March

EMIR technical standards enter into force

17 Mar, 2013

The European Market Infrastructure Regulation (EMIR) was passed in 2012, but most provisions only apply after technical standards enter into force. Technical standards on OTC derivatives, reporting to trade repositories and requirements for trade repositories and central counterparties entered into force on 15 March 2013. EMIR gave rise to the IASB's project on the novation of derivatives as EMIR brings about hedge accounting questions.

EMIR implements a central clearing for certain classes of OTC derivatives and requires the novation of the derivatives in question to these central counterparties (CCP). The IASB's project on the novation of derivatives is dedicated to the question whether the novation of OTC derivatives in these circumstances would result in the discontinuing of hedge accounting.

On 28 February 2013, the IASB issued ED/2013/2 Novation of Derivatives and Continuation of Hedge Accounting. The exposure draft proposes changes to IAS 39 and the forthcoming hedge accounting chapter of IFRS 9 to permit the continuation of hedge accounting where hedging instruments are novated to a central counterparty as a result of laws or regulations around OTC derivatives. ED/2013/2 proposes that the novation of a hedging instrument should not be considered an expiration or termination giving rise to the prospective discontinuation of hedge accounting if all of the following (summarised) criteria are met:

  • the novation is required by laws or regulations
  • the novation results in a central counterparty becoming the new counterparty to each of the parties to the novated derivative
  • the changes in terms of the novated derivative are limited to those necessary to effect the terms of the novated derivative.

The ED currently only applies to novations that occurred as a result of laws and regulations. It does not apply to instruments novated voluntarily as a pre-emptive measure in expectation of corresponding laws and regulations.

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EFRAG makes its 'Insider' publication publicly available

15 Mar, 2013

Since 2010 the European Financial Reporting Advisory Group (EFRAG) has been sending out its 'EFRAG Insider' to a restricted list of recipients informing them about current developments in all EFRAG activities. EFRAG has now decided to make this newsletter publicly available going forward.

EFRAG Insider is written in easy and accessible language and offers a high level overview of financial reporting projects and standards while highlighting the most topical subjects. The newsletter also offers information on activities of the EFRAG Chairman and the TEG members as well as on international exchanges with other organisations involved in developing consistent IFRS.

The first publicly available issue of EFRAG Insider is available through the press release on the EFRAG website.

March IFRS Interpretations Committee meeting notes - Part 2 (Concluded)

14 Mar, 2013

We've posted additional Deloitte observer notes from the remaining sessions of the IFRS Interpretations Committee meeting which was held on 12-13 March 2013.

UK replaces local GAAP with new standard based on IFRS for SMEs

14 Mar, 2013

The UK’s Financial Reporting Council (FRC) has published FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', which will replace current UK GAAP with effect for periods beginning on or after 1 January 2015.

FRS 102 is derived from the IASB’s IFRS for SMEs, reflecting a simplified version of full IFRSs, but incorporates changes made by the FRC, one of which widens the scope of the standard significantly compared to the IFRS for SMEs. This has the effect that any entity not required to apply full IFRSs will be able to apply FRS 102.

Following on from FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework, which were published in November 2012, FRS 102 completes the main package to replace UK GAAP as it currently exists. In due course a separate standard will follow for insurers and amendments to the financial instruments section are also expected.

Although all UK reporters could elect to follow full IFRSs when current UK GAAP disappears, the relative brevity of FRS 102, at less than 250 pages in length, will appeal to many. Regardless of their choice, the introduction of more detailed requirements around accounting for financial instruments may pose challenges for some reporters.

Key changes that FRS 102 will introduce to UK accounting include the following:

  • derivatives can no longer be held off balance sheet and will be measured at fair value through profit or loss. Those reporters who have adopted FRS 26 will already be familiar with such requirements;
  • goodwill and intangibles can no longer have indefinite lives and must be amortised. In the absence of a reliable estimate the life is presumed to be a maximum of five years – a significantly shorter period than the existing presumption of 20 years or less; and
  • the multi-employer exemption permitting defined benefit plans to be accounted for as defined contribution plans will no longer be available to entities under common control.

The mandatory effective date of FRS 102 is for accounting periods beginning on or after 1 January 2015, although early adoption is permitted for periods ending on or after 31 December 2012.

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March IFRS Interpretations Committee meeting notes - Part 1

14 Mar, 2013

We've posted Deloitte observer notes from some of the sessions from the IFRS Interpretations Committee meeting which was held on 12-13 March 2013.

Summary of redeliberations in the revenue recognition project

13 Mar, 2013

An updated staff summary of redeliberations in the revenue recognition project has been made available on the IASB's website, outlining the decisions made by the IASB and FASB in redeliberations since the issue of ED/2011/6 'Revenue from Contracts with Customers' in 2011. As all substantive redeliberations are now complete, the staff will now commence drafting the final revenue standard, which is currently expected to be finalised before the end of June.

The document prepared by the staff contains a paragraph-by-paragraph summary of the impacts of the redeliberations on the proposals in ED/2011/6 issued in November 2011.  The paper provides links to the agenda papers related to each topic noted, and also notes any differences between the IASB and FASB in conclusions reached.

ED/2011/6 is the second exposure draft issued in the revenue recognition project, following ED/2010/6 Revenue from Contracts with Customers which was issued in June 2010.  The current expectation is that a finalised revenue recognition standard will be completed in the second quarter of 2013 and be applied for reporting periods beginning on or after 1 January 2017. The IASB and FASB have decided that early application would not be permitted.

Click for access to the staff redeliberation summary (link to IASB website).

UK task force report calls for sustainability reporting tools and metrics

13 Mar, 2013

The United Kingdom Ecosystem Markets Task Force (EMTF) has published a final report on the business opportunities arising from valuing nature correctly. The report includes a cross cutting theme that better tools and metrics are needed to understand the role nature plays in businesses, calling for "tools and metrics that will integrate financial, environmental, social and governance information in a concise, consistent and comparable format".

The task force was established by the UK Government to review the opportunities for UK business from expanding green goods, services, products, investment vehicles and markets which value and protect our natural environment. The task force's report, entitled Realising nature’s value: The Final Report of the Ecosystem Markets Task Force, outlines various issues across a broad array of sustainability-related topics in response to this mandate.

In the specific area of sustainability reporting, the report notes the work of organisations such as Accounting for Sustainability (A4S), World Business Council for Sustainable Development (WBCSD) and TEEB for Business Coalition.  The report goes on to point out that a reporting framework for natural capital is not yet developed, commenting "standards for nature are at the financial equivalent of the 14th century, before the development of double-entry bookkeeping".

The report develops this theme further, commenting that "measures need not be perfect to be useful, indeed the perfect may be the enemy of the good here" and that "we need company level schemes – ideally endorsed by the International Accounting Standards Board".

The specific recommendations of the task force in this area include:

  • Companies should move from a principle of “no net loss” (or net positive impact) on nature to demonstrate their progress towards this goal, using valuation methods where possible
  • Companies in high impact sectors should build partnerships to develop and road test valuation methods and tools that are "robust enough for the IASB to develop them into internationally recognised standards"
  • The UK Government must maintain pace developing national accounting for natural capital
  • Government should review the incentive structures surrounding standards and metrics to consider if these create specific barriers for businesses taking these up.

The UK Government will issue its official response to the task force’s report later in 2013.

Click for more information (link to UK Government website).

Second issue of the European Conceptual Framework newsletter

12 Mar, 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), the Accounting Standards Committee of Germany (ASCG), the Organismo Italiano di Contabilità (OIC) and the UK Financial Reporting Council (FRC) have published the second issue of their new newsletter ‘Keep up with getting a better framework’ informing European constituents on the latest developments regarding the progress of the Conceptual Framework project with the IASB and other stakeholders.

The second issue of the newsletter summarises and comments on the tentative decisions reached at the February 2013 IASB meeting regarding the content of the forthcoming Discussion Paper on:

  • the purpose of the Conceptual Framework;
  • elements of financial statements;
  • recognition and derecognition;
  • measurement; and
  • reporting entity.

As outlined by project partners in their strategy on conceptual framework, specific newsletters will be issued as new developments become available. In addition, the project partners intend on issuing bulletin reports on specific issues during the course of the project in an effort to stimulate debate that may be used in discussions with the IASB.

The press release and newsletter are available on the EFRAG website.

    EFRAG draft comment letter on amendments to hedge accounting

    11 Mar, 2013

    The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Exposure Draft ED/2013/2 'Novation of Derivatives and Continuation of Hedge Accounting (Proposed amendments to IAS 39 and IFRS 9)' which was published on 28 February 2013.

    The EFRAG supports the IASB's proposed amendments to IAS 39 and IFRS 9. However, the EFRAG states that:

    The IASB should clarify that novations that take place to meet the requirements of (substantially) enacted laws or regulations – but that are voluntary only in the sense that they take place before the legal novation deadline – would also fall within the scope of the proposed amendment;

    Early application should be permitted so that entities can apply the requirements to novations that take place prior to the finalisation of these amendments.

    Comments on the letter are invited by 25 March 2013.

    Click for:

    • EFRAG press release with link to the draft comment letter (link to EFRAG website).
    • Our previous story on the Exposure Draft ED/2013/2 Novation of Derivatives and Continuation of Hedge Accounting (Proposed amendments to IAS 39 and IFRS 9).
    • Deloitte's IFRS in Focus newsletter on the proposals on novation of derivatives.

    Agenda for March 2013 IASB meeting

    11 Mar, 2013

    The IASB will meet on 19-21 March 2013 at the IASB's offices. It will be an IASB only meeting. Discussions will include IAS 41, the comprehensive review of the IFRS for SMEs, conceptual framework, fair value measurement (unit of account), IAS 19, IAS 1, annual improvements 2010-2012, put options on non-controlling interests, and revenue recognition.

    The full agenda for the meeting, as of 11 March 2013, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

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