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Deloitte Comment Letter Image

We comment on a number of tentative agenda decisions of the IFRS Interpretations Committee

07 Apr, 2014

We have published our comment letters on IFRS Interpretations Committee agenda decisions on IAS 1, IAS 12, IAS 16, IAS 19, IAS 32, IAS 37, IFRS 3 and IFRS 11, as published in the January IFRIC Update.

More information about the issues is set out below:

IssueMore information
IAS 1 Presentation of Financial Statements — Issues relating to the application of IAS 1
IAS 12 Income Taxes — Recognition and measurement of deferred tax assets when an entity is loss-making
IAS 12 Income Taxes — Impact of an internal reorganisation on deferred tax amounts related to goodwill
IAS 12 Income Taxes — Threshold of recognition of an asset in the situation in which the tax position is uncertain
IAS 16 Property, Plant and Equipment — Disclosure of carrying amounts under the cost model
IAS 19 Employee Benefits — Employee benefit plans with a guaranteed return on contributions or notional contributions
IAS 32 Financial Instruments: Presentation — Accounting for a financial instrument mandatorily convertible into a variable number of shares subject to a cap and a floor
IAS 37 Provisions, Contingent Liabilities and Contingent Assets — Measurement of liabilities arising from emission trading schemes
IFRS 3 Business Combinations — Identification of the acquirer in accordance with IFRS 3 and the parent in accordance with IFRS 10 in a stapling arrangement
IFRS 11 Joint Arrangements — Classification of joint arrangements

 

You can access all our comment letters to the IASB, IFRS Foundation, and IFRS Interpretations Committee here.

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FRC outreach highlights support for simplifications to the leases proposals

07 Apr, 2014

The Financial Reporting Council (FRC) has published the results, in the form of a letter, of outreach undertaken to understand the views of UK preparers on the costs and benefits of simplifications to the leases proposals which were discussed by the International Accounting Standards Board (IASB) in its January 2014 meeting and were set out in Agenda Paper 4A of the Accounting Standards Advisory Forum (ASAF) March meeting. The FRC highlights that they “received largely consistent feedback with most participants supporting significant simplifications to the proposals”.

The key comments from the preparer outreach were:

  • That there was “general support” for ‘approach A’ lessee accounting discussed by the IASB at its January 2014 meeting.  This proposes a single approach, according to which a lessee would account for all leases as the purchase of a right of use (ROU) asset on a financed basis.  Under this model a lessee would account for all leases as Type A leases (that is, recognising amortisation of the ROU asset separately from interest on the lease liability).  Only a minority supported the dual approach (‘approach 3’) with lease classification based upon the existing guidance in IAS 17 Leases’.
  • There were concerns raised as to the distinction between a lease and a service.  A majority of the participants considered that the proposals were not clear on how to determine whether or not a contract is a lease or a service.  Participants were also of the view that if a contract considered a significant service component then it should be accounted for as a service contract and the lease component should not be accounted for separately. 
  • A number of participants were supportive of a reduction in the requirements to reassess the lease liability discussed in ASAF Agenda Paper 4A (link to IASB website).
  • Most participants were of the view that they would incur “significant costs” to implement the lease proposals and were in favour of simplifications that reduced costs.  The FRC highlight that “most of these participants are unsure whether the leases proposals in their current form will result in a sufficient enhancement of the usefulness of financial statements to justify the costs of implementing the proposals as well as the ongoing costs”. 

Subsequent to the January meeting the IASB held further discussions on leases in their March 2014 meeting where a number of these concerns were raised and deliberated.  At that meeting the majority of the IASB voted in support of a single lessee accounting model.  Click here for the meeting notes taken and our 'Need to know' newsletter detailing the decisions reached.

The full letter can be obtained from the FRC website.

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Memorandum of understanding between the FRC and the FAOA of Switzerland regarding audit supervision

07 Apr, 2014

The Financial Reporting Council (FRC) and Federal Audit Oversight Authority (FAOA) of Switzerland have entered into a memorandum of understanding (MoU) in relation to the regulation and supervision of audit firms.

The MoU seeks to formalise the principles for cooperation and coordination between the two organisations in the areas of public oversight, registration, inspections and investigations of auditors of companies that are subject to the regulatory jurisdictions of both parties. 

The FRC comment that “given the global nature of capital markets, it is the common interest of both parties to cooperate in the oversight of auditors”.  Cross border regulation and oversight under the MoU will help to improve the quality, accuracy and reliability of the audit of public companies and will “avoid the undue burden of overlapping supervision”. 

The press release and MoU can be obtained from the FRC website.

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IASB XBRL team seeks participants for its 2014 XBRL Common Practice Project

07 Apr, 2014

In the last four years, the IASB XBRL team has been interacting with companies from various countries and industries to identify and develop extra concepts to the IFRS taxonomy reflecting common practices. The IASB XBRL team is re-establishing the project to examine and develop common industry practice concepts for the IFRS Taxonomy, and is looking to work directly with stakeholders across different industries and regions in order to increase comparability, reduce the number of XBRL extensions, and lower the burden on preparers.

For 2014, the project will be focusing to the following industries:

  • Chemicals;
  • Information Technology;
  • Media; and
  • Utilities.

Companies interested in participating in this project should express their interest by 15 April 2014.

For further information please go to the press release on the IASB's website.

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Capital Markets Advisory Committee February 2014 meeting update

04 Apr, 2014

The IASB has made available a summary and recordings of the discussions for the Capital Markets Advisory Committee (CMAC) 27 February 2014 meeting.

The topics discussed at the meeting included:

  • Leases. The CMAC members discussed the alternative lessee accounting models. Most of the members supported the single model approach because it shows a link between the balance sheet and income statement. The few that supported the dual approach believed that it effectively reveals the economic differences between real estate leases and equipment leases.
  • Post-implementation Review of IFRS 3. The CMAC provided feedback to certain questions within the Request for Information paper issued on 30 January 2014. Specifically, the members discussed:
    • Business combinations versus assets acquisitions.
    • Separate recognition of intangible assets from goodwill.
    • Goodwill: Non-amortisation versus amortisation.
  • Integrated reporting. The CMAC members provided feedback on the IASB’s role concerning integrated reporting. There were a variety of views ranging from the IASB not focusing on integrated reporting to others believing the information is already present for investors.
  • Debt disclosures. The CMAC supported the introduction of a project on debt disclosures and provided additional suggestions to the IASB staff.
  • Equity method. The CMAC provided some considerations to the IASB staff on the scope of a project on equity method.
  • Disclosure initiative — Materiality. The CMAC supported the IASB project on materiality. They believe that the goal should be to make disclosures more effective, but not reduce the amount of disclosures. They also suggested that the IASB research ways to clearly define the concept of materiality.

The next CMAC meeting is scheduled for 30 June 2014.

For more information, see the meeting page on the IASB website.

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EU Parliament approves audit reform proposals

03 Apr, 2014

Members of the European Parliament have today approved the framework for EU audit reform in a plenary vote in Brussels.

The new rules will be in the form of a Directive amending the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) and a Regulation on specific requirements regarding the statutory audit of public-interest entities (PIEs).  

In December 2013 a preliminary agreement between the Lithuanian EU Council Presidency and the European Parliament on the framework for EU audit reform was reached.  This framework was subsequently endorsed by the Legal Affairs Committee (JURI) of the European Parliament in January 2014

Under the new rules, the societal role of auditors will be clarified, with the aim of increasing audit quality, transparency and audit supervision.  The new rules will require that “audit reports be more detailed and informative” and their work will be more closely monitored with “strengthened audit committees”.

Mandatory rotation of auditors for PIEs will be introduced, requiring such companies to retender at 10 years and change the auditor at least every 20 years. The reforms include a prohibition on the provision of certain non-audit services to PIE audit clients (including tax advice and services linked to the financial and investment strategy of the audit client) and also introduce a cap on the fees that can be earned from the provision of permitted non-audit services to PIEs.

Additionally the rules prohibit the use of restrictive clauses in contracts which limit a company’s choice of auditor “in order to promote market diversity”.

The vote has been welcomed within the profession including the Financial Reporting Council (FRC) and the Association of Chartered Certified Accountants (ACCA).  The FRC comment:

The Financial Reporting Council welcomes the positive vote today by the European Parliament in favour of the EU audit reform. We commend the work of the EU institutions in working together, compromising where necessary; to ensure that the EU retains a high quality and competitive audit market.  The FRC is especially pleased that EU legislation will now be following the UK’s example of retendering an audit every 10 years. 

The package of measures must still be formally adopted by the Council of Ministers.  Subject to this formal approval, it is expected that the new rules will be published in the Official Journal of the European Union in the second quarter of 2014.  Both the Directive and the Regulation will enter into force 20 days after their publication into the Official Journal.  The Directive must be adopted by EU member states within 2 years of that date and the Regulation is effective 2 years from that date.  The restriction on fee income from non-auditing services is to take effect within 3 years.

The Competition Commission (now taken over by the Competition and Markets Authority (CMA)), which has been delaying the release of their package of remedies to increase competition within the provision of statutory audit services to FTSE 350 companies in the UK is now likely to review their package in light of the EU announcement in order to consider the implications of the EU rules on their Orders which bring their measures into law.

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IASB (International Accounting Standards Board) (blue) Image
XBRL (eXtensible Business Reporting Language) (mid blue) Image

IASB publishes proposal for IFRS Taxonomy 2014

03 Apr, 2014

The IFRS Foundation has published 'Proposed Interim Release 1 to the IFRS Taxonomy 2014' for public comment.

The press release is available on the IASB website.

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We comment on the CIPFA/LASAAC consultation on accounting for schools in local authorities

03 Apr, 2014

We have published our comment letter on the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) consultation on accounting for schools in local authorities.

The Accounting for Schools in Local Authorities in England and Wales consultation is based on the report of the Joint Working Group of HM Treasury and CIPFA/LASAAC (“the Working Group”).   The working group report (‘The Accounting Treatment of Local Authority Maintained Schools in England and Wales’) concluded that community schools, voluntary controlled, voluntary aided and foundation local authority maintained schools (“local authority maintained schools”) are separate entities controlled by local authorities.  Under IFRS 10 Consolidated Financial statements these local authority maintained schools would need to be included in the local authority group financial statements.  It was also concluded that academies and free schools are not under local authority control.  Under IFRS 10, academies and free schools would not be required to be included in the local authority group financial statements.  

The working group considered whether an adaption to IFRS 10 as adopted by the Code of Practice on Local Authority Accounting in the United Kingdom (“the Code”) was required to allow local authority maintained schools to be included in the local authority single entity financial statements.  

In the consultation, CIPFA/LASAAC are therefore consulting on the proposal that the results of local authority maintained schools should be included within the separate financial statements of local authorities.  They also propose a similar accounting treatment for community special, foundation special and local authority maintained nursery schools.  The consultation also seeks the views of respondents on the working group’s assessment that “the inclusion of schools in the local authority’s single entity accounts, instead of their group accounts, is unlikely to alter decision making”.  The proposals adapt the definition of the local authority single entity financial statements in Chapter 9 of the Code.  

Our key comments include:

We agree with the conclusions in sections C and D of the report ie that schools are separate entities for accounting purposes and that community schools, voluntarily controlled, voluntary aided and foundation schools meet the criteria for consolidation into local authority accounts under IFRS. 

We acknowledge that whilst the technically correct answer would be to include schools only in consolidated financial statements, the additional administrative burden on more local authorities to prepare consolidated financial statements is also an important consideration. 

More emphasis should be given in the Code to consideration of how material the schools may be to the local authority’s financial statements, and the level of disclosure given in the notes to the financial statements to provide readers with a clear understanding of the balances and transactions related to the schools. 

Paragraph 58 of the report does not refer to materiality and uses the term “not produce a substantially different report”.  We believe that the Code should include consideration of materiality and give local authorities the option to include schools in consolidated financial statements if they are material. 

The Code is also unclear as to the treatment where the local authority already prepares consolidated financial statements.  In such cases, the Code could also give the option of including the schools only in the consolidated financial statements. 

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

XBRL (eXtensible Business Reporting Language) (mid blue) Image

IFRS Formula Linkbase 2014 is now available

02 Apr, 2014

The IFRS Foundation has issued the 2014 IFRS Taxonomy Formula Linkbase. The IFRS Taxonomy Formula Linkbase is designed to help improve the data quality of IFRS Taxonomy filings and to provide additional guidance for both technical and financial reporting audiences so that they can better understand the IFRS concepts and their meanings.

From a business perspective, the formula linkbase provides additional validation opportunities for preparers to help ensure that the facts reported in their filings are of a high quality. From a technical perspective, it improves the quality of IFRS Taxonomy filings based on the final IFRS Taxonomy 2014.

For more information, please view the IASB press release.

ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image

ICAEW Audit Quality Forum event

02 Apr, 2014

The Institute of Chartered Accountants in England and Wales’s (ICAEW’s) Audit Quality Forum will be hosting a meeting on 29 April 2014 in London to discuss the topic ‘Should auditors do more to make annual reports more reliable?’

The event will cover:

  • The aspects of reliability and the challenge they pose for auditor.
  • Research insights from the Financial Reporting Council (FRC) and the largest accounting firms.
  • Views from leading users and stakeholders in corporate reporting. 

More information, including how to attend the outreach event can be found on the ICAEW website.

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