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Agenda for the September 2014 IFRS Interpretations Committee meeting

08 Sep, 2014

The IFRS Interpretations Committee will meet at the IASB's offices in London on 16–17 September 2014. The agenda for the meeting is now available.

The Committee will:

  • Continue discussion on a number of issues related to IFRS 5, IFRS 11, IAS 12, IFRIC 14 and the Conceptual Framework.
  • Consider new issues on IFRS 12, IFRS 13, IAS 28, IAS 39 and IFRIC 21.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

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ACCA publishes interim guidance on carbon accounting for small businesses

08 Sep, 2014

The Association of Chartered Certified Accountants (ACCA) has recently published 'Technical Factsheet 190 Carbon accounts for small businesses-interim guidance', which sets out a simple form of carbon accounting that is suited to entities with turnovers up to around £7 million.

This factsheet provides guidance for small businesses and their advisers about how to set up and operate carbon accounting.  It sets out the reasons why companies should assess their carbon impact, such as the importance of protecting the environment, the positive impact on business growth and stakeholder engagement of being a 'low carbon' business and the potential cost savings that can be realised.  It also describes the UK tax incentives that small businesses may be able to take advantage of by 'going green'.

The factsheet includes guidance on establishing the scope, objectives and timing of the measurement of carbon emissions information, as well as how to set up the systems to capture the information needed.  It also provides information on how to account for emissions from various business activities:

  • Energy use - including heating and electricity;
  • Transport usage - including use of vehicles and public transport;
  • Water usage; and
  • Consumption of consumables, such as packaging and paper.

Finally, it gives guidance on how to evaluate the data collected, set targets for future performance and monitor progress against those targets.

The full factsheet can be downloaded from the ACCA website.

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IFRS Foundation published staff paper in connection with the consultation on the impact of IFRSs in the EU

05 Sep, 2014

In August 2014, the European Commission (EC) launched a public consultation on the impact of International Financial Reporting Standards (IFRSs) in the EU. The IFRS Foundation has now published a staff paper that provides a perspective from the staff on some of the main issues highlighted in the consultation questionnaire.

The staff paper is not a response to the consultation but is intended to contribute to the debate about the extent to which the adoption of IFRS has improved the efficiency of EU capital markets.

The issues covered in the staff paper include:

  • The benefits of IFRS — The paper stresses the increased market efficiency, the better basis for investment decisions, the improved quality of financial information, the higher attraction of foreign investment, the better capital market integration, and the consistent method of application supported by a common infrastructure at a national and international level.
  • Endorsement mechanism and criteria — The paper points at the support for the maintenance of the standard-by-standard adoption procedure shown in the Maystadt report, comments on modifications made to IFRSs in Europe and other jurisdictions, and warns against the consequences of possible non-endorsement.
  • Quality of IFRS financial statements — The paper notes that the Maystadt report found that IFRS has improved the quality, comparability and reliability of financial information in the EU and that the European Securities and Markets Authority (ESMA) publishes annual reports on enforcement activities in Europe that show continued improvements in the quality of IFRS financial statements over the years.
  • Enforcement — The paper points out that the IFRS Foundation's vested interests include helping to ensure the consistent application of IFRS internationally. To this end, the Foundation has worked to deepen its cooperation with securities regulators including the International Organisation of Securities Commissions (IOSCO) and ESMA.

For more information, see the staff paper on the IFRS Foundation website.

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Summary of joint outreach event on quality financial reporting

05 Sep, 2014

The European Financial Reporting Advisory Group (EFRAG), the European Federation of Financial Analysts Societies (EFFAS) and the Association Belge des Analystes Financiers (ABAF), the Association of Certified International Investment Analysts (ACIIA) and the International Accounting Standards Board (IASB) have made available a report of the discussions held during their second outreach event held on 25 June 2014 to discuss what role investors and advisers can play in ensuring quality financial reporting.

The topics discussed at the meeting included:

  • Current use of financial reporting by investors — The group agreed that financial statements are used as the main source of information for all users when reviewing companies, however, the availability of information may vary depending on the size of the company. The EFRAG stressed that it is important that information in financial statements are relevant and is conducting a study to understand how the information is used.
  • Interactions between financial reporting and long-term investment — The group had a variety of views on how to make capital markets more efficient and reduce the cost of capital, especially for long-term infrastructure and sustainable energy. Further, the group had different views on the role of fair value.
  • Giving directions for, and assessing, financial reporting standards — Investor feedback indicated that they are focused on how information is presented, as well as a company’s profitability, risk and liquidity. In addition, they are concerned with volatility outside management’s control and stewardship. The group agreed that volatility should be expected and should reflect economic volatility instead of being caused by accounting.
  • Confidence in financial report — The development of high quality financial statements will increase investor confidence and trust.
  • Influence on standard setting — The group stressed that the involvement of investors is a key component in the standard-setting process.

For more information, see the report on the IASB's website.

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FRC and EFRAG issue feedback statement on their research paper on the role of the business model in financial statements

04 Sep, 2014

In December 2013, EFRAG, the French ANC and the UK FRC published a research paper 'The Role of the Business Model in Financial Statements'. They have now released a feedback statement with a summary of the comments received from the respondents.

The paper had concluded that the business model should continue to play a role in financial reporting, that it is time for a change to the current ad-hoc use and that the concept of the business model should be included in the Conceptual Framework with appropriate guidance for standard-setting.

Responses to the paper revealed that there is a general support for the view that accounting standards should mandate financial reporting that faithfully represents the business model. They also showed that the ad hoc implicit/explicit use of the business model notion is not welcomed as it is not always clear why in some cases the notion is used and in others not and as there is no consistency from standard to standard. Constituents also supported the view that the business model should be addressed in the Conceptual Framework. However, on all points views differed on how the intention could be achieved.

Please click for the following information on the EFRAG website:

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HEFCE publishes Accounts Direction to HEIs for 2014-15

03 Sep, 2014

The Higher Education Funding Council for England (HEFCE) recently published its 'Accounts direction to higher education institutions (HEIs) for 2014-15 financial statements'.

The Accounts Direction sets out various requirements for the preparation, approval and submission of the accounts of HEIs to HEFCE for 2014-15. Of particular note are the following:

  • HEIs are still required to follow the 2007 Statement of Recommended Practice (SORP) for Further and Higher Education in their 2014-15 financial statements, as the revised SORP approved in March 2014 will only be applicable for 2015-16.
  • HEIs must submit their audited financial statements for 2014-15 to HEFCE by Tuesday 1 December 2015.
  • The disclosure requirements for the remuneration of heads of institutions have changed from those for 2013-14, as has the basis for counting higher paid staff (those earning over £100,000 in the year).

The Financial Reporting Group of the British Universities Finance Directors Group (BUFDG) has encouraged HEIs to early-adopt the enhanced disclosure requirements for the remuneration of heads of institutions. However, it notes that the revised basis for counting higher paid staff cannot be early adopted, as it is inconsistent with the basis required by the 2013-14 Accounts Direction.

The full Accounts Direction is available from the HEFCE website.

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European Commission publishes letter and Q&A on the new EU statutory audit regulations

03 Sep, 2014

The European Commission has today published a letter and a "Questions and answers" document intended to facilitate the implementation of the new EU regulatory framework on statutory audit and contribute to its consistent application across the EU.

The Q&A document aims to provide preliminary guidance on a number of practical questions raised by the accounting profession, industry, investors, academics and other stakeholders on the implementation of the new audit framework. This framework consists of Directive 2014/56/EU and Regulation (EU) No 537/2014 of the European Parliament and of the Council, both of which were approved by the EU Council on 15 April 2014.

The Q&A provides answers to common questions on a variety of topics relating to the new framework. Since the process of implementation of the new framework is still ongoing, the Q&A is necessarily a work in progress, and additional questions can be submitted to Markt-F4@ec.europa.eu.

The letter clarifies a particular aspect of the new rules relating to the transitional provisions for the mandatory rotation of audit firms and statutory auditors.

The full Q&A and letter can be obtained from the European Commission website.

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FRC appoints new members to the Accounting and Audit & Assurance Councils

03 Sep, 2014

The UK Financial Reporting Council (FRC) has announced the appointment of several new members to their Accounting and Audit & Assurance Councils, the bodies that advise the FRC Board on financial reporting and audit matters.

The new members of the Accounting Council are:

  • Michael Gallagher, Chief Financial Officer of the Toronto and Falcon Oil & Gas Ltd;
  • Mark Smith, independent financial reporting consultant; and
  • Jeremy Townsend, Chief Financial Officer and Chief Information Officer at Rentokil Initial.

The new members of the Audit & Assurance Council are:

  • Maggie McGhee, Director General responsible for Financial Audit at the National Audit Office;
  • Jane Fuller Fellow of the CFA Society of the UK and Chair of its financial reporting and analysis committee;
  • Robert Hingley, former Director General of the Takeover Panel and, following the merger of ABI’s Investment Affairs with the IMA, consultant to the enlarged Investment Association; and
  • Conall O'Halloran, Head of Audit for KPMG in Ireland, and audit partner in a number of listed and large privately owned entities.

Liz Murrall, a member of the Accounting Council, has also been appointed to the FRC's Codes & Standards Committee.

The full press release, which includes detailed biographical information for all of the new appointees, is available from the FRC's website.

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IASB Chairman discusses the dangers of ignoring unrealised income

03 Sep, 2014

IASB Chairman Hans Hoogervorst gave a speech today at an IFRS Conference in Tokyo titled 'The dangers of ignoring unrealised income'. He discussed an overview of the current use of IFRS around the world and Japan especially focusing on the recently issued Japanese Exposure Draft 'Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications' and connected the modifications made to the IASB's project to update its Conceptual Framework and the dangers of ignoring unrealised gains and losses.

Mr Hoogervorst commented that the increase of the voluntary use of IFRSs in Japan was especially encouraging as Japanese companies have the choice of several sets of standards and would only choose to adopt IFRS if they thought it was a strong business case. He explained that IFRSs are a cost effective alternative for companies with subsidiaries as they can apply one single financial reporting language for both internal and external reporting. In addition, the use of IFRS would make it more attractive to foreign investors to invest in Japanese shares if the financial statements were prepared in a reporting language they understand.

Yet Mr Hoogervorst pointed out that following a recommendation by Japan's Business Accounting Council (BAC) regarding the use of IFRSs in Japan, a set of 'endorsed IFRSs' called JMIS that would offer an additional choice of accounting framework to Japanese companies has been developed and published as an Exposure Draft (ED) in July 2014. As JMIS in essence consist of most IFRSs as issued by the IASB combined with two major modifications relating to the treatment of Goodwill and recycling of some OCI-items, he connected the modifications to the IASB's project on the Conceptual Framework and especially the meaning of Profit or Loss and Other Comprehensive Income (OCI).

Mr Hoogervorst admitted that the IASB has so far not been able to draw a binary distinction between Profit or Loss and OCI and yet he also struggled with the ASBJ's definition in the JMIS ED that 'Profit or Loss represents an all-inclusive measure of irreversible outcomes of an entity's business activities in a certain period.' Although the IASB agrees that Profit or Loss should be as comprehensive as possible and has made tentative decisions supporting that understanding, the irreversibility criterion seemed to be "fraught with difficulties" to Mr Hoogervorst. He explained that a systematic relegation of unrealised income items to OCI could result in a lack of faithful presentation, especially as unrealised income does not only consist of gains, but also of losses. Mr Hoogervorst also added that this approach could be detrimental from a stewardship perspective as many problems would be confronted much earlier on if they are presented in Profit or Loss - he argued that postponement of recognition of losses until they have become irreversible has the big disadvantage that they become irreversible. He therefore concluded:

I would conclude that a systematic relegation of unrealised profits or losses to OCI is extremely problematical. Moreover, where OCI is used to capture short-term 'market volatility' of long-term assets or liabilities, the information it contains should not be ignored. While income in OCI may be of a less certain nature than income captured in Profit or Loss, OCI may contain indicators of risk that may materialise sooner than you think. Clearly, ignoring unrealised elements of income may be hazardous to your financial health.

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

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EFRAG Supervisory Board meeting

03 Sep, 2014

On September 19, 2014, the Supervisory Board of the European Financial Reporting Advisory Group, (EFRAG) will hold its next meeting in Brussels.

The session is open to observers from 09.00.  Please click link for details of the registration on the EFRAG website.  The agenda can also be downloaded from the EFRAG website.

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