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G20 continues convergence push, signals support for Rio+20

20 Jun, 2012

The Group of 20 (G20) has released a Leaders Declaration and supporting documents from the G20 Leaders Summit held in Los Cabos, Mexico on 18-19 June 2012. The declaration includes reference to convergence of accounting standards, and reaffirming a commitment to sustainable development at the 2012 United Nations Conference on Sustainable Development (Rio+20), which may endorse sustainability reporting.

Much of the focus of the Leaders Declaration is on economic growth and jobs in the context of the current economic climate in order to "work collectively to strengthen demand and restore confidence with a view to support growth and foster financial stability".

In referencing financial sector reform and fostering financial reform,  the declaration states:

We support continuing work to achieve convergence to a single set of high-quality accounting standards.

Within the broader topic of sustainable development, the declaration states the following:

We commit to continue to help developing countries sustain and strengthen their development through appropriate measures, including those that encourage inclusive green growth. We will reaffirm our commitment to sustainable development at the 2012 United Nations Conference on Sustainable Development (Rio+20). We commit to maintaining a focus on inclusive green growth as part of our G20 agenda and in the light of agreements reached at Rio+20 and the United Nations Framework Convention on Climate Change (UNFCCC).

The Rio+20 conference is being held on 13-22 June 2012 and as we have previously reported, is considering a call for mandatory sustainability or integrated reporting by the world's largest companies.

Consistent with the theme of fostering financial stability, the declaration supports various initiatives in response to the global financial crisis, including the Basel capital and liquidity framework; the framework for global systemically important financial institutions (G-SIFIs), resolution regimes, over-the-counter (OTC) derivatives reforms, shadow banking, and compensation practices.  The declaration also endorses the recommendations and the revised Financial Stability Board (FSB) Charter for placing the FSB on an enduring organisational footing, with legal personality, strengthened governance, greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies.

Click for Leaders Declaration — Los Cabos (link to the G20 website).

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FRC issues a further update responding to country and currency risk in financial reporting

19 Jun, 2012

The UK Financial Reporting Council (FRC) has issued a further ‘Update to Directors of Listed Companies: Responding to heightened country and currency risk in interim financial reports’. This is a follow-up to the report released in January 2012, issued because the FRC noted many good practices in country and currency risk reporting in annual reports submitted after the January update.

This Update aims to provide UK listed companies with issues that may occur when responding to the heightened economic uncertainty when preparing their interim financial reports. The Update notes the following issues to consider:

  • The company's exposure to country risk, direct or to the extent practical indirect, through financial instruments, and through exposure to trading counterparties (customers and suppliers);
  • The impact of austerity measures being adopted in a number of countries on the company's forecasts, impairment testing, going concern considerations, etc.;
  • The possible consequences of currency events that are not factored into forecasts but may affect reported exposures and sensitivity testing of impairment or going concern considerations; and
  • Post balance sheet date events that require enhanced disclosures to adequately inform investors and other users.

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The Bruce Column — Putting the emphasis on behaviour

19 Jun, 2012

In a landmark lecture the Chairman of one of the world’s largest banks, HSBC, has made it plain that changing behaviours is the key issue in restoring faith in the post-crash financial landscape. Our regular, resident columnist, Robert Bruce, reports.

It is time for a bit more realism, thought and perhaps humility in the often circuitous debate over post-crash regulation and reform. Certainly a good start was made in the recent lecture* from Douglas Flint, Group Chairman of global banking heavyweight HSBC. Flint is well-placed to provide this. His father before him was, and still is, a highly influential Scots accountant who, with great charm, took no prisoners when blunt speaking was required. Flint made the point that his father ‘taught generations of accountants in Scotland the difference between a profession and a job, instilling in everyone the responsibility, as well as the privilege, of being in a profession’.

This was his starting point in an argument which stressed human behaviour and downplayed regulatory solutions. Flint’s point was that to bring long-term change, improvement and a change in the public’s perception to the financial sector behaviour had to be at the heart of everything. ‘Capital, liquidity and infrastructure enhancement will also play a role as will better governance and supervision but the greatest opportunity for improvement will come from defining, teaching, reinforcing, rewarding and enforcing values in terms of behaviour’, he said.

But this will always be hard to bring about. ‘If we learn anything from history’, he said, ‘it is that we are destined to repeat mistakes whenever we believe that we have solved definitively the cause of the most recent crisis’. People want solutions which will bring them certainty. Yet certainty is never going to be possible in a complex world. ‘Ever more today, society does not want to acknowledge unpredictability’, he said, ‘particularly around economic outcomes – we want to believe an unwelcome outcome is the cause of failings that need both to be compensated and cause revisions to be made to the system to reinforce predictability and so restore confidence in the future’.

The Eurozone problem, Flint observed, was a good example of this: ‘If only it were as simple as moving a toggle switch between “Austerity” and “Growth”’, he said.

The reasons behind the great financial crisis were, of course, as much human as technical. And that makes it all much harder to accept. It is easier to say someone else was at fault rather than we were all at fault. ‘Simply put’, he suggested, ‘we believed that which was comforting to believe and we believed those in authority whether political, financial or economic when they confirmed that our aspirations were realistic’.

As a result a whole range of unlikely possibilities were seen as easily achievable, such as growth without an improvement in productivity, a step on the housing ladder without the need for a down-payment, house price inflation well beyond wage growth, higher returns without higher risk, and so on. And then post-meltdown and armed with enormous amounts of hindsight, a large number of people announced that they had seen the flaws all the time. ‘The band of those who claim they saw the impending wreck’, he said, ‘grows daily’.

But realistically they did not see it coming, nor were they likely to, and nor could regulation have done much about it. ‘A good parallel’, he suggested, ‘might be that we are very skilled today in understanding the cause of earthquakes, how to calibrate their impact and in building infrastructure and buildings better able to withstand the shocks but we still cannot predict where and how severe the next earthquake will be’.

The important point is to understand the causes, learn the lessons, build barriers to protect us in the future, and restore confidence. And much of that has been done. The question now is to move the argument on. And that means putting more emphasis on human behaviour than on regulation. ‘There is a real need for leadership to call the point at which we have to stop adding to the reform agenda and observe whether the aggregate of all that has been done has been sufficient to change behaviour so that the system in aggregate is fit for a purpose that is universally understood and accepted’, he said.

This is the hardest part. It is much easier to juggle with the creation of regulations than to try to alter behaviours, and being easier people tend to follow that route. Flint devised a simple test to highlight where reformers were putting their efforts. ‘It is worth noting that a simple word search in the Independent Commission on Banking Report mentions capital 463 times, liquidity 140 times and behaviour 7 times’, he reported. ‘In the FSA’s report into the failure of RBS, the numbers are 1389 for capital, 733 for liquidity and 16 for behaviour respectively’.

Yet it is in the field of behaviours where effort should be concentrated. ‘It is the aggregate of behaviour evidenced within the system and in particular how it has changed that will change society’s perception of banks rather than thousands of pages of worthy new regulations designed to work in theory’.

‘So rather than obsess about whether an organisation can break down exposures by the hour, by product, by customer, by industry classification, by business line, by country, by region’, he said, ‘care more about tone from the top, how individuals are screened for behavioural characteristics when recruited or promoted, how ethics and values are taught and reinforced, how values are enforced and rewarded and how an organisation looks for and adapts to changing expectations within the communities it serves’.

In other words make everything rather more professional. And use that word in its original sense.

* David Flint was giving the annual lecture the Institute of Chartered Accountants of Scotland holds in memory of Aileen Beattie, who was its technical director when she died after a long illness almost seven years ago. And in those few short years the lecture has developed into something which is expected to deliver really solid and powerful thinking. It fits with the ICAS self-image of direct speaking from an intellectual base. There should be no nonsense or jargon in sight. Flint fulfilled all of that.
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FEE seeks better financial reporting through audit committee improvements

19 Jun, 2012

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has published a Discussion Paper calling for improvements to the functioning of audit committees, which are considered "essential for the quality of financial information provided by companies".

The Discussion Paper explores the role of audit committees in corporate governance, and divergence in audit committee functions and composition across Europe.  The paper recommends numerous legislative and other responses which would enhance the role of audit committees, such as requiring the audit committee to be a subcommittee of the board of directors with an independent chair.

Furthermore, the paper outlines the suggested roles of the audit committee, which would assist in improved financial reporting.  For example, transparency of audit committee work could be improved through formally advising the board on judgements and conclusions of the audit committee in relation to key or critical accounting policies and estimates.  Numerous other audit-related and corporate governance recommendations are included.

The Discussion Paper is open for comments until 28 September 2012. Click for FEE press release (link to FEE website).

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Our summary of new and revised accounting pronouncements for June 2012

19 Jun, 2012

We've updated our 'summary of new and amended pronouncements' document to provide a high level overview of new and revised accounting pronouncements that should be considered for financial reporting periods ending on or after 30 June 2012.

The resource provides a brief summary of each pronouncement, and indicates whether it must be mandatorily applied for the first time at 30 June 2012, or whether it may be optionally applied, for various quarter ends. This information can be used to ensure that all new financial reporting requirements have been fully considered in the reporting close process.

The information reflects developments to 19 June 2012 and will be updated through to September 2012, after which we'll produce an edition for September  2012 reporting. We'll include a permanent link to the most recent edition of the resource in the right-hand panel of our standards page. The summary is also available for each quarter for the past year.

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IVSC issues proposed guide to assist professional valuers who participate in the audit process

18 Jun, 2012

The International Valuation Standards Council (IVSC) has issued for comment a draft guide, The Role of the Professional Valuer in the Audit Process. The draft guide is intended to provide professional valuers with a better understanding of an auditor’s role and how professional valuers can be more effective when assisting auditors and entities during the audit process.

IFRSs and many other financial reporting standards require valuation measurements for certain assets, liabilities and equity interests. Professional valuers are often involved in the calculation of these valuations or in assisting auditors in their determination of whether the values are reasonable and well supported. The draft guide notes the following on how to create effective interaction between the professional valuer and the auditor:

For the professional valuer engaged by the auditor, there needs to be an appreciation of:

  • the types of information that the auditor might request or discuss with the professional valuer,
  • the factors that significantly affect whether the professional valuer’s work will be adequate for the auditor’s purposes, and
  • the evaluations that the auditor is required to make on the professional valuer’s work.

Comments on the exposure draft are due by 15 September 2012.

Click for IVSC exposure draft (link to IVSC website).

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Agenda for the Capital Markets Advisory Committee meeting

18 Jun, 2012

The Capital Markets Advisory Committee is meeting in London on 20 June 2012. The agenda for the meeting is now available.

The agenda for the meeting is set out below:

Agenda for the meeting

Wednesday, 20 June 2012

  • Work plan update
  • Leases project update
  • Disclosure framework (introduction - breakout sessions - feedback)
  • Revenue Recognition project – onerous contracts
  • Agenda consultation – next steps
  • Narrow scope amendments
  • Financial Instruments
    • Classification and measurement
    • Impairment

Click for access to the full agenda and agenda papers (link to IASB website).

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IASB issues updated work plan with slight clarification of timings and a new project on the IFRS for SMEs

18 Jun, 2012

The International Accounting Standards Board (IASB) has publicly released a revised work plan updating the expecting timing of various due process steps in its projects. The expected timing of a revised ED in the leases project has been clarified, and a new project added on the comprehensive review of the IFRS for SMEs.

The following is a summary of the changes in the revised work plan, which is dated 14 June 2012:

  • Leases - the target date for the re-exposure of the proposals is now fourth quarter of 2012 (previously second half of 2012)
  • IFRS for SMEs - comprehensive review 2012-2014 - the updated work plan formally includes this new project which was confirmed at the June 2012 IASB meeting.  An Invitation to Comment (later retitled to a Request for Information) is expected in late June or early July, with further due process steps to occur over 2013-2014, and 2015 set as the target effective date for any amendments resulting from the review.

The work plan confirms the following milestones are expected to be reached by the end of June:

Click for IASB work plan as of 14 June 2012 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

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Final notes from June IASB meeting

17 Jun, 2012

We have posted the Deloitte observer notes from the IASB-only insurance session held during the IASB's 12-14 June 2012 meeting. The session was an education session to discuss the treatment of acquisition costs in insurance contracts.

Click through for direct access to the notes:

Thursday, 14 June 2012

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

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Deloitte comment letter on discussion paper on income taxes

15 Jun, 2012

Deloitte's IFRS Global Office has submitted a letter of comment responding to the European Financial Reporting Advisory Group's (EFRAG's) and the UK Accounting Standards Board's (ASB's) Discussion Paper, Improving the Financial Reporting of Income Tax.

In the comment letter, we agree with the discussion paper's observation that a focus on user needs when re-assessing financial reporting of income taxes, such as the need for additional clarity on current and likely future tax payments, should be a central consideration.

Click for a full summary and our comment letter on the EFRAG's discussion paper.

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