Public Conference of the EFRAG technical group (EFRAG TEG)

09 Sep, 2013

On September 17, 2013, the Technical Expert Group (TEG) of the European Financial Reporting Advisory Group, (EFRAG) will hold a public conference call.

An agenda for the meeting was not announced.  Interested listeners have the ability to dial into the Conference call.  For details, see the EFRAG website.

Agenda for September 2013 IASB meeting

07 Sep, 2013

The IASB has released the initial agenda for its meeting to be held at its offices in London on 13, 17 and 18 September 2013. Discussions include joint sessions with the FASB on financial instruments (classification and measurement and impairment) and revenue recognition, and IASB-only sessions on employee benefits (ED on employee contributions), narrow focus amendments to IAS 1, annual improvement cycles 2010-2012 and 2011-2013, an update from the IFRS Interpretations Committee, the current status of the research project on business combinations under common control, separate f/s of a joint operator as well as rate regulation.

The full agenda for the main meeting, dated 6 September 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.

New issue of the IASB’s "Investor Perspectives" series on the insurance contracts project

06 Sep, 2013

The International Accounting Standards Board (IASB) has released a new edition in its 'Investor Perspectives' series. In this edition, Patrick Finnegan (IASB Board member) discusses the proposals in revised insurance contracts exposure draft.

The article covers three key features from the exposure draft that may have the most impact to both preparers and investors. The three key features are:

  1. how to report discount rate changes;
  2. how to present insurance contract revenue and expenses; and
  3. how to report changes in estimates of contract cash flows.

Click to view:

Updated EFRAG endorsement status report

06 Sep, 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 approval by the Accounting Regulatory Committee (ARC) for adoption of the IASB's amendments to IAS 36 and IAS 39.

The IASB issued (1) Recoverable Amount Disclosures for Non-Financial Assets (Proposed amendments to IAS 36) on 29 May 2013 to narrow the application of the requirement to disclose the recoverable amount of an asset, and clarify the disclosures when an asset has been impaired, and (2) Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39 'Financial Instruments: Recognition and Measurement') on 27 June 2013 to provide relief for novation of derivatives.

Please click for the EFRAG Endorsement Status Report as of 6 September 2013.

Lack of confidence in financial reports among the vulnerabilities of Europe

06 Sep, 2013

The Joint Committee of the European Supervisory Authorities (ESAs) has published its second bi-annual 'Report on Risks and Vulnerabilities in the European Union's (EU) Financial System'. A lack of confidence in the representation of the underlying economic financial position and financial performance in financial reports fueled by the belief that the existing accounting framework is frequently misapplied and that there are shortcomings and room for interpretation in the accounting framework is cited as one of the risks and vulnerabilities.

Some of the main relevant topics in connection with financial reporting made include:

  • valuation of complex financial instruments, notably in illiquid markets,
  • timely and sufficient recognition of impairment losses of financial assets measured at amortised cost,
  • valuation of goodwill and deferred tax assets in light of profitability prospects, and
  • overall transparency of financial information provided to the market.

As regards the valuation of complex financial instruments, some hope is put on IFRS 13 Fair Value Measurement, however, the report stresses that "[r]igorous application of the new requirements is necessary in order to accurately represent the fair value of complex financial products in financial reports".

The ESAs also believe that the new expected losses model regarding the impairment of financial assets will contribute to restoring confidence in financial reports as the "too little too late" problem regarding the recognition of impairment losses will be alleviated.

Lastly, the ESAs are convinced that increased transparency leading to more confidence will be achieved within a comparatively short time frame: "New accounting standards, currently under discussion, regarding classification and measurement of financial assets, impairment and hedge accounting should help to increase the level of transparency of financial reports by decreasing the number of classification categories and impairment models and aligning risk management practices more closely with financial reporting."

The full report is available on the ESMA website. Chapter 5 of the report is dedicated to Risks to confidence in balance sheet valuations and risk disclosures. The EBA has published a press release on the publication of the report on its website.

FEE reminds EP members that Europe benefits from IFRSs

05 Sep, 2013

In a sharply formulated letter to the rapporteur of a draft report and proposed amendments on the Union programme to support specific activities in the field of financial reporting and auditing for the period of 2014 – 2020, the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) reminds the members of the European Parliament (EP) that the current debate about financial reporting not only has a technical quality aspect but also a public interest perspective.

In December 2012, the European Commission (EC) published a Proposal for a Regulation of the European Parliament and of the Council on establishing a Union programme to support specific activities in the field of financial reporting and auditing for the period of 2014-2020. In March 2013, this was followed by a draft report to the Committee on Economic and Monetary Affairs (ECON), which again was followed by suggested amendments to the draft report submitted by various members of ECON. In a letter to the ECON rapporteur, FEE has not only reacted to the report and individual suggested amendments but to the debate as a whole.

FEE’s letter is structured around six strong statements:

  • The strategic dimension of global financial reporting standards should be taken into account – FEE stresses that global standards are critical to enhance transparency and reduce cost to all market participants and that from an EU standpoint, globally accepted standards contribute significantly to attracting foreign investment at a time it is most needed. Having specific EU financial reporting standards or different EU interpretations of IFRS would be detrimental to Europe.
  • The debate should be objective and duly informed – FEE bemoans that “it is highly regrettable that the debate on global financial reporting standards and the body that Europe has entrusted to set these standards (the IASB) is often compromised by matters that are only loosely related to the issue or are based on ill-informed and unsubstantiated arguments, promoted by a small but vocal minority”. FEE claims that while founded criticism is healthy, criticism based on misunderstandings or misinterpretation will undermine Europe’s credibility on the world stage.
  • It is counterproductive to undermine the IASB – According to FEE anybody criticizing the IASB as a whole should also reflect on the available alternatives. Currently, the IASB is the only body that has the global credibility and expertise to set high quality standards. Tinkering with its independence, which is essential to investors’ confidence, would result in a loss of credibility.
  • Europe should not move backwards – FEE reminds EP members that a European standard setter producing European standards would not only be costly but it would isolate Europe on the world stage, which would not contribute to Europe’s economic recovery. In addition, FEE points out that the EU has a poor record in harmonising accounting rules as shown by the recent debate on the accounting directives.
  • IFRS have improved financial reporting and enhance transparency – FEE reiterates that there is no credible objective evidence that IFRS have contributed to the financial crisis. On the contrary, the use of fair value and comprehensive disclosures has helped to identify the problems that were building up in the financial system.
  • The Parliament should provide legal certainty – FEE stresses that bodies committed to working in the public interest need clarity and visibility on their financing over a sufficient period of time. Also, their independence is an essential foundation of their value. Therefore, FEE claims, it would be highly inappropriate to make their funding conditional on them taking specific actions on the technical front, as this would severely compromise their independence.

FEE requests that EP members take these principles into consideration when discussing the issue further and concludes: “Financial reporting should not be used as a scapegoat for other problems.”

Please click for the following additional information:

We comment on the IASB's regulatory deferral accounts proposals

05 Sep, 2013

We have published our comment letter on the International Accounting Standards Board’s Exposure Draft, ED/2013/5 'Regulatory Deferral Accounts'. We believe that the interim solution proposed in the exposure draft is an appropriate tool for jurisdictions experiencing delays in adoption of IFRSs as a result of concerns about accounting for rate regulation and, as such, concur with the proposal as a means of facilitating further global adoption of IFRSs. However, we stress the importance of the IASB committing to pursuing the completion of its comprehensive project on rate regulation as a matter of priority and within a reasonable time frame.

The points made in the comment letter include:

  • We agree with the proposal to limit the scope of the interim Standard to first-time adopters of IFRSs as including entities currently using IFRSs could create unnecessary diversity in practice amongst those entities
  • We agree that adoption of the interim Standard should be optional
  • In terms of the scope of the proposed interim Standard, we agree the scope criterion that price must be restricted by an authorised body, but believe the second scope criterion could better be incorporated through a requirement to recognise an asset only when recovery is probable
  • We recommend that the IASB clarify the interaction of any interim Standard with the following:
    • IFRS 3 Business Combinations, in respect of situations such as an entity that does not recognise regulatory deferral account balances acquires an entity that is subject to rate regulation and recognises regulatory deferral accounts
    • paragraph D17 of IFRS 1 First-time Adoption of International Financial Reporting Standards: specifically, whether a parent should continue to recognise regulatory deferral account balances if its regulated subsidiary has adopted IFRSs at an earlier date and has not recognised such balances
  • We agree that regulatory deferral account balances, and the effect of movements thereof on profit or loss, should be presented separately, and agree with the requirement to present earnings per share figures before and after movements in regulatory account balances.

Click for the full comment letter.

Sustainability in capital market reporting - Practical guidance issued by Deutsche Börse

03 Sep, 2013

Non-financial aspects are an important part of a company’s value and investors and analysts increasingly ask for corresponding information. Therefore, Deutsche Börse has developed guidance that is designed to assist issuers of all sizes and sectors in integrating environmental, social and governance (ESG) information into effective capital market communication.

The guide describes the rationale for corporate sustainability disclosure and offers seven best practice recommendations with separate chapters dedicated to each recommendation:

  • Picture the top-down approach
  • Consider stakeholder requirements
  • Provide material information
  • Focus on a “risk and return” approach
  • Give preference to quantitative data
  • Refer to standards (international / national)
  • Pay attention to presentational issues

All chapters offer practical guidance for implementing the recommendations and consolidates best practice in corporate sustainability disclosure as identified by national and international as well as mainstream and sustainability-oriented investors.

According to Deutsche Börse the challenge is

  • to identify a small number of key performance indicators that are relevant for management and evaluation purposes;
  • ideally, to present them using quantitative metrics, providing relevant context, illustrating interdependencies between financial data and ESG information, as well as with the financial reporting; and
  • to systematically omit information that is not material (and that would merely obscure key messages and / or confuse investors and analysts).

The guide stresses is not intended to replace existing standards but that it should be seen as offering an overview of existing national and international standards. To this end the guide also includes an appendix with additional information about relevant organisations such as GRI, IIRC and United Nations Compact.

The guide is available in German and English and can be downloaded from the Deutschen Börse website:

FSB takes stock after five years: Convergence of accounting standards still 'amber'

02 Sep, 2013

In preparation for the upcoming G20 Leaders' Summit, the Financial Stability Board (FSB) has released several reports about progress in connection with the fundamental reform of the global financial system initiated by the G20 in 2008. One of the developments that is facing 'difficulties in meeting its objective and/or timeline' is achieving a single set of high quality global accounting standards.

In the letter accompanying the various reports, the FSB Chair takes stock of the progress over the past five years and outlines the major outstanding issues which demand the attention of Leaders. He makes three main points:

  1. FSB members have made major progress correcting the fault lines that caused the global financial crisis.
  2. The work is not yet completed and it is crucial that the G20 stay the course.
  3. The G20’s response will ultimately dictate the openness of the global system and consequently the strength and sustainability of global growth.

Among the developments that are not yet completed the FSB chairman cites global convergence of accounting standards. Although the reports admit that some joint projects have been completed and some some initial progress has been made in other projects, they point at loan loss impairment and insurance contracts as areas where convergence is threatening to come to a standstill:

  • Although IASB and FASB have followed the FSB's recommendations to develop an impairment model that incorporates a broader range of information and recognises credit losses at an earlier stage, the two standard-setters have developed different expected loss models. The FSB stresses that it "is continuing its engagement with the two standard-setters to seek ways to achieve a consensus on a high quality standard in this important area".
  • On insurance contracts, the IASB and FASB are working together but have come to different decisions of several basic matters. This has again led to issuing two separate exposure drafts. The FSB urges further convergence but notes: "The obstacles to finding a converged solution for the insurance contracts project are proving difficult to overcome."

The FSB notes that IASB and FASB have been called on by the G20 to complete their convergence projects by the end of 2013. The boards will report to the FSB on the progress made in November 2013.

In connection with the reform of the global financial system, the FSB also reports on the work of the Enhanced Disclosures Task Force (EDTF), which was founded in 2012 and published recommendations for improved disclosures in October 2012 and a first progress report in August 2013.

Also, in November 2012 the FSB was asked to undertake diagnostic work to assess factors affecting long-term investment financing. Among the factors considered was the effect of current and prospective accounting rules on long-term financing. Among the reported results is the statement that "reporting rules can sometimes have a behavioural impact" and that "there is some evidence that this includes short termism". However, some hope is placed on forthcoming accounting standards and the conceptual framework.

Please click for the following information of the G20 website:

CMAC call for members

02 Sep, 2013

The IASB's Capital Markets Advisory Committee (CMAC) is currently seeking applications for membership after the terms of a number of members expire at the end of 2013.

The CMAC is a group of professional financial analysts who meet three times a year with  members of the IASB to provide the views of professional investors on financial reporting issues.

Please click for more information about the CMAC and the call for members on the IASB's website.

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