May

Deloitte publishes fifth annual global IFRS banking survey

18 May, 2015

Deloitte has issued its 'Fifth Global IFRS Banking Survey — Finding your way'. The report captures the current views of 59 major banking groups—including 12 of the 18 global systemically important financial institutions (G-SIFIs)—on recent accounting and regulatory changes. With IFRS 9 published and the FASB's CECL project expected to come to a conclusion soon, this study focuses on how banks are approaching the implementation of the anticipated IFRS 9/FASB CECL model requirements in their organisations.

It summarises key findings such as:

  • Total anticipated implementation budgets have doubled in the year since our previous survey.
  • 76% of banks surveyed expect bank accounts to be more useful for regulators under the new rules.
  • A majority of respondents expect to use one or more of the operational simplifications available, despite discouragement from the Basel Committee on Banking Supervision (BCBS).
  • 85% of banks surveyed anticipate their expected credit loss provisions to exceed those calculated under Basel rules, mostly driven by the provision of lifetime expected losses under "stage II".
  • More than half of respondents indicated that they do not have enough technical resources to deliver their IFRS 9/FASB CECL project and a quarter of these further doubt that there will be sufficient skills available in the market to cover any shortfall.

Click for previous surveys:

FRC publishes feedback statement on the Regulation of Auditors of Local Bodies

18 May, 2015

The Financial Reporting Council (FRC) has today published a feedback statement on the Regulation of Auditors of Local Bodies.

In July 2014, the Financial Reporting Council (FRC) issued a consultation on statutory Regulations and Guidance for ‘local public audits’ – audits of local authorities, clinical commissioning groups and the remaining non-foundation NHS trusts - seeking views on the way in which it should give effect to three specific responsibilities delegated to it under the Local Audit and Accountability Act 2014.

The FRC has now published a feedback statement to that consultation. Overall the responses were supportive of the proposals, however minor changes have been made to take into account the comments and suggestions made.

 The FRC expects to implement the regulations and guidance by the end of 2014 and they will be applicable to the audits of local public bodies in respect of accounting periods ending 31 March 2018

The press release and feedback statement are available on the FRC website.

Study of the CFA Institute on the role of comprehensive income

18 May, 2015

The CFA Institute, a global association of investment professionals, has published 'Analyzing Bank Performance: Role of Comprehensive Income'. The study argues that the information reported on the statement of other comprehensive income (OCI) is an integral part of performance reporting and that there is a need to increase investor attention on OCI statement items.

The report reviews existing academic evidence and analyses data from 44 global and mainly large, complex banks over an eight-year reporting period (2006–2013). Although it focuses on banks, the findings are more widely applicable as the question of what constitutes performance is highly relevant and will also be one of the central questions of the forthcoming exposure draft on the Conceptual Framework project.

The study findings show that OCI information has economic information content and that losses on the OCI statement are more common than losses on the income statement. Therefore, the authors (who include a Trustee, a member of the IFRS Advisory Council, and a member of the IFRS Interpretations Committee) propose the following measures to enable and encourage investors to increase scrutiny and incorporate OCI in their valuation and performance analysis:

  • enhancement of the presentation and disclosure of OCI line items by financial statement preparers and standard-setters,
  • explanation of the purpose of OCI within the conceptual framework and incorporation of enhanced presentation principles into the intended performance reporting project, and
  • incorporation of granular OCI information into data aggregators' electronic databases to facilitate increased investor access.

Please click to access the study on the CFA Institute's website.

May 2015 IFRS Interpretations Committee meeting notes posted — part 1

15 May, 2015

The IFRS Interpretations Committee met in London on 12 May 2015. We've posted the Deloitte observer notes for the sessions on IAS 16, IAS 21, IFRS 10, and IFRS 13.

Summary of the April 2015 ITCG meeting

15 May, 2015

The IASB's IFRS Taxonomy Consultative Group (ITCG) held its meeting on 21 April 2015. The IASB has now published on its website meeting notes from that meeting.

Topics discussed include:

  • IASB’s disclosure initiative including the IFRS Taxonomy — The ITCG was updated on (1) the significant impact tn the content of IFRS Taxomony from upcoming publication, (2) IFRS Taxonomy due process trials, and (3) the June launch of the IFRS Taxonomy jurisdictional profiles.
  • Update by regulators — The ITCG received updates from ESMA, SEC, ASIC, and the Ministry of Finance of China related to the IFRS Taxonomy.
  • IFRS Taxonomy roadmap and strategy — The ITCG received an outlook of planned activities for the next six months and provided views on common practice and activities to support regulators.
  • Management of entity-specific disclosures — The ITCG discussed proposed actions that focused on the IFRS Taxonomy review, preparer documentation and guidance, technical mechanisms connecting entity-specific disclosures with IFRS Taxonomy items, IFRS Taxonomy navigation, and a paper on entity-specific disclosures that includes the staff’s views on improvements.
  • Regulator updates of the IFRS Taxonomy — Break-out sessions discussed factors of providing regular updates to the IFRS Taxonomy.

In addition, updates were given on the XII activities, technology, and content areas for review.

Please click for access to the meeting notes on the IASB website.

FRAB minutes for March 2015 meeting released

15 May, 2015

The minutes of the Financial Reporting Advisory Board’s (FRAB’s) meeting of 26 March 2015 have been made available on the HM Treasury website.

The role of the Financial Reporting Advisory Board (FRAB) is “to ensure that government financial reporting meets the best possible standards of financial reporting by following Generally Accepted Accounting Practice (GAAP) as far as possible”.  The FRAB includes representatives from the accountancy profession in the private and public sectors, academia and government bodies.  The board meets regularly to consider proposed changes to policy and practice.

 Key topics discussed during the meeting included:

  • The use of discount rates in financial reporting including discount rates applied to liabilities recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IAS 19 Employee Benefits.  Discussions focussed around disclosure and the actual rates to be used including frequency of changing them. 
  • A high-level work plan for the adoption and implementation of IFRS 9 Financial Instruments in the public sector.  A paper was presented that outlined agreed steps and indicates that HM Treasury envisage running the process for implementation in parallel to the implementation plan for IFRS 15 Revenue from Contracts with Customers.  This would mean working to a timetable as if IFRS 9 is to be implemented in the public sector in 2017/18 when actual implementation will be 2018/19.
  • An update on leases including the latest developments from the International Accounting Standards Board (IASB).  It was agreed that once the IASB finally publish the leases Standard, high level work on its impact in the public sector should be undertaken.
  • An update on International Public Sector Accounting Standards (IPSAS) development including the finalised conceptual framework.  Key chapters of the conceptual framework were summarised including how these differ from the current position of the IASB’s own review of its conceptual framework.  A brief summary of the IPSAS Board’s on-going projects including public sector combination, emission trading and public sector financial instruments was also mentioned.
  • NHS Manual for Accounts 2015-16.
  • An update on the European Public Sector Accounting Standards project.
  • An update on the UK Government's Financial Reporting Advisory Board (FRAB) report on public sector accounting for 2014-15. 

Click here for detailed minutes and other supporting documents on HM Treasury website.

FRC consults on a new Assurance Standard over client assets

14 May, 2015

The Financial Reporting Council (FRC) has today published an exposure draft of a proposed new Assurance Standard over Client Assets.

The Financial Conduct Authority (FCA) regulates entities that hold client assets and rules around their safeguarding are contained in the FCA’s Client Assets Sourcebook (CASS).  The CASS requires those firms that hold client assets to hold them separately from their own to minimise the risks of loss to their clients in the event of insolvency. 

Where an entity holds client assets the FCA's Supervisory Manual (SUP rules) require the CASS auditor, annually, to provide a Reasonable Assurance Client Assets Report and to report, among other things, on whether the entity has adequate systems in place to safeguard their client assets.  Where an investment business claims not to hold client assets, a Limited Assurance Report is required.

The Assurance Standard Providing Assurance on Client Assets to the Financial Conduct Authority has been developed to support and challenge auditors when providing these reports.  The proposed new Standard will contain requirements relating to: reasonable assurance engagements, limited assurance engagements, special reports and non-statutory client money trusts.  The FRC highlights that the Standard will (taken directly from the consultation):

  • improve the quality of CASS audits;
  • adequately support and challenge CASS auditors when undertaking CASS engagements and, in particular, to define the nature and extent of the work effort required for both reasonable assurance and limited assurance CASS engagements without undermining the importance of the CASS auditor’s judgment;
  • support the objectives of the FCA’s Client Asset regime regarding the effective safekeeping of client assets and client monies and in particular to guard against systemic failure of the CASS regime;
  • manage the expectations of:
    • The management of firms that hold client assets; and
    • Third party administrators

    when they engage a practitioner to provide assurance to the FCA on client assets that they handle or account for;

  • support the effective training of CASS auditors by both the accounting bodies and other training organisations;
  • help to establish realistic expectations regarding the integrity of the UK Client Asset Regime with the beneficial owners of client assets; and
  • underpin the effectiveness of the FRC’s enforcement and disciplinary activities with respect to CASS assurance engagements.

The proposed new Standard will be effective for reports to the FCA with respect to client assets covering periods commencing on or after 1 January 2016, with early adoption permitted.

Comments are invited until 31 July 2015.

The press release and the exposure draft are available on the FRC website.

CFA Institute issues study on investor views on complexity in corporate financial reporting

14 May, 2015

The CFA Institute, a global association of investment professionals, has published 'Addressing Financial Reporting Complexity: Investor Perspectives' featuring results of a member survey on the topic. The report analyses what investors believe are unavoidable (transactional) and avoidable (accounting) sources of complexity and how current standard-setter initiatives should be refocused to eliminate avoidable complexity to increase transparency and bring about meaningful change.

The paper argues that the current dialogue focuses largely on preparers' concerns regarding financial reporting complexity and its associated compliance costs. The investors' perspectives would be missing in the debate. Main focus of the report is differential financial reporting. The results show that:

  • 82% of respondents (170 members of the CFA Institute responded to the survey) believe the creation of separate private company standards would create comparability issues for those investing across public and private companies;
  • 65% say it would result in the loss of information useful to their financial analyses;
  • 73% believe it may actually increase complexity instead of lessening it.

Among the aspects of differential reporting that aim at lessening the reporting burden for non-listed companies the investors believe the following could increase, rather than reduce, avoidable complexity:

  • delayed recognition of transaction and events;
  • greater use of cost-based rather than fair-value measures;
  • greater earnings smoothing versus recognition of market/economic events;
  • substituting presentation on the face of the financial statements with disclosure; less disaggregation of information; and fewer roll-forwards, reconciliations, tables, and charts;
  • greater optionality and potentially less comparability of financial statements;
  • reduced disclosure requirements.

The balance between the needs of companies to cut their compliance costs and the needs of investors to receive valuable, decision-useful information also formed part of the comprehensive review of the IFRS for SMEs (an amended standard is expected in the second quarter of 2015) and is also part of the discussions in the IASB's principles of disclosure project.

Similar views are also included in the CFA Institute's response to the European Commission's public consultation Building a Capital Markets Union. The response is based on a survey of CFA Institute members in the EU and Switzerland and concludes:

In general, CFA Institute does not support the creation of differential accounting standards for different entities, whether based upon size or legal structure. Separate financial reporting for SMEs reduces comparability between the financial statements of SMEs and larger companies. Comparability is essential to those who invest across companies of all sizes. Creating differences in the financial reporting requirements of such companies hinders investors’ financial analysis and investment decision-making processes. [...] In the case of the EU, we therefore encourage all companies to adopt a single standard – IFRS. Should the European Commission decide to provide relief to SMEs in the EU, we urge the Commission to consider any relief from IFRS both cautiously and in limited circumstances, especially since some SMEs in the EU are public companies. If the Commission were to consider providing relief for SMEs, such relief should only be considered in the areas of disclosure requirements and effective dates of new accounting requirements.

Please click to access the following information on the CFA Institute's website:

FASB proposes revenue ASU on licensing and identifying performance obligations

12 May, 2015

The FASB has issued proposed ASU, 'Identifying Performance Obligations and Licensing', that would amend certain aspects of the Board’s May 2014 revenue standard, specifically the guidance on identifying performance obligations and the implementation guidance on licensing.

The amendments are being made in response to feedback received by the IASB–FASB joint revenue recognition transition resource group (TRG), which was formed to address potential issues associated with the implementation of ASU 2014-09.

Comments on the proposed ASU are due by 30 June 2015.

The IASB intends to issue a separate exposure draft, Clarifications to IFRS 15 Revenue From Contracts With Customers: Issues Emerging From TRG Discussions, in the late second quarter of 2015. 

For more information, see the proposed ASU on the FASB’s website.

IFRS Foundation responds to EC's Green Paper and advocates for IFRS in a Capital Market Union

12 May, 2015

The IFRS Foundation has submitted its response to the European Commission's (EC's) public consultation, 'Building a Capital Markets Union'. The project aims to boost growth in the EU with the creation of a single market for capital and break down the barriers that are blocking cross-border investments in the EU and preventing businesses from getting access to finance.

In its response, the IFRS Foundation noted that "the use of a single set of financial reporting requirements is important to the successful achievement of a Capital Markets Union (CMU). The introduction of IFRS in the EU has been beneficial for those companies whose securities are admitted to trading on a regulated market and the Foundation believes that those benefits will hold true for companies, regardless of size, listed on alternative trading venues such as [Multilateral Trading Facilities]."

The IFRS Foundation also emphasised its willingness to work with the EC in considering the financial reporting implications of the CMU.

Click for more information:

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