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ESMA fears scope restriction might dis-incentivise the novation of certain derivatives

04 Apr, 2013

The European Securities and Markets Authority (ESMA) has submitted a letter of comment responding to the IASB exposure draft 'Novation of Derivatives and Continuation of Hedge Accounting' (ED/2013/2).

In the comment letter ESMA supports the proposal in ED/2013/2 that the novation of a hedging instrument should not be considered an expiration or termination giving rise to the prospective discontinuation of hedge accounting if certain criteria are met. However, ESMA believes that the criterion "required by laws or regulations" is unnecessary restrictive and might dis-incentivise voluntary novation. This would run counter to the aim of the European Market Infrastructure Regulation (EMIR) and similar regulations in other jurisdictions that are intended to implement the G20's agreed reforms around over the counter (OTC) derivatives designed to reduce counter-party risks in general.

The comment letter states:

Nevertheless, ESMA is concerned that the scope of the proposed amendment could be unnecessarily restrictive by limiting the exception only to those novations that result from legislation explicitly mandating the use of central counterparties for existing derivative contracts. [...] Given the benefits by the system of clearing derivatives through central counterparties from a counterparty risk point of view voluntary clearing of some other existing derivatives through a central counterparty should not be dis-incentivesed, even if not mandatorily required. [...] Accordingly, ESMA is of the view that existence of an explicit clearing obligation required by law and regulation should not be a pre-condition for the continuation of the hedging relationship, provided all other proposed conditions are met.

Please click for access to the full comment letter on the ESMA website.

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Deloitte comment letters on acceptable methods of depreciation and novation of derivatives EDs

02 Apr, 2013

Deloitte's IFRS Global Office has submitted letters of comment responding to the IASB exposure drafts 'Novation of Derivatives and Continuation of Hedge Accounting' (ED/2013/2) and 'Clarification of Acceptable Methods of Depreciation and Amortisation' (ED/2012/5).

In the comment letter for ED/2013/2,  we agree that an amendment to IAS 39 and to IFRS 9 is necessary to address the effects on hedge accounting relationships of regulations in major capital markets including the U.S. and the European Union and, potentially, future regulations elsewhere leading to novation of derivatives to a central clearing function. We do not, however, agree that the scope of the amendment should be limited to novations required by such regulations as that would not capture the many novations that are likely to be heavily encouraged or incentivised by governments or regulators without being formally required. We do not believe that entities that novate contracts in anticipation of such legislation becoming effective should be disadvantaged.

More information and the full Deloitte comment letter can be found here.

The comment letter for ED/2012/5, we agree with the general prohibition of a revenue-based method of depreciation or amortisation for the reasons expressed in the exposure draft. However, we recommend that the Board provide additional clarity on circumstances in which a revenue figure might form part of the calculation of depreciation or amortisation under the diminishing balance or units of production method.

More information and the full Deloitte comment letter can be found here.

IFAC (International Federation of Accountants) (lt gray) Image

Conclusions on governance and strategy review of IFAC member bodies

02 Apr, 2013

The Monitoring Group and Public Interest Oversight Board (PIOB) have published documents in response to their March 2012 consultation documents on the governance of various organisations operating under the auspices of the International Federation of Accountants (IFAC). The reports outline a number of recommendations in relation to the governance and strategy of the various IFAC bodies, but does not make any recommendations on the governance of the International Public Sector Accounting Standards Board (IPSASB). The Monitoring Group has formally taken the question of IPSASB oversight onto its agenda, noting "its [own] composition and that of the PIOB currently are not appropriate to the needs of stakeholders in public sector accounting standards".

Monitoring Group Statement on Governance

The members of the Monitoring Group are the Basel Committee on Banking Supervision, European Commission, Financial Stability Board (FSB), International Association of Insurance Supervisors (IAIS), International Forum of Independent Audit Regulators (IFIAR), International Organization of Securities Commissions (IOSCO), and the World Bank. One of the objectives of the Monitoring Group is to ensure appropriate public accountability of IFAC's standard-setting bodies, namely the International Auditing and Assurance Board (IAASB), the International Ethics Standards Board for Accountants (IESBA), the International Accounting Education Standards Board (IAESB) and the Compliance Advisory Panel (CAP).

The Statement on Governance outlines the following recommendations:

  • Standard-setting board meeting materials should clearly note the public interest concerns and needs identified by public constituents
  • The standard-setting boards should establish (i) procedures to ensure that all standard-setter board members are aware of and understand concerns conveyed by Monitoring Group members over the course of a standard-setting project and (ii) a mechanism for feedback to Monitoring Group members on resolution of the Monitoring Group member concern.
  • The PIOB should establish procedures to ensure that it is aware of any issues conveyed by a Monitoring Group member and other stakeholders that rely on the work of an auditor
  • The PIOB shall improve transparency of its oversight activities, to both the Monitoring Group and the public
  • The Monitoring Group is to expand its efforts to improve the quality of its discourse with the PIOB and public transparency of its activities

In relation to the question of IPSASB oversight, the Monitoring Group's consultation paper asked for constituent views on whether the IPSASB should be included within the ambit of the existing Monitoring Group/PIOB governance framework, which would see PIOB oversight of the IPSASB. However, there were divergent views on whether this approach was appropriate. In particular, concerns were expressed that in order for the Monitoring Group and PIOB to take on this role, they would need to review their own composition and size to ensure both the old and new responsibilities could be appropriately carried out, given to the current oversight focus on audit-related standards. Further comments were made around the overall structure and funding of the IPSASB.

Responding to constituent feedback, the Monitoring Group convened a roundtable in February 2013 to further discuss governance with stakeholders in public sector accounting standards. The Monitoring Group has released a summary of the roundtable in conjunction with the Statement of Governance. The summary discusses various issues surrounding the IPSASB governance, including the need for legitimacy, the nature the stakeholders to be involved in public sector standard-setting and oversight, and a lack of progress on addressing the issue. The summary also notes the IFRS Foundation has "concluded that, at this time, it will not add public sector accounting standards to its organizational remit" and the recent G20 actions in this area involving the International Monetary Fund (IMF) and World Bank.

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PIOB recommendations

The Public Interest Oversight Board (PIOB) report, PIOB recommendations in response to its consultation on the PIOB work program 2012 and beyond, provides a summary of each question asked in the PIOB's consultation, along with a summary of comments received and the PIOB's conclusions. Some of the recommendations include (reproduced from the report):

  • The PIOB will endeavour to engage stakeholders more actively with a view to enhancing its awareness of their concerns regarding standard setting in the fields under its mandate
  • The PIOB will work with IFAC and the chairs of the standard-setting boards to expand the content and use of feedback reports to enhance the transparency of due process
  • The PIOB will work with IFAC and the chair of the nominating committee to explain better the workings of the nomination process
  • The PIOB in developing its opinion on the public interest will increase its consultations with the MG as well as with a broad range of stakeholders
  • The PIOB will improve the transparency of its oversight functions: it will disclose its meeting agendas, will continue to provide summaries of its meetings in a timely manner with a better description of the decisions adopted and an indication of the discussions held, and will disseminate this information more effectively by electronically circulating a quarterly update.

Click for PIOB recommendations in response to its consultation on the PIOB work program 2012 and beyond.

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Agendas for upcoming IFRS Foundation meetings

02 Apr, 2013

Agendas have been released for the upcoming meeting of the IFRS Foundation Trustees and the meeting of the Monitoring Board with the IFRS Foundation Trustees, both of which are scheduled to be held in London on Thursday 11 April 2013.

The agendas for the meeting are reproduced below:

 

Thursday, 11 April 2013

Meeting of the Monitoring Board with the IFRS Foundation Trustees (09:30-11:00)

  • Update from the Monitoring Board - Monitoring Board governance review
  • Update from the IASB - Update on IASB developments, including IASB-FASB convergence projects
  • Update from the IFRS Foundation
    • Accounting Standards Advisory Forum (ASAF)
    • Update on financials
    • Funding
    • Recent Due Process Oversight Committee activities
    • Profiles project

Meeting of the IFRS Foundation Trustees (11:15-13:30)

  • Report of the IFRS Foundation Chair
  • Report of the IASB Chair and Senior Technical Directors
  • Report of the Due Process Oversight Committee

 

Agenda papers from this meeting are available on the IASB's website.

Deloitte Comment Letter Image

Deloitte comment letter on proposed limited amendments to IFRS 9

29 Mar, 2013

We've submitted our comment letter on the IASB's ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9'. While we support the objective of the proposed amendments, we believe the guidance could be made simpler and clearer, and also call for the IASB and FASB to reconcile any remaining differences in their respective classification and measurement models as far as possible.

The comment letter contains the following observations:

We support the objective of the proposed amendments and the introduction of a third business model as it better captures the spectrum of business models that exist in reality. However, we believe that the third business model would be better defined as a residual category for assets that do not meet the conditions to be considered as held to collect contractual cash flows or as held to sell. This should facilitate the production of simpler, clearer application guidance. Additionally, we encourage the IASB and the FASB to reconcile the differences that currently exist between their proposed application guidance in this area as this would enhance international comparability of financial statements.

In addition, the comment letter makes the following points:

  • the introduction of a benchmark test adds an additional layer of complexity to the cash flow characteristics criterion
  • the proposals do not address the accounting for financial instruments in economies where rates are not set by the forces of supply and demand, but by the government or related agencies
  • we ask the IASB to reconsider the effective date of IFRS 9 in light of the delays in completing IFRS 9.

The full comment letter can be accessed here.

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EFRAG endorsement status report

28 Mar, 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. The latest report reflects the endorsement of the 'Annual Improvement to IFRSs, 2009-2011 Cycle' by the European Commission.

On 27 March 2013, the European Union issued a commission regulation which resulted in the endorsement of Annual Improvements to IFRSs, 2009-2011 Cycle. The amendments made by the IASB's annual improvements project are now incorporated into European law. The EFRAG has updated its endorsement status report to reflect the EU's decision.

Please click for the EFRAG Endorsement Status Report as of 28 March 2013.

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Stay Tuned Online – IFRS and UK GAAP update

28 Mar, 2013

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues. The March 2013 webcast is now available.

Each update lasts no more than an hour, and sessions are normally held three times a year, approximately at the end of March, July, and November. We intend to make a recording of each session available on IAS Plus for a period of at least four months from the date of the presentation. The topics covered in the March 2013 webcast:

  • the finalised replacement for current UK GAAP
  • recent developments in financial instruments accounting, including the proposed approach to impairment under IFRS 9 and the classification and measurement of financial instruments
  • a run through various IASB publications proposing other amendments to current IFRSs, and
  • a round up of UK corporate reporting news, including proposals around going concern reporting.

To access the recording Click Here.

IASB (International Accounting Standards Board) (blue) Image

IASB publishes Request for Information on Rate Regulation

28 Mar, 2013

The International Accounting Standards Board (IASB) has issued a Request for Information (RFI) seeking comments from stakeholders to identify high-level overviews of rate-regulatory schemes that should be included as part of the scope in the development of a Discussion Paper.

The Rate regulation project was originally added to the IASB technical agenda in December 2008 and published an exposure draft on 22 July 2009. Comments received on the exposure expressed divergent views. No consensus was ever reached and the project was therefore suspended in September 2010.

The IASB has reactivated this project as part of its response to the Agenda Consultation 2011. The RFI is an early steps the IASB is taking to reactivate the project. The RFI, along with other research, will be used in the development of a Discussion Paper. The goal of the Discussion Paper is "to identify what information about the consequences of rate regulation would be most useful for users of IFRS financial statements and whether the IASB should develop specific guidance for accounting for those consequences."

Summary of questions asked in the Request for Information
Question 1 — what types of goods or services are subject to the rate regulation described for consideration in the Discussion Paper?
Question 2 — what are the objectives of the rate regulation and how do they influence the interaction between rate regulator, the rate-regulated entity and customer?
Question 3 — what sort of rights or obligations does the regulation create?
Question 4 — In relation to the rights or obligations identified in the comments to Question 3, how does the rate-regulated entity enforce its rights, or how does the rate regulator enforce the settlement of the rate-regulated entity's obligations?
Question 5 — How does the rate regulation ensure the recovery or reversal of under- or over-recoveries of allowable costs (ie variance amounts) (if applicable)? Are these mechanisms effective in recovering or reversing those amounts within the targeted time frame?

Comment deadline is 30 May 2013.

More information is available on the IASB website.

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European Union formally adopts Annual Improvements 2009-2011

28 Mar, 2013

The European Union has published a Commission Regulation endorsing the amendments made by the International Accounting Standards Board (IASB) 'Annual Improvements 2009-2011 Cycle'.

The European Union has published the Commission Regulation (EC) No 301/2013 of 27 March 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 28 March 2013. This regulation adopts the amendments made by the IASB's Annual Improvements to IFRSs 2009-2011 cycle (issued 17 May 2012) into European law.

The improvements made by the IASB address areas of inconsistencies and adds clarification to IFRSs, namely IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34, and IFRIC 2. The Technical Expert Group of the European Financial Reporting Advisory Group has confirmed that the improvements meet the technical criteria for adoption.

The amendments must be applied, at latest, to annual periods beginning on or after 1 January 2013.

More information on the IASB's Annual Improvements to IFRSs 2009-2011 is available on our project page.

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IFRS XBRL taxonomy for 2013 is available

27 Mar, 2013

The IFRS Foundation has published the IFRS Taxonomy 2013. The IFRS Taxonomy is a translation of IFRSs (International Financial Reporting Standards) into XBRL (eXtensible Business Reporting Language).

The 2013 taxonomy is consistent with IFRSs as issued by the IASB at 1 January 2013 and IFRS for Small and Medium-sized Entities as issued on 9 July 2009. Also, it contains XBRL tags for all IFRS disclosure requirements.

Click here to access the IFRS Taxonomy files and accompanying materials on the IFRS Foundation's website.

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