The discussion paper published in June 2012 was intended to be a starting point to enhance thought-leadership on the future evolution of audit committees within Europe. To foster the debate, FEE is now offering the conference on 'How to improve Audit Committees further?'.

This high level conference will bring European decision makers and relevant stakeholders including audit committee members, auditors, investors and regulators together to discuss further improvements of the functioning of audit committees. Stimulating closer cooperation throughout the audit engagement, especially the exchange of high quality information between audit committees and the external auditor, is thought to be of great benefit to the company and to the external auditor. To this extent, and considering that one or more members of an audit committee are often trained accountants, FEE is aiming at enlarging and widening the debate.

The conference is free of charge. However, as places are limited, attendance is upon invitation only. Should you be interested in attending, FEE invites you to submit your interest indicating your name, title and organisation by sending an email to Iryna.deSmedt@fee.be

The full agenda for the meeting, as of 6 December 2012, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

Among the misconceptions FEE makes out that were either already introduced with the EC's proposals or crystallized in the ensuing debate is the believe that accounting and auditing are mere burdens and should be reduced as far as possible. FEE states:

Accounting and auditing are not “administrative burdens” but essential tools to enable managers to manage, investors to invest and enterprises to trade, grow and create wealth and employment; accounting and auditing also have a public interest dimension by contributing to improving the functioning of markets and enhancing corporate governance, transparency and stability.

FEE also warns of the excessive focus that has been given to country-by-country reporting. Although FEE welcomes initiatives to increase transparency in this area the statement encourages the parties involved "to redirect their attention and focus on key accounting issues that are essential for the establishment of a robust and long-lasting European accounting framework".

The Policy Statement also considers general matters related to accounting that should be discussed further. Among these are disclosures, the use of fair value accounting and a possibility for member states to permit the use of the IFRS for SMEs.

Please click for access to the Policy Statement on the FEE website.

In its draft comment paper, EFRAG highlights the initiative taken by the Autorité des normes comptables (ANC), noting that the French standard setter revived the debate on emissions trading schemes in May 2012, when it issued the discussion paper Accounting for Emissions Trading Schemes Reflecting Companies’ Business Models. Since IFRIC 3 Emission Rights was withdrawn in July 2005 and the project deferred in November 2010, discussion of specific guidance on the topic has stalled and resulted in diverging practices on the accounting of assets and liabilities arising from participation in an Emission Trading Scheme.

Using the ANC's discussion paper as a starting point, EFRAG's draft comment letter analyzes specific aspects of emissions trading schemes and poses questions to constituents, with the expectation that comments received will help shape the EFRAG recommendation to the IASB on specific accounting guidance on emissions rights.

Please click for the following documents on the EFRAG website:

• EFRAG press release
• EFRAG draft comment paper
  

Comments are invited by 30 April 2013.

Details of the changes are:

• Financial instruments — general hedge accounting - target date for issue of this section of IFRS 9 Financial Instruments is now the first quarter of 2013 (previously last quarter of 2012)
• Financial instruments - Limited reconsideration of IFRS 9 - new process step of redeliberations expected in the second quarter of 2013 (the exposure draft was issued on 28 November 2012 and is open for comment until 28 March 2013)
• Annual improvements 2012-2014 - following the publication of the proposals for the 2011-2013 cycle of improvements, introduction of new project for the next cycle, with a target date for an exposure draft of the third quarter of 2013 (reverting to the usual cycle timing)
• IAS 16/IAS 38 — acceptable methods of depreciation and amortisation - introduction of a target date for the proposed amendments in the third quarter of 2013
• Post-implementation review - IFRS 3 Business Combinations - clarification that the initiation of the review will be in the first or second quarter of 2013 (previously no earlier than the first quarter of 2013).

In addition, the IASB has introduced a new format for the presentation of its work plan, implementing a new tabbed format for display of its various projects.  The 'research projects' tab lists a number of projects which are not currently being actively pursued by the IASB.

Due process documents expected before the end of 2012

The following due process documents are expected to be issued by the end of 2012 (this includes those items already noted above in some cases):

• Exposure drafts
  • IFRS 10/IAS 28 - Sales or contributions of assets between an investor and its associate/joint venture
  • IFRS 11 - Acquisition of an interest in a joint operation
• Other documents
  • Agenda consultation feedback statement.

Click for IASB work plan as of 4 December 2012 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

Ms Seidman spoke first, making it clear that she was summarising her personal views, rather than the official position of the FASB or the FAF. She discussed the unique needs of US stakeholders, noting that short time frames and heavy regulation require clear, unambiguous standards. "I don't believe our system can function over the long run with only broad principles", Ms Seidman noted.

On the topic of convergence, the FASB Chairman stated that "a goal of 100 percent comparability (such as a single set) is not achievable in the near term, for very legitimate reasons, in some of the world's largest capital markets." She suggests that the FASB and IASB should complete the MOU projects, and going forward, the Boards should continue to have discussions with other standard setters to improve accounting standards and make IFRS, US GAAP, and other global accounting standards more comparable. Ms Seidman advocated for a "less formal approach to convergence", similar to what the IASB and FASB had done in the past, noting that "even though the relationship is bound to change, that does not mean we think convergence is over or that divergence will occur".

In his straight-talking speech, Mr Hoogervorst noted that IFRS has enjoyed a strong global impact for many years, and that the success of IFRS does not depend on US convergence. He said that the IASB and the world are looking to the US for a clear sign of their intentions with IFRS and that the US's current position for the need of "greater comparability" between the standards will not suffice. He (and the world) expected that the SEC would have made a decision on transition by now. Mr Hoogervorst made it clear that, in the future, US influence on IFRS will be "commensurate with its commitment to our standards". He discussed the results of the IFRS Foundation staff analysis which concluded that transition to IFRS in the United States would be successful.

Click for:

• Text of speech by Leslie Seidman (link to FASB website).
• Text of speech by Hans Hoogervorst (link to IASB website).
• Deloitte (United States) Heads Up newsletter summarizing the 2012 AICPA national conference on current SEC and PCAOB developments

The proposed amendments would introduce additional paragraphs into IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to clarify the interpretation of the largely equivalent concepts of 'depreciation' and 'amortisation'.

IAS 16 and IAS 38 require the depreciation or amortisation method to reflect the pattern in which an asset's future economic benefits are expected to be consumed.  A variety of methods may be used in meeting this requirement, and an entity is required to select the method that most closely reflects the expectation pattern of consumption of the future economic benefits embodied in the asset.  Common methods include the straight-line method, the diminishing balance method and the units of production method.

The proposed amendments would clarify that revenue-based methods of depreciation and amortisation cannot be used in meeting the requirements of IAS 16 and IAS 38.  This is because such methods reflects a pattern of generation of economic benefits that arise from the operation of the business of which an asset is part, rather than the pattern of consumption of an asset’s expected future economic benefits.

The premise behind the proposed amendment sees revenue as an interaction of two factors: quantity and price.  Unlike quantity (units), price is generally not directly linked to the consumption of the underlying asset, but instead reflects the market dynamics surrounding the goods and services the entity produces.

Previous IASB discussions on this matter included the consideration of research showing revenue-based depreciation or amortisation methods are sometimes used in two particular industries: service concession arrangements (which triggered the initial request for clarification on this matter to the IFRS Interpretations Committee) and in the media business (where revenue may be utilised as a 'surrogate' for viewer numbers when depreciating film and similar rights).  The Basis for Conclusions accompanying the proposals notes the limited circumstance when revenue could be used is when the use of a revenue-based method gives the same result as the use of a units of production method.

The proposed amendments also provide some further guidance in the application of the diminishing balance method, noting that information about technical or commercial obsolescence of the product or service output is relevant for estimating the pattern of consumption of future economic benefits of the asset and the useful life of the asset.

The amendments proposed in the exposure draft were original proposed to be included in the 2011-2013 cycle of annual improvements, which were published on 20 November 2012.  The IASB decided on separate exposure at its October 2012 meeting, partially on the basis of concerns noted by the Due Process Oversight Committee that the proposed amendments may not meet the annual improvements criteria.

The exposure draft is open for comment for a period of 120 days which closes on 2 April 2013.  The amendments are expected to be finalised in the third quarter of 2013.

Click for IASB press release (link to IASB website).

Consistent with his earlier remarks, Mr Maijoor noted "disappointment that there is no progress or clear sign of political will to keep IFRS adoption high on the agenda in the US" and that it would be a "shame to miss the opportunity" by the United States "walking away from IFRS".

In discussing the need for consistent application of IFRS around the globe, Mr Maijoor noted this is the "prime responsibility of issuers and their auditors, securities regulators can intervene when there are violations of IFRS in published financial statements" and discussed the recent European-wide initiative to outline consistent enforcement priorities.

Broadening the theme to global enforcement, Mr Maijoor noted ESMA efforts to improve liaison with regulatory and enforcement bodies and reiterated a need for "further deepening of our international co-operation".

Highlighting outcomes from enforcement activities, Mr Maijoor noted a need for improved disclosure as it "allows issuers to provide investors with high-quality information within a principles-based environment".  He went on to comment on the importance of entities making relevant disclosure in accordance with objective-based disclosure requirements (such as found in IFRS 7 Financial Instruments: Disclosures):

However, a principles-based environment can only survive if clear and entity-specific disclosures, re-assessed at the end of each reporting period, bring useful decision-making information to investors. If not, detailed prescriptive requirements would need to be developed and we all know that what is important today will not necessarily be so in the next financial year. The only way to avoid this is for issuers to stop providing boilerplate information directly mimicking the standards.

Click for the full text of the speech (link to ESMA website).

Investment property

The Discussion Paper Investment Property seeks views on the valuation of investment property, both in the context of IAS 40 Investment Property and more broadly.

The IVSC has promulgated two standards that relate to investment property, namely IVS 233 Investment Property under Construction and IVS 230 Real Property Interests.

IVS 233 was made in response to constituent concerns about inappropriate techniques being adopted following the amendment to IAS 40 made in 2008 (arising from the 2006-2008 cycle of annual improvements) to require investment property under construction to be measured at fair value rather than cost, provided fair value can be reliably determined.  Some constituents argue that IVS 230 obviates the need for a separate IVS on investment property.

The Discussion Paper seeks views on issues such as the following:

• Whether the definition of 'investment property' used in IVS 233 should remain consistent with that used in IAS 40, or whether the definition may not be optimal for non-financial reporting purposes such as transactions or asset management, as it is too specific to accounting rather than valuation purposes
• How certain items attached to or associated with a property should be reflected in valuations of investment property, particularly whether, and if so when, the value of an intangible asset (such as rights) should be included in the value of a property interest
• How any additional guidance should be promulgated by the IVSC, e.g. amendments to IVS 233 and/or IVS 230, the issuance of guidance in the form of a Techincal Information Paper (TIP), or in some other manner
• Whether additional guidance is needed on applying the 'highest and best use' concept in the IVS Framework and IFRS 13 to investment property
• Whether guidance should be given in areas where valuation problems arise in relation to investment properties, e.g. no or limited sales transactions, completed buildings remaining unleased, and the construction of discount rates
• Whether the IVSC should attempt to set benchmarks that indicate whether inputs and valuations should include or exclude different types of tax or other costs
• Whether a valuation report for investment property should state which level of the 'fair value hierarchy' in IFRS 13 the valuation of an investment property be placed. Furthermore, if the inputs fall within Level 3, whether the sensitivity analysis required by IFRS 13 should also be provided in the valuation report
• Whether the IVSC should provide guidance on when it might not be possible to reliably determine the value of an investment property.

Comments on the paper close on 1 March 2013.

Click for (links to IVSC website):

• IVSC press release
• IVSC Discussion Paper Investment Property.

Specialised public service assets

Specialised public service assets include buildings, structures, equipment and land used to provide transport, utilities and social, cultural and recreational services.

The IVSC's exposure draft Valuations of Specialised Public Service Assets responds to concerns that different approaches are being adopted by public sector entities for the valuation of specialised assets used for service delivery.  Issues arising include whether valuations should reflect the value the asset gives to society, taking sub-optimal uses in to account, reproduction or replacement cost as a basis for valuation, and how obsolescence should be reflected.

The exposure draft proposes a new Technical Information Paper (TIP) to provide guidance on these issues.  Topics discussed in the exposure draft include:

• Whether the status of the owner of an asset as for-profit or not-for-profit should impact its valuation
• The distinction between 'market value' (which should give the same outcome as 'fair value' under IFRS 13) and 'investment value' (an owner-specific value which may include measures relating to the public benefit created by or accruing to the asset)
• Distinguishing between measuring the value of the asset and measuring the social value, ie the impact of that asset on either other assets or the wider community
• Whether or not specialised public service assets such as roads, town squares, footpaths, public parks and gardens, informal recreational areas, etc are assets for which public users make no direct payment for access or us can be reliably measured
• Proposing four principal categories of specialised public service assets, and providing examples of types of asset that fall within each of these categories.

The exposure draft also notes that the IVSC is also aware of a project being undertaken by the International Public Sector Accounting Standards Board (IPSASB) to introduce a Conceptual Framework which includes a review of measurement and valuation concepts for publicly owned assets.  However, given the long time frames involved in finalising the IPSASB's project, the IVSC has decided to propose guidance on the valuation of specialised assets.

Comments on the exposure draft close on 1 March 2013.  Click for (links to the IVSC website):

• IVSC press release
• Exposure Draft Valuations of Specialised Public Service Assets