June

Financial Reporting Lab survey into future priorities

05 Jun, 2014

The Financial Reporting Lab (“the Lab”) has launched a survey seeking respondents’ views as to what should be the priorities of the Lab going forward and seeking their feedback on the activities of the Lab to date.

Feedback is requested by 16 June, from all those involved in reporting, including companies and their advisors, auditors, representative/professional bodies and investors (institutional and individual) and analysts. 

The survey can be accessed at the following link.

IASB staff paper on the conceptual framework

05 Jun, 2014

The IASB staff has prepared a staff paper discussing how the tentative decisions made by the IASB would affect the proposals in the Discussion Paper 'A Review of the Conceptual Framework for Financial Reporting'. It reflects tentative decisions of the IASB made through April 2014.

According to the timetable for the redeliberations in the conceptual framework project, the IASB aims to issue an Exposure Draft of a revised Conceptual Framework by the end of 2014.

The staff paper is available on the IASB's website.

Updated EFRAG endorsement status report includes IFRS 15

05 Jun, 2014

The European Financial Reporting Advisory Group (EFRAG) has updated its Endorsement Status Report to include IFRS 15 'Revenue from Contracts with Customers' published on 28 May 2014. It also reflects an open status regarding the endorsement of IFRS 14 'Regulatory Deferral Accounts'.

IFRS 15 applies to an annual reporting period beginning on or after 1 January 2017. The updated report indicates that final endorsement of the standard is currently expected in the second quarter of 2015.

The endorsement status report, dated 5 June 2014, is available here.

FRC publishes document reconfirming that the presentation of a true and fair view remains a fundamental requirement of financial reporting

04 Jun, 2014

The Financial Reporting Council (FRC) has today published a document (“the document”) which reconfirms that the presentation of a true and fair view remains “a fundamental requirement in financial reporting” under both International Financial Reporting Standards (IFRSs) and United Kingdom Generally Accepted Accounting Principles (UK GAAP).

In October 2013, the FRC and the Department for Business Innovation and Skills (BIS) confirmed that the current legal framework requires companies to present a true and fair view.  In light of this, the document published by the FRC highlights the application of the true and fair requirement under IFRSs and UK GAAP.

The document highlights the relevance of the true and fair requirement to preparers, those charged with governance and auditors.

The document highlights:

  • That when preparing accounts “objective professional judgement must be applied to ensure that financial statements give a true and fair view”.  
  • The importance of prudence, something which the IASB is now proposing to reintroduce into the Conceptual framework, in the preparation of accounts prepared under IFRSs and UK GAAP and its contribution to the concept of true and fair. 
  • That transactions should be accounted for in accordance with their substance rather than legal form if accounts are to show a true and fair view.  The FRC comment that “it would be difficult for accounts to present a true and fair view if form had overridden substance”.
  • That compliance with accounting standards and additional disclosure to fully explain an issue “in the vast majority of cases” will result in a true and fair view.  Where this is not the case, IAS 1 Presentation of Financial Statements paragraph 19 and FRS 102 The financial reporting standard applicable in the UK and the Republic of Ireland paragraph 3.4 requires that where compliance with an accounting standard may not achieve that objective, the standard may be overridden.  The FRC has commented that were a company departs from a standard in order to give a true and fair view and a proper explanation is given of the reason for the departure and its effects, it will “be reluctant to substitute its own judgment for that of the company’s board unless it is not satisfied that the board has acted reasonably”. 
  • That if auditors are to discharge properly their legal and professional responsibilities, “they should stand back as they approach finalisation of those accounts and consider whether, viewed as a whole and in view of the issues that they have addressed in the course of the audit, the accounts do indeed give a true and fair view”.

In concluding, the FRC expects preparers, those charged with governance and auditors:

Always to stand back and ensure that the accounts as a whole do give a true and fair view;

To provide additional disclosures when compliance with an accounting standard is insufficient to present a true and fair view;

To use the true and fair override where compliance with the standards does not result in the presentation of a true and fair view; and

To ensure that the consideration they give to these matters is evident in their deliberations and documentation.

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IASB and FASB create transition resource group to help entities implement revenue standard

03 Jun, 2014

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have announced the formation of a Joint Transition Resource Group (TRG) that will focus on potential implementation issues associated with their new revenue recognition standard.

The TRG members comprise of auditors, preparers, and users from various industries and geographical locations as well as from both private and public companies. The current membership includes:

  • John Armour, CBIZ MHM, LLC, Managing Director
  • Karyn Brooks, Bell Canada, Retired Senior Vice President and Controller
  • Jeff Bryan, Dixon Hughes Goodman LLP, Partner, Professional Standards Group
  • Andrew Buchanan, BDO IFR Advisory Limited, Global Head of IFRS
  • Allan Cohen, NBCUniversal Media, Senior Vice President and Controller
  • Emmanuelle Cordano, Sanofi, Accounting Standards Director
  • Mark Crowley, Deloitte & Touche LLP, National Office Director, Accounting Standards and Communication
  • Tony de Bell, PricewaterhouseCoopers LLP, Partner, Global Accounting Consulting Services
  • Carl Douglas, The CCR Group, Corporate Controller
  • Russell Hodge, General Electric Company, Global Technical Controller
  • Christoph Hütten, SAP, Senior Vice President and Chief Accounting Officer
  • Gregg Nelson, IBM Corporation, Vice President, Accounting Policy and External Reporting
  • Brian O’Donovan, KPMG IFRG Limited, Partner, International Standards Group
  • James Riley, Jardine Matheson, Group Finance Director
  • Rita Spitz, William Blair & Company, LLC, Principal
  • Alison Spivey, Ernst & Young LLP, Partner, Assurance Services-National Accounting
  • Scott Taub, Financial Reporting Advisors, LLC, Managing Director
  • Michael Wood, Raytheon, Vice President, Controller and Chief Accounting Officer
  • Kazuo Yuasa, Fujitsu Limited, Executive Vice President, Corporate Finance Unit

The first TRG meeting is scheduled for 18 July 2014.

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

FRC response to the IASB’s request for information on the Post-Implementation Review of IFRS 3

03 Jun, 2014

The Financial Reporting Council (FRC) has published a comment letter responding to the International Accounting Standard Board’s (IASB’s) request for information on the Post-Implementation Review of IFRS 3 Business Combinations.

The IASB issued a Request for Information (RFI) in January 2014 seeking comments from stakeholders to identify whether IFRS 3 'Business Combinations' provides information that is useful to users of financial statements; whether there are areas of IFRS 3 that are difficult to implement and may prevent the consistent implementation of the standard; and whether unexpected costs have arisen in connection with applying or enforcing the standard.

The FRC’s response has been informed from the results of an outreach meeting held in March 2014 and also the findings in its research paper ‘Investor views on intangible assets and their amortisation’.

The key responses from the FRC outreach activity were:

  • Respondents commented that the definition of a business in IFRS 3 is “too broad”.  It was highlighted that differences in interpretations by preparers “result in substantively similar transactions being treated as either business combinations or asset acquisitions”.
  • Many preparers highlighted the difficulties in determining many of the fair value measurement requirements of the standard, from valuing intangible assets that are not separable from the business to previously held equity interests on gaining control.
  • Preparers highlighted the cost of separately identifying and measuring all intangible assets.  Auditors noted the “significant challenge” in auditing the valuations of such intangible assets as “they are often heavily based on management judgments”. 
  • There was a “high level of dissatisfaction” from investors, preparers and auditors with the requirements of IFRS 3 to recognise all intangible assets acquired in a business combination “irrespective of their nature or the ability to reliably measure their fair value”.  This was supported by the FRC findings in its research paper.
  • A number of respondents commented that the disclosures made following an acquisition “are often insufficient for users to fully assess the performance of the investment over time” and called for a “more holistic view from the disclosures”.  Respondents highlighted that the current disclosures under IFRS 3 “are very detailed and fail to provide an overall assessment of the investment and how it has performed compared to management’s stated objectives in making the acquisition or the expectations of future performance at the time of the acquisition”.

A number of suggestions were made for improving the standard.  The “most widely expressed” were:

require the separate recognition and measurement of fewer intangible assets - this could be done by re-introducing the reliable measurement recognition criteria, particularly in respect of intangible assets that are not separable from the business;

reduce complexity and the use of judgmental valuations in areas such as stepped acquisitions, the treatment of non-controlling interests and partial disposals; and

move to a model of disclosures that concentrates on high level objectives and provides for a holistic view of the investment and its performance, rather than specifying a list of detailed requirements.

Additionally the FRC comment that greater clarity in the definitions or explanatory guidance and examples in the standard would help to reduce “interpretive differences improve comparability and ensure that the accounting treatment properly reflects the substance of the transactions”.

Based on the results of the outreach and the suggestions for improving the standard as a result, the FRC indicate that the IASB should “undertake a project to improve IFRS 3”. 

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May 2014 IASB meeting notes — Part 4 (concluded)

02 Jun, 2014

The IASB's meeting was held on 20–22 May 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the session on conceptual framework.

Click through for direct access to the notes:

Wednesday, 21 May 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

FRC approves Charities SORP for publication

02 Jun, 2014

The Financial Reporting Council (FRC) has approved, for publication, the Charities Statement of Recommended Practice (“the Charities SORP”) developed by the Charity Commission for England and Wales (Charity Commission) and the Office of the Scottish Charity Regulator (OSCR).

The Charities SORP sets out the accounting and reporting requirements of charities in the context of the new accounting framework introduced by Financial Reporting Standard (FRS) 102 applicable in the UK and Republic of Ireland for financial years beginning on or after 1 January 2015.  An Exposure Draft was issued in July 2013 and, following a period of consultation, a number of changes were made to the Charities SORP as reflected in our March 2014 news item.   

Additionally, the FRC has approved the separate SORP based on the Financial Reporting Standard for Smaller Entities (FRSSE).

It is expected that the two new SORPS will be published on the Charity Commission SORP micro-site in the summer and “possibly as early as July”.

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Linda Diaz appointed to the IFRS Advisory Council

02 Jun, 2014

The Trustees of the IFRS Foundation have announced the appointment of Linda Diaz to the IFRS Advisory Council.

Ms Diaz is Deputy General Director of Accounting Regulation for the National Banking and Securities Commission (CNBV) in Mexico where she is responsible for the design, development and implementation of accounting standards, auditing and disclosure regulations issued by the CNBV. Ms Diaz is also a permanent representative of CNBV at the Accounting Experts Group of the Basel Committee. Her appointment commenced with effect from 1 June 2014.

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

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