the new Framework,
2. explaining the standard-setters' strategy for engaging with the IASB in its development of the new Framework, and
3. encouraging others within Europe to engage in the development of the new Framework.

In order to illustrate some of the issues the framework needs to deal with the strategy document asks several questions:

• Should stewardship (or accountability) be considered when developing accounting standards?
• Is there adequate emphasis on the importance of prudence and reliability?
• Will it be required to recognise all assets and liabilities?
• Will the Framework lead to appropriate selection of measurement bases, or will it specify an ‘ideal’ measurement basis such as fair value?
• How should performance be defined?

At least some of these issues EFRAG feels will provoked some controversy, yet at the same time EFRAG believes the IASB will welcome positive suggestions made in a constructive spirit. According to EFRAG, restarting work on the Conceptual Framework might also be seen as an opportunity to review the 2010 Chapters, especially since the project has now moved from a joint project to an IASB only project.

As for the way forward, EFRAG has announced a new way of informing and engaging its constituents:

EFRAG will of course also rely on outreach events at which views can be exchanged and debated in person. Furthermore, a specific newsletter will be developed, to keep European constituents informed of how the debate with the IASB and other stakeholders worldwide progresses.

Please click for the following information on the EFRAG website:

• Press release
• Getting a Better Framework – Our Strategy

Details of the changes are:

• Financial instruments - general hedge accounting - target date for issue of this section of IFRS 9 Financial Instruments is now the second quarter of 2013 (previously first quarter)
• Leases - target date for the issue of a revised exposure draft is now the second quarter of 2013 (previously first quarter)
• Revenue recognition - timing of a finalised IFRS clarified as being in the second quarter of 2013 (previously first half of 2013)
• Rate regulated activities - a new process step for the comprehensive phase of this project has been introduced, with a Request for Information expected in the second quarter of 2013, before a discussion paper is issued in the second half of 2013 (timing of the discussion paper is unchanged)
• IAS 39/IFRS 9 - Novation of OTC derivatives and continuing designation for hedge accounting - a new narrow scope and fast-tracked project (arising from discussions at the January IASB meeting) to allow the continuation of the existing hedging relationship where certain over the counter (OTC) derivatives are novated. An exposure draft is expected in the first quarter of 2013
• IAS 41- Bearer biological assets - timing of the issue of an exposure draft clarified as the second quarter of 2013 (previously first half of 2013)
• IAS 36 - Recoverable amount disclosures for non-financial assets - following the recent publication of an exposure draft, a newly introduced target date for finalisation of the amendments of the second quarter of 2013
• IAS 27 - Equity method in separate financial statements - timing of the issue of an exposure draft clarified as the second quarter of 2013 (previously first half of 2013)
• Post-implementation review of IFRS 8 - a report arising from the review is expected to be published in the second quarter of 2013.

Click for IASB work plan as of 4 February 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

The application of IFRS 13 to investment properties and the classification of the values of these assets as either 'Level 2' or 'Level 3' within the IFRS 13 fair value hierarchy has been a subject of intense discussion. The classification of different inputs as 'observable' and assessment of whether adjustments to observable inputs are 'significant' is an are of judgement and there was significant concern within the industry that these judgements would not be made on a consistent basis by different companies.  In particular, there was concern that the classification of a property valuation as level 1, 2 or 3 could be interpreted as a reflection of the quality of the valuation, or the liquidity of the asset concerned.

To address this problem, EPRA formed an industry working group to develop guidance for the industry in this area and avoid a lack of transparency.  This group has developed a position paper which has the aim of assisting preparers, auditors and valuers in implementing IFRS 13 with a consistent approach and achieving disclosures that are ultimately useful to users of financial statements.

The paper concludes that it is likely that the vast majority of property valuations will fall within level 3 of the IFRS 13 fair value hierarchy, as the valuers will need to rely on one or more significant unobservable inputs or make at least one significant adjustment to an observable input in developing their valuation.  This will trigger a requirement to make significant additional disclosures in the financial statements of the company holding this property.  Accordingly, the paper also includes illustrative dislosures setting out how a company could meet the requirements of IFRS 13 while providing a sensible and useful level of detail.

Click here for a copy of the EPRA position paper (link to EPRA website).

Proposed amendments to valuation standards

The IVSC issued a number of revised International Valuation Standards in July 2011.  The IVSC's exposure draft Amendments to the International Valuation Standards, proposes numerous amendments to these standards to make minor changes to reflect subsequent IVS publications and to make minor alterations to remove ambiguity or better illustrate a principle.  As such, in some respects, the IVSC exposure draft mirrors the annual improvements process of the IASB.  However, the exposure draft is broader and also incorporates the proposals from the IVSC's projects on valuation reviews and the valuer's reliance on information.

The proposed amendments include:

• A number of changes across the IVS to clarify the applicability of the IVSs to 'valuation reviews' which would be defined as "the act or process of developing and reporting an opinion about a valuation undertaken by another party"
• Changes to incorporate reference to the Code of Ethical Principles for Professional Valuers issued in December 2011
• The introduction of a "unit of valuation" concept, which would be defined as "the asset or group of associated assets that is the subject of the valuation" and be distinct  from the "unit of account" concept under IFRS
• Clarifications designed to address concern that some valuers put too much weight on a single valuation method ("in other words if the maths used in the model is right then it follows that the valuation must be") by amending the Framework to indicate multiple models provide a cross check and state this is "especially recommended where the inputs to the primary method are limited or inconclusive"
• Proposals to impose a duty on the valuer to consider the credibility or reliability of information in the context of the valuation task
• Clarifications on the valuation of property under construction
• Removal of specific annexes from the IVS on historical property and property, plant and equipment in the public sector
• Various other editorial, clarifying and consequential amendments.

Comments on the exposure draft close on 30 April 2013.  The IVSC intends to publish that the revised Standards in July 2013, with an effective date of 1 January 2014.

Click for access to the exposure draft (link to IVSC website).

Valuation of financial liabilities

The IVSC's discussion paper Valuation of Liabilities is the first stage in the IVSC's project to determine appropriate valuation practice for liabilities (other than those arising from financial instruments) and to develop as necessary a dedicated standard and supporting technical guidance.

The background to the discussion paper notes the following regarding the interaction with IFRS:

Within the field of financial reporting, the IASB’s IFRS 13 Fair Value Measurement specifically includes liabilities within its scope, but stipulates that specific assumptions be made that are directed at achieving a consistent accounting measurement of liabilities. Some of these assumptions, e.g. that a transfer has to be assumed even where fulfilment or cancellation are more likely or that in the absence of quoted prices a liability is to be valued from the perspective of the counterparty holding the corresponding asset, may or may not be appropriate when establishing the value of a liability for purposes other than financial reporting. The Board therefore considers that there is a need for standards or guidance on the valuation of liabilities in a wider context.

The background also mentions the IASB's previous project on amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets (which is now a research project on non-financial liabilities), and some of the topics discussed in the discussion paper correlate with topics considered by the IASB in that project.  The discussion paper notes "Although at first sight the scope of IAS 37 and the proposed IVSC project are similar, the IVSC project is addressing the valuation of liabilities for any purpose and is not addressing only the requirements in the IFRSs".

The discussion paper is structured as follows:

• Key definitions and concepts - proposes a definition of 'liability' for valuation purposes, which would be different to that used under IFRS
• Project scope - proposes to exclude the valuation of obligations to pay defined sums, financial instruments,pension liabilities, deferred taxes and insurance liabilities, and instead focus on the valuation of liabilities where the cost of the obligation is not defined, e.g. asset restoration obligations, warranties.  The paper also requests feedback on whether the project should also consider litigation liabilities
• Basis of value - a statement of the fundamental measurement assumptions of a valuation, across three principal categories (hypothetical exchange price, value or benefit from ownership and reasonable exchange price between two parties) and four bases (market value, investment value, special value and fair value)
• General valuation methods - the need to use more than one method, a presumption that the market approach may not often be relevant to the measurement of financial liabilities, an information request on using the discounted cash flow and other 'income approaches', and methods used under the 'cost approach'
• Valuations for financial reporting - the paper notes the IVSC "does not consider that its project should address the valuation of liabilities specifically for financial reporting... [but] that this is the most common purpose for which liabilities are required to be valued and therefore it is proposed that future guidance should summarise the requirements under the IFRS and relate them to the general valuation guidance proposed by the IVSC".

Comments on the discussion paper close on 30 April 2013.  Click for access to the discussion paper (link to IVSC website).

The guidance provides clarification of a number of general recommendations regarding application of the EPRA BPR, some frequently asked questions regarding a number of the specific requirements, and some examples of how companies have presented the EPRA Performance Measures in practice.

The general recommendations include such items as the application of materiality when calculating EPRA performance measures, the scope of the BPR and whether EPRA performance measures should be audited.

Frequently asked questions and a general description are provided for the following areas, expanding on the guidance contained in the BPR itself:

• EPRA Earnings
• EPRA NAV
• EPRA NNNAV
• EPRA Net Yield and EPRA ‘topped-up’ Initial Yield
• Investment Property Reporting

Examples of good practice in reporting the EPRA performance measures are identified in the final section of the guidance.

The guidance document itself can be downloaded here (link to EPRA website).

The podcast is intended to further develop the understanding of the exposure draft to interested parties and assist in providing feedback to the IASB.

The podcast (mp3, 16.7 MB) is available on IASB website.

The feedback statement opens with acknowledging the general support the proposal to create the ASAF has received. Of the more than 60 comment letters received by the IFRS Foundation only two did not support the creation of the ASAF. Therefore, the IFRS Foundation feels encouraged to move forward with establishing the ASAF quickly (even though acknowledging that the timetable is an ambitious one, as many respondents had claimed) and aims at having a first meeting of the ASAF at the beginning of April 2013.

Four main points mentioned in the feedback statement deserve special attention:

• Remit of the ASAF: Although there had been calls to broaden the remit of the ASAF, the IFRS Foundation made clear that the ASAF should focus on the technical standard-setting activities of the IASB; bringing issues to the table that are not currently on the IASB’s agenda but that might be under consideration by individual national-standard setters (NSS) should be limited to those that could have major implications for the IASB’s work. Also, it was reiterated that the role of the ASAF would be purely advisory.
• Size and composition of the ASAF: Many respondents had called for the size of the ASAF to be extended. There had been calls for additional seats for certain regions and calls for additional seats for certain groups of NSS (for example emerging markets) as well as calls for generally increasing the size to allow more NSS to participate. The fact that the ASAF will be a non-voting body increases the importance of discussions. The IFRS Foundation therefore believes that the membership of the ASAF should be kept to 12 to insures all voices can be heard. The IFRS Foundation also intends to stay with the suggested composition (3 seats each for the Americas, Asia-Oceania and Europe (including non-EU), 1 seat for Africa and two at large seats) arguing that the at large seats offer enough flexibility. Both the size and the composition will be re-examined as part of the two-year review of the ASAF.
• Commitment of the ASAF members and Memorandum of Understanding: The suggested Memorandum of Understanding (MoU) that was intended to prove the commitment to the cause of a single set of international accounting standards caused much debate. Comments ranged from requiring that no express commitment should be demanded (joining the ASAF would already prove commitment) over asking that the terms of the general MoU should be more general (in order not to exclude jurisdictions that cannot meet all criteria) to advocating even stricter conditions (including a commitment to adopt and endorse). Respondents also remarked that the question of commitment was directed only towards the ASAF members while it seemed that the IFRS Foundation would not be obliged to make any commitments. The IFRS Foundation has therefore included commitments of the IFRS Foundation in the proposed MoU. Most importantly these are a commitment to actively engage with the ASAF and to ensure that its views and feedback are faithfully and fully presented to the IASB and a commitment to respect the independence of ASAF members.
• Membership criteria: The respondents had raised many questions regarding the suggested membership criteria. Among these were the question whether regional groups should become ASAF members even if they are not standard-setters themselves and the question whether non-adopters of IFRSs should be able to become members. The call for nominations issued today expressly invites the four major regional groups (AOSSG, EFRAG, GLASS and PAFA) to become members of the ASAF. Regarding the question of non-adopters, the feedback statement says: "While the use of IFRSs is an important factor for membership, it is not the only one."

The feedback statement features two appendices: Appendix A Accounting Standards Advisory Forum: Proposed terms of reference/ Charter and Appendix B Accounting Standards Advisory Forum: Proposed Memorandum of Understanding.

Together with the feedback statement, the IFRS Foundation has issued a Call for Candidates, inviting nominations for membership of the Accounting Standards Advisory Forum (ASAF) under the conditions outlined above.

Since there had been fears that, especially because of its suggested size and the fact that many groups and standard-setters were already regarded as set candidates, the ASAF would be a very exclusive group depriving other standard-setters of direct contact with the IASB, Michel Prada, the Chairman of the IFRS Foundation Trustees, commented:

The ASAF will be an important group, but it should not be an exclusive group. Even though we expect to have representatives from the main regional groupings and other jurisdictions around the ASAF table, we will continue to maintain dialogue with other accounting standard-setters around the world and to work with them on research projects, implementation challenges, outreach activities, field testing and Postimplementation Reviews. We will continue to welcome secondees from such standard-setters and to seek their advice on a range of issues.

Please click for the following information on the IASB website:

• IFRS Foundation Press release
• Proposal to establish an Accounting Standards Advisory Forum: feedback statement
• Accounting Standards Advisory Forum: Call for Nominations

The updates primarily concern the inclusion of references to all of the questions and answers (Q&As) issued by the SME Implementation Group (SMEIG). The Q&As are non-mandatory guidance for implementing the IFRS for SMEs. They can be accessed free of charge on the IASB website.

Ultimately, the training material for the IFRS for SMEs will include 35 stand-alone modules – one for each section of the IFRS for SMEs. The Education Initiative expects to make the three outstanding modules available in the next few months.

Please click for access to all training modules on the IASB website.