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June

IASB Vice-Chairman warns against 'turning back the clock'

23 Jun 2014

IASB Vice-Chairman, Ian Mackintosh gave a speech today at the IFRS Conference in London titled 'Turning back the clock?'. He gave an overview over the current and new work programme and then commented on a vision of international standard-setting that would allow differences between accounting standards to persist.

His comments on the work programme were focussed on the 'current projects' that involve completing the major convergence projects with the FASB and the 'new projects' that are IASB only projects. Mr Mackintosh pointed out that only two convergence projects remain which were both "approaching completion". He stressed that the IASB expects to issue a final version of IFRS 9 Financial Instruments next month although "despite our best efforts, we were unable to reach agreement with the FASB on impairment". On lease accounting he admitted that the IASB is aware that the changes would not be without cost to preparers and had therefore already made some pragmatic decisions to help keep costs to a minimum. Among the current projects he also commented on insurance accounting even though that project was not one of the original convergence projects. He stated that bringing the diversity in insurance accounting back into line would certainly cause controversy. Among the new IASB only projects Mr Mackintosh commented on the review of the Conceptual Framework where the IASB expects to publish an Exposure Draft of the new Conceptual Framework later this year and the project on financial disclosures.

Mr Mackintosh then turned to the fact that the spread of IFRSs around the world has led to a change of priorities for the IASB as the goal was no longer to simply increase the number of IFRS users but to deepen the collaboration with IFRS jurisdictions around the world and to encourage consistency in the application and implementation of the standards. In this context he also commented on remarks made recently by members of the FASB that one size (of accounting standards) may not fit all and that legal, regulatory and cultural differences among different jurisdictions would make divergences inevitable. Mr Mackintosh turned against these statements and pointed out that "between 1973 and 1998, nine of the largest economies, including the United States, worked together to minimise divergence between their respective national accounting standards, using International Accounting Standards as the benchmark" and "failed miserably". He stated: "If all IASB constituents were to insist on the primacy of national preferences, obviously the goal of a single set of global standards would come to naught". He also believed that the argument behind these comments by FASB members were not valid:

I do not buy the argument that cultural differences mean that a 'one size fits all approach' cannot work. Our Board and staff work incredibly hard to develop principle-based standards that can be adopted by countries around the world, regardless of their stage of economic development and their legal culture. As a result, countries with cultures as diverse as Brazil, Canada, Colombia, Germany, Japan, Korea, Mexico, Nigeria, Turkey and of course the United Kingdom have all adopted IFRS without major issues. Indeed, there is more cultural diversity between the UK and France than between the UK and the US, yet both France and the UK report using IFRS. Furthermore, more than 500 foreign companies listed in the US already apply IFRS, so the evidence would appear to show that in financial reporting, one size can indeed fit all—if the will is there to make it happen.

Please click for access to the full text of Mr Mackintosh's speech on the IASB website.

ICAEW comment on revised guidance on impairment of social housing assets

23 Jun 2014

The Institute of Chartered Accountants in England and Wales (ICAEW) has published its comment letter on the revised guidance relating to impairment of social housing assets published by the National Housing Federation’s (NHF) and the SORP Working Party.

An original Exposure Draft (“the original ED”) of a SORP for registered social housing providers was issued by the NHF in December 2013 with a comment period which closed on 14 February 2014.  The impact assessment performed by the NHF, along with the responses to the original ED indicated that that “the sector was deeply concerned about proposals on the impairment of social housing assets”.

Following consideration of responses to the original ED, the NHF, along with the SORP Working Party, published a further ED in April 2014 that significantly revised the proposed guidance relating to impairment of social housing assets.

The key comments of the ICAEW are:

  • That the use a purely cash flow based estimate (i.e. value in use) in determining the recoverable amount of social properties would not provide more relevant and reliable information to users. 
  • That there is not sufficient guidance in paragraphs 14.25 and 14.26 to explain the calculation of depreciated replacement cost.  The ICAEW consider that “the proposed guidance may not work well in practice” and agree that worked examples demonstrating the application of the guidance would be useful.
  • That it does not see additional benefits in requiring social landlords to disclose the value in use of a cash generating unit if it chooses to use the VIU-SP estimation technique in performing an impairment assessment.  
  • That the section setting out the indicators of impairments does not provide sufficient guidance to social landlords to understand when there may be an indicator necessitating an impairment assessment.  The ICAEW comment that the guidance in paragraph 14.5 “needs to make it clearer that the five ‘most common’ indicators identified do not constitute a comprehensive list”.
  • That although the ICAEW are of the opinion that the worked examples in the impairment do provide sufficient guidance for social landlords to apply the principles set out in the SORP, the use of numbers would be useful to “articulate the underlying principles”.

In addition, the ICAEW consider that “more clarity on the disclosures relating to inclusion of impairment loss/reversal of impairment loss (paragraphs 14.33 and 14.36) in the Statement of Comprehensive Income, such as a separate line in a note, would be helpful”.

The ICAEW comment that its responses are “conditional on the retention of the cross subsidy accounting principles” which are included within SORP (2010) paragraph 164.  The ICAEW see that these principles are “essential for a true and fair view” and recommend a further consultation “in the event that the cross subsidy accounting principles are not reflected in the revised SORP”.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter on the ICAEW website.

Detailed interview regarding the new revenue framework in IFRS 15

23 Jun 2014

Robert Bruce hosts an interview with Phil Barden, a Partner in the Deloitte UK IFRS Centre of Excellence, and Amy Haworth, a Senior Manager in the Deloitte UK IFRS Centre of Excellence, to discuss in more detail IFRS 15 'Revenue from Contracts with Customers'.

The video (approx. 61 min) discusses the core principles underpinning the IFRS 15 framework and potential issues that certain IFRS reporters may encounter when implementing this new standard. It additionally discusses certain guidance that IFRS 15 introduces of which IFRS reporters will need to be aware, such as disclosures, contract modifications and customer options to purchase additional goods and services, and transition options.

Click for access to the video, which is also available in individual segments for easier viewing.

June 2014 IASB meeting notes — Part 2

22 Jun 2014

The IASB's meeting was being held on 17–19 June 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the sessions on Wednesday covering leases (joint), annual improvements (2012-2014 cycle), IFRS IC issues, and business combinations under common control as well as Thursday's session on discount rates. The remaining notes on the conceptual framework will follow in due course.

Click through for direct access to the notes:

Wednesday, 18 June 2014

Thursday, 19 June 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

Michel Prada interview on the IFRS Foundation and its future priorities

20 Jun 2014

In a video interview conducted by Robert Bruce, Chairman of the IFRS Foundation Trustees Michel Prada discusses the IFRS Foundation, how it is governed, progress made in global standard setting, and the shift from a bi-lateral to a multi-national approach when developing standards.

The video is available on the IASB’s website.

EFRAG Update detailing May/June developments

20 Jun 2014

The European Financial Reporting Advisory Group (EFRAG) has released a new issue of its 'EFRAG Update' newsletter, summarising the discussions held at the EFRAG CFSS meeting of 27 May 2014, the EFRAG TEG conference calls of 28 May and 4 June 2014 and the EFRAG TEG meeting of 11-13 June 2014.

Highlights included the issuance of two draft endorsement advice letters on the IASB projects related to (1) amendments to IFRS 11 and (2) amendments to IAS 16 and IAS 38. Also, the EFRAG published a feedback statement from its Brussels outreach event on the post-implementation review of IFRS 3.

Additional topics discussed in the newsletter are:

Please click for the new issue of the EFRAG Update (link to EFRAG website).

IVSC policy paper on global regulatory convergence

20 Jun 2014

The International Valuation Standards Council (IVSC) has published a policy paper dealing with the role of valuation in global regulatory convergence.

The policy paper, Global Regulatory Convergence and the Valuation Profession, includes the following summary:

With many corporations and financial institutions now operating globally, convergence of the diverse systems of national regulation of the financial markets is essential for both effective regulation and to facilitate economic growth. Consistent and effective regulation is important in promoting the comparability of financial information, minimising the effects of systemic economic risks, and helping to create a level playing field for international competition. For the valuation profession, regulatory convergence includes the global adoption and implementation of high-quality internationally accepted standards for the undertaking and reporting of those valuations that are relied upon by investors and regulators of the global financial markets.

The paper outlines:

  • the role of valuation in meeting the public interest in areas such as financial reporting, solvency of financial institutions, lending and investment decisions and unit pricing of collective investment schemes, noting that a 'one size fits all' approach may not always be suitable
  • an overview of how the valuation profession can contribute to global regulatory convergence through standards development, promoting consistent adoption and implementation, and developing regulatory arrangements
  • the key benefits of global regulatory convergence, including the comparability of financial information, improving the auditability of financial statements, reducing the effects of systemic risks, reducing information costs, decreasing opportunities for regulatory arbitrage, underpinning the global regulatory system, and providing benefits to developing and emerging economies
  • impediments and challenges to achieving global regulatory convergence
  • the role and work of the IVSC, including the setting of valuation standards and professional standards for valuers, providing adoption and implementation support and the promotion of consistent competency and ethical standards by IVSC member bodies.

The full policy paper can be obtained from the IVSC website.

Membership of the Expert Group on the evaluation of the European IAS Regulation announced

19 Jun 2014

The European Commission (EC) has announced the membership of the informal 'Expert Group on the evaluation of the IAS Regulation'.

The following organisations were appointed:

  • European Securities and Markets Authority (ESMA),
  • Business Europe,
  • VMEBF (German family-owned business group),
  • European Banking Federation (EBF),
  • Insurance Europe,
  • European Federation of Financial Analysts Societies (EFFAS),
  • Investment Management Association (IMA),
  • Federation of European Accountants (FEE),
  • Association of Chartered Certified Accountants (ACCA),
  • Bruegel,
  • European Accounting Association (EAA).

In addition, the following Member States authorities were appointed:

  • Accounting Standards Board, Estonia,
  • Autorité des Normes Comptables, France,
  • Accounting Standard Setter Committee, DRSC, Germany,
  • CONSOB, regulator of the financial market, Italy,
  • Bank of Spain, Spain,
  • Accounting Standards Board BFN, Sweden,
  • Financial Reporting Council, UK.

The European Commission's expert group is intended to advise and assist the EC in conducting the retrospective evaluation of the IAS Regulation. The Commission currently envisages that it would have a public consultation and possibly targeted workshops. It will seek to draw on the expertise of the group to advise it in respect of such activities and others as required by the Commission.

Please click for the announcement of members on the EC website.

New EFRAG governance structure will become effective 31 October 2014

19 Jun 2014

On 16 June 2014, in an EFRAG General Assembly meeting, EFRAG's existing 7 Member Organisations have approved the revised EFRAG Statutes and Internal Rules and admitted 8 new members. The effective date of 31 October 2014 was chosen because the European Commission will only be able to nominate the President of the EFRAG Board after having heard the European Parliament and the Council of Ministers, which is expected to to take place in early autumn.

The revised EFRAG Statutes and EFRAG Internal Rules that reflect the recommendations of the Maystadt report will establish a new EFRAG Board that will be responsible for all EFRAG positions with the objective of Europe speaking with one voice, facilitated by a consensus-based decision-making process in the EFRAG Board.

According to the revised EFRAG Internal Rules, the EFRAG Board is responsible for all positions of EFRAG, after having considered the technical advice provided by EFRAG TEG and reflecting the results of EFRAG's due process and must ensure that EFRAG has an open and transparent due process including a public consultation process with European constituents on draft EFRAG positions such as discussion papers, draft comment letters, draft consultation documents and draft endorsement advices. Specifically, the Internal Rules list the following responsibilities:

  • To set the strategic direction of EFRAG taking into account the priorities defined by the European Commission in respect of developments in international financial reporting standards (IFRS);
  • To provide directions to and request technical advice from EFRAG TEG on issues relevant for the EFRAG Board's positions, oversee the work of the EFRAG TEG, and provide guidance and feedback to the EFRAG TEG on its work;
  • To provide directions on the field work of EFRAG where specific consultations or investigations are deemed necessary to provide an economic assessment;
  • To ensure the optimal use of European resources;
  • To advise the European Commission on the strategic direction in relation to financial reporting;
  • To consider and comment upon proposed developments to European regulations, directives, guidelines and guidance as requested by the European Commission;
  • To decide on the agenda of EFRAG's research activities, after consultation with the European Commission and after public consultation on possible projects to be included in the research agenda, when deemed necessary, so as to stimulate the accounting debate in Europe and influence the IASB; and
  • To provide input to the IASB’s agenda consultations after consultation with the European Commission and after public consultation.

EFRAG TEG, which is expected to have at least ten physical meetings every year lasting for an average of three days, provides technical advice to the EFRAG Board, however, the latter has sole responsibility for all EFRAG positions. EFRAG TEG provides its own professional judgment, arguments and technical analysis based on its technical expertise and on EFRAG's due process. EFRAG TEG's advice then forms part of the EFRAG Board agenda papers for the Board’s finalisation and approval. EFRAG TEG will also provide input for the EFRAG research activities in the financial reporting arena in active projects launched by the EFRAG Board. It is expected that EFRAG TEG will deliver sound technical judgments supported by reasoned opinions without regard to the particular interests of member or nominating organisations.

Please click for the following information on the EFRAG website:

IFRS Foundation appoints Trustee

19 Jun 2014

The IFRS Foundation has announced the appointment of Jin Liqun as Trustee of the IFRS Foundation. The appointment will begin on 1 July 2014 and will expire on 31 December 2016.

Mr Liqun is currently the Chairman of China International Capital Corporation Limited, as well as a member of the foreign policy advisory committee of the Chinese Foreign Ministry. He has a background in investments and capital markets related to public and private sectors.

For more information, see the press release on the IASB’s website.

Correction list for hyphenation

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