April

New publication series on the IASB's Conceptual Framework project

11 Apr, 2013

EFRAG and the National Standard Setters of France, Germany, Italy and the United Kingdom have published the first three issues of a joint publication series on the IASB's Conceptual Framework project. They are dedicated to the concepts of prudence, the reliability of financial information, and uncertainty.

The Conceptual Framework Bulletins are intended to promote discussion and to inform about European views on the IASB's Conceptual Framework project. They are also designed to elicit feedback on these views therefore come with specific questions at the end of the publication. Each bulletin is between 10 and 15 pages long.

Please click for access to the first the bulletins:

We have also created an archive of all bulletins available. We are grateful to EFRAG and the National Standard Setters for giving us permission to host them on IAS Plus.

EFRAG calls for information on rate-regulated regimes currently in force in Europe

11 Apr, 2013

On 28 March 2013, the IASB issued a Request for Information (RFI) seeking comments from stakeholders to identify high-level overviews of rate-regulatory schemes that should be included as part of the scope in the development of a Discussion Paper. The European Financial Reporting Advisory Group (EFRAG) complemented this by issuing its own RFI regarding rate-regulated regimes currently in force in Europe.

EFRAG believes that in developing its discussion paper, the IASB should consider existing regimes in Europe so that a future standard on the topic fully considers them. Therefore, EFRAG is asking European constituents to share with EFRAG information about rate-regulated regimes currently in force in Europe and their experience with them. EFRAG is asking for this information by 30 May 2013. Should European constituents prefer to react directly to the IASB's RFI, EFRAG would appreciate to receive a copy of the submission so the European picture EFRAG is collating will be as complete as possible.

EFRAG will also supplement its submission with input obtained from EFRAG’s Rate-Regulated Activities Working Group, which is currently being set up. The call for applicants for this group was published on 19 March and is open until 30 April 2013.

Please click for EFRAG press release (link to EFRAG website).

IASB chairman speaks about short-term volatility and long term investment

10 Apr, 2013

Hans Hoogervorst, Chairman of the IASB, recently gave a speech entitled "Accounting and long term investment – 'Buy and hold' should not mean 'buy and hope'". In his speech, Mr Hoogervorst looked at the relationship between accounting and investing and pointed out that even long-term investors need information on where they stand today. Short-term information helps to reach a long term goal.

Mr Hoogervorst opened his speech with general comments how short-term horizons that seem to be detrimental to sustainable growth seem to dominate the financial markets and pointed out that there have been suggestions that accounting standards could be made more helpful for investors with a long-term perspective.

After a short excursion on accountability in general, Mr Hoogervorst turned to the question of whether and how IFRSs could support taking long-term views. He refuted the claim that "excessive use of fair value" had aggravated the financial crisis and he pointed out that fair value accounting had often provided "more timely information on the poisonous instruments that had been injected into the system". For the same reasons, Mr. Hoogervorst said, the IASB had rejected proposals regarding the forthcoming exposure draft on insurance accounting that would reduce volatility in an artificial way. According to the IASB chairman, closing your eyes to current developments because you have a long term goal would mean turning 'buy-and-hold' into 'buy-and-hope'.

Hoogervorst commented that "even long-term investors cannot afford to ignore short-term fluctuations, if only because you never know how short the short-term will be". There will always be the need to make continuous short-term corrections in order to arrive at the long-term goal and in order to find out whether these corrections are necessary you have to evaluate every day:

So, beware of people who tell you that they only care about the long term and who do not want to be bothered by market values. For a company to take a long term view, it has to be able to withstand the inevitable short-term fickleness of the market place.

In answering the question of how the IFRSs could support taking the long-term view, Mr. Hoogervorst closed on the remarks that the IASB cannot contribute to taking a long-term view by pretending short-term risks are not there. On the contrary, he said, IFRSs provide maximum transparency both for the short and the long term and thus offer the long term-investors the information they need at all times.

Please click for access to the full text of the speech on the IASB website.

FEE comments on the EC proposals for the recast of the 4th and 7th Accounting Directives

09 Apr, 2013

The Federation of European Accountants (FEE) has issued a letter to Mr. Klaus-Heiner Lehne, Chair of the Committee on Legal Affairs (JURI) of the European Parliament on the recast of the 4th and 7th Accounting Directives. The European Commission published proposals for revising the Accounting Directives in October 2011 and JURI, representing the European Parliament, subsequently analysed the proposals. Currently, European Council, Parliament and Commission seem to be locked in their trilogue. FEE has been trying to further inform the debate and help close the gaps by publishing various comment letters and a policy statement on the topic.

In accordance with the policy statement published in December 2012, FEE expresses the firm belief that accounting and auditing are not administrative burdens but rather "essential tools to enable managers to manage, investors to invest and enterprises to trade, grow and create wealth and employment". Against this backdrop FEE comments on other EC proposals:

  • FEE believes that general accounting principles should be applicable to all aspects of financial reporting. Among these FEE sees the true and fair view as well as materiality, substance over form and prudence.
  • FEE questions the real benefits of a fully prescribed reporting regime for small companies. The EC proposals seek to harmonise small company reporting in the Member States by introducing a common  reporting frame which would see less disclosures load. FEE believes some of the disclosures (especially those on off-balance sheet transactions, related party transactions and post balance sheet events) are a critical element of transparency and should not be disbanded. On the contrary, FEE supports giving the Member States an option to require further disclosures they deem necessary.
  • FEE believes that fair value accounting should be permitted as a Member State option. While the EC Proposals intended to keep a Member State option to permit or require fair value accounting for specific assets, JURI proposed to prohibit this practice. FEE urges all parties involved in the trilogue discussions to retain a Member State option permitting or requiring fair value accounting for certain relevant account balances.
  • FEE suggests making the use of IFRS for SMEs possible. From a European perspective, FEE regrets that the EC Proposals do not seize the opportunity to allow EU Member States to make their own decision to opt to use IFRS for SMEs or not as this would help especially the smaller Member States with limited standard-setting capacities.
  • FEE suggest permitting merger accounting as a simplification measure. The provisions allowing merger accounting are removed from the EC proposals, however, merger accounting is widely used in practice. This accounting option would also simplify accounting and thus reduce costs for preparers.
  • FEE believes requiring cash flow statements would benefit enterprises and stakeholders. FEE sees the cash flow statement as an essential tool to provide relevant information about the cash generating capacity of a company which would allow for a more rounded and complete view of companies especially in periods of instability. Therefore, FEE suggests a mandatory inclusion in the annual financial statements of a cash flow statement for large companies and a Member State option to require it for medium-sized companies.
  • FEE asks for a swift finalisation of the debate on country-by-country reporting. FEE encourages all parties involved in the trilogue discussion to close the gap between the different views on country-by-country reporting to allow for a successful finalisation of the Accounting Directive as a whole.

Please click for access to the full letter on the FEE website.

Deloitte comment letter on proposals to address the conflict between IFRS 10 and IAS 28 in relation to elimination of profits

07 Apr, 2013

Deloitte’s IFRS Global Office has submitted a comment letters on the International Accounting Standards Board’s Exposure Draft ED/2012/6 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture'. The proposals in ED/2012/6 seek to address the conflict between the requirements IFRS 10 and IAS 28 (2011) in respect of the elimination of profits and we recognise that the exposure draft proposes a pragmatic solution to the conflict. However, we recommend that further guidance be provided on the concept of a 'business' and and recommend that a fuller consideration of the issue be incorporated into the fundamental assessment of the equity method of accounting planned by the IASB.

In relation to the key proposals in ED/2012/6, the comment letter notes the following:

We .. agree that whether the subsidiary or assets sold or contributed constitute a business is a reasonable basis for distinguishing between a ‘downstream’ transaction that should be subject to the requirements of IAS 28(2011) and a disposal that should be subject to the requirements of IFRS 10. However, we note that distinguishing between transactions on this basis (as would also be the case under the proposals of Exposure Draft ED 2012/7 Acquisition of an Interest in a Joint Operation) places additional emphasis on the definition of a business. As such, we support the work of the IFRS Interpretations Committee to produce additional guidance on the application of this concept as part of the IASB’s post-implementation review of IFRS 3.

The full comment letter can be accessed here.

Updated EFRAG endorsement status report

05 Apr, 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. The latest report reflects the endorsement by the European Commission of the amended IFRS 10 transition guidance.

On 4 April 2013, the European Commission endorsed the amendments made by the IASB in June 2012 that were intended help to alleviate concerns that the transitional requirements of IFRS 10 Consolidated Financial Statements were more burdensome than had been intended. The amendments are now incorporated into European law. The EFRAG has updated its endorsement status report to reflect the EC's decision.

Please click for the EFRAG Endorsement Status Report as of 5 April 2013.

European Union formally adopts amended IFRS 10 transition guidance

05 Apr, 2013

The European Union has published a Commission Regulation endorsing ‘Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance’ (Amendments to IFRS 10, IFRS 11 and IFRS 12).

The European Union has published the Commission Regulation (EC) No 313/2013 of 4 April 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 5 April 2013. This regulation adopts the amendments made by the IASB in June 2012 that were intended help to alleviate concerns that the transitional requirements of IFRS 10 Consolidated Financial Statements were more burdensome than had been intended.

The amendments have been given a European effective date of 1 January 2014 but can be applied earlier, so companies can decide to apply at the IASB effective date (1 January 2013). This is in line with the strategy chosen when adopting the standards themselves in December 2012.

Apart from IFRS 9 (endorsement postponed), there is currently only one IASB pronouncement awaiting endorsement in the European Union: Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Endorsement of that pronouncement is currently expected in the third quarter of 2013.

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

05 Apr, 2013

Deloitte’s IFRS Global Office has submitted comment letters to the IFRS Interpretations Committee (Committee) on three tentative agenda decisions published in the January 2013 edition of 'IFRIC Update', in relation to IAS 7, IAS 28 and IFRS 3, and IFRS 2.

In each case, we agree with the IFRS Interpretations Committee’s decision not to add the items onto its agenda for the reasons set out in the tentative agenda decision.   However, we offer some minor suggestions on two of the tentative agenda decisions.

The three issues are as follows:

TopicIssueMore information
IAS 7 — Identification of cash equivalents The basis of classification of financial assets as cash equivalents in accordance with IAS 7 Statement of Cash Flows, specifically whether this should be based on remaining period to maturity as at the balance sheet date rather than the current focus on the investment’s maturity from its acquisition date

Deloitte comment letter

January Committee meeting discussions

IAS 28 & IFRS 3 — Associates and common control Whether it is appropriate to analogise the scope exemption for business combinations under common control included in IFRS 3 to the acquisition of an interest in an associate or joint venture under common control

Deloitte comment letter

January Committee meeting discussions

IFRS 2 — Timing of recognition of intercompany recharges Clarification on the timing of recognition of a liability in relation to intragroup recharges made in respect of share-based payments, particularly in the specific fact pattern in which the parent company of an international group grants share-based awards to the employees of its subsidiaries.

Deloitte comment letter

January Committee meeting discussions

ESMA publishes more enforcement decisions

04 Apr, 2013

The European Securities and Markets Authority (ESMA) has published another batch of extracts from its confidential database of enforcement decisions taken by European national enforcers. This batch deals with decisions in relation to IAS 16, IAS 36, IAS 38, IAS 39, IAS 8/IAS 40, IAS 24/IAS 34, IFRS 7/IAS 39, IFRS 3, and IFRIC 12.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, thirteenth in the series, include:

StandardTopic
IAS 39 Financial Instruments: Recognition and Measurement Recognition of financial expense on financial liabilities measured at amortised cost
IAS 38 Intangible Assets Intangible assets with indefinite useful life
IFRIC 12 Service Concession Arrangements Presentation of revenue and expenses related to service concession arrangements
IAS 36 Impairment of Assets Value in use calculation
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and IAS 40 Investment Property Assessment of materiality of an error
IAS 24 Related Party Disclosures and IAS 34 Interim Financial Reporting Related party disclosures in interim financial statements
IFRS 3 Business Combinations Definition of a business
IFRS 7 Financial Instruments: Disclosures and IAS 39 Financial Instruments: Recognition and Measurement Disclosures related to fair value of financial instruments
IAS 36 Impairment of Assets Discount rate in value in use calculation
IAS 16 Property, Plant and Equipment Residual value of property

Click for access to the full report.

ESMA fears scope restriction might dis-incentivise the novation of certain derivatives

04 Apr, 2013

The European Securities and Markets Authority (ESMA) has submitted a letter of comment responding to the IASB exposure draft 'Novation of Derivatives and Continuation of Hedge Accounting' (ED/2013/2).

In the comment letter ESMA supports the proposal in ED/2013/2 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 certain criteria are met. However, ESMA believes that the criterion "required by laws or regulations" is unnecessary restrictive and might dis-incentivise voluntary novation. This would run counter to the aim of the European Market Infrastructure Regulation (EMIR) and similar regulations in other jurisdictions that are intended to implement the G20's agreed reforms around over the counter (OTC) derivatives designed to reduce counter-party risks in general.

The comment letter states:

Nevertheless, ESMA is concerned that the scope of the proposed amendment could be unnecessarily restrictive by limiting the exception only to those novations that result from legislation explicitly mandating the use of central counterparties for existing derivative contracts. [...] Given the benefits by the system of clearing derivatives through central counterparties from a counterparty risk point of view voluntary clearing of some other existing derivatives through a central counterparty should not be dis-incentivesed, even if not mandatorily required. [...] Accordingly, ESMA is of the view that existence of an explicit clearing obligation required by law and regulation should not be a pre-condition for the continuation of the hedging relationship, provided all other proposed conditions are met.

Please click for access to the full comment letter on the ESMA website.

Correction list for hyphenation

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