The EEG was established by the IFRS Foundation to further enhance the influence of emerging economies in the development process of IFRSs and is a response of the IASB to the G20 recommendation to introduce more involvement from emerging economies into its standard setting.

Attendants at the Buenos Aires meeting included IASB Board member Amaro Gomes, IASB Director of International Activities and Chairman of IFRS Interpretations Committee Wayne Upton and delegates from Argentina, Brazil, China, Indonesia, Republic of Korea, Malaysia, Russia, Saudi Arabia, South Africa and Turkey. The topics discussed included agriculture accounting, accounting for telecommunication towers, clarification of terms in IFRSs and translation issues.

The next EEG meeting will be held in Sao Paulo, Brazil on 4 and 5 December 2012. The main discussion topic will be business combinations under common control.

Please click for further information on the IASB website:

• Communiqué of third meeting held on 28 and 29 May 2012
• General information about the Emerging Economies Group

There is always a balance to be sought between the flexibility of informal arrangements and the greater complexity of more structured systems. And as the IASB has grown in stature and influence it has become more obvious that the balance needs to be recalibrated. The IASB Chairman, Hans Hoogervorst, has made this clear in recent months and now Michel Prada, Chairman of the IASB’s parent body, the IFRS Foundation, has emphasised the point.

It is an inevitable result of steady change not just in the IASB itself but also in the environment which it serves. In Prada’s view, as he made clear at the recent conference of IOSCO, the organisation of national regulators, in Tokyo, there needs to be change in how the IASB creates standards and also in how the consistency in their implementation can be improved.

The IASB, he said, ‘cannot do this alone’. ‘It must find ways to work in close cooperation with standard-setting bodies around the world, to tap into the best thinking in financial reporting, but also to make sure that jurisdictional requirements are fully taken into consideration’. The growth of the IASB has been reflected, particularly in recent years, by the growth in regional bodies seeking to influence or put across their own particular points of view. Meanwhile national standard-setters maintain their own voices. All of these many voices need to be heard and their needs satisfied.

Much of this is simply a reflection of the success of the IASB. As Prada pointed out two-thirds of countries in the G20 are required to use IFRSs and almost half of the Global Fortune 500 Companies now report using IFRSs. It is this scale of use of IFRS around the world which demands a more formal structure to ensure that, as far as is possible, everyone feels they have a stake in the system. ‘The IASB has been given the responsibility to develop international standards’, said Prada, ‘but it does not have the authority to say how those standards should be endorsed, implemented or enforced. Neither is it equipped to easily identify the consequences of the standards without the contribution of those entities that implement them in the field’.

So a more formal process should help to create greater buy-in and, most usefully, ensure that the practical issues of implementation are dealt with at an early stage. The IASB needs to avoid the present system where, all too often, outreach and field testing is done late in the process of producing a standard and the inevitable delay starts, perhaps, to endanger the success of any subsequent endorsement. Under a more formalised relationship the relevant outreach, for example, could be instigated earlier and the work done in a more collaborative way.

Flexibility is fine when the number of participants is low and their interests are close. Now that the world of IFRS has grown well beyond critical mass the participants need certainty in the ways in which they work with the IASB.

All this is a consequence of the complexity of maintaining a consistent global system. It is not unique to the accounting world. All truly global bodies, the IMF or the World Bank for example, strive for consistency of approach.

It does mean that the world of the IASB will steadily become more political and more difficult as it strives to satisfy all its constituents that it is taking their concerns on board and producing solutions which will keep them happy. But hopefully it will be more about collaboration and shared endeavour than turf battles.

In responding to the three key priorities, the IAASB intends to:

• Supporting global financial stability — the main priority will be the audit report, including considering innovative ways to enhance the relevance and usefulness of auditors’ reports and auditor communications more broadly. It will also include exploring new ways in which auditor reporting could accommodate evolving national reporting regimes and facilitate enhanced approaches in corporate reporting
• Enhancing the role, relevance and quality of assurance and related services in an evolving world — in particular the revision of the standard on review engagements, to enable practitioners to better service the needs of small- and medium-sized entities (SMEs), a new standard on assurance engagements on greenhouse gas statements, and to provide a strengthened framework under which both reasonable and limited assurance engagements can be conducted
• Facilitating adoption and implementation of the standards — responding to the global financial crisis and the strong momentum for global adoption and implementation efforts in all parts of the world through sustained outreach efforts in various jurisdictions that have not yet adopted the clarified International Statements on Auditing (ISAs).

Click for IAASB press release (link to IFAC website).

The European Union has published the Commission Regulation (EC) No 475/2012 of 5 June 2012 amending Regulation (EC) No 1226/2008 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 6 June 2012. This means that the amendments to IAS 1 Presentation of Financial Statements and IAS 19 Employee Benefits published by the IASB on 16 June 2011 have now been incorporated into European law.

The amendments to IAS 1 must be applied, at latest, to annual periods beginning on or after 1 July 2012. The amendments to IAS 19 must be applied, at latest, to annual periods beginning on or after 1 January 2013.

Launched in 2000, the United Nations Global Compact is a call to companies around the world to align their strategies and operations with ten universal principles in the areas of human rights, labour, environment and anti-corruption, and to take action in support of broader UN goals.

The 2011 Global Compact Implementation Survey received 1,325 responses from over 100 countries, representing a response rate of roughly 20 percent of Global Compact participants.    1,861 companies joined the initiative during 2011.

The survey report notes that a deeper understanding of sustainability issues is gaining momentum around the world, and companies of all sectors are stepping up efforts to build environmental and social considerations into management strategies and policies.

Under the Global Compact programme, participants are required to submit an annual Communication of Progress (COP) outlining their progress on each of the principles.

With respect to public disclosure of policies and actions per issue area, a minority of companies indicate doing so, except in the realm of environment where company size has a significant impact on action (30% of small and medium sized entities versus 89% of the largest companies).  In terms of sustainability/environmental reporting in particular, the survey found that company size and ownership type have an impact, with publicly traded and the largest companies implementing policies at dramatically higher rates in the areas of performance indicators, 'triple bottom-line' and voluntary charters.

Click for press release (link to Global Compact website).

This supplementary study was developed to describe the impact of IFRS 10 on the scope of consolidation in relation to SPEs, compared to IAS 27/SIC‑12. The study was prepared with EFRAG’s endorsement advice on IFRS 10, which was issued on 30 March 2012.

Fourteen companies participated in the study, and findings include:

Click to view the supplementary study on the EFRAG website.

Hoogervorst began his speech by pointing out that in the discussions about what the primary goal of standard setting should be, transparency and financial stability were often seen as juxtaposed. This, Hoogervorst commented, is an essentially false and counterproductive assumption, as transparency is exactly what accounting rules can contribute to financial stability.

The IASB Chairman was very clear about what standard setters cannot do: They cannot ensure stability by themselves, and they cannot (and will not) make items appear to be stable when they are not. They can however contribute to increased transparency which in turn gives prudential regulators and central banks the possibility to react with the instruments available to them.

Hoogervorst noted three aspects of transparency that were and are especially important in connection with the financial crisis and the current Euro crisis:

Tightening of consolidation requirements to prevent undesirable off-balance‑sheet financing - this was a problem especially in the United States, but improved consolidation and disclosure requirements under US GAAP were introduced during the financial crisis. Hoogervorst quoted this as valuable contribution standard setters made to increased transparency and concluded: "[W]e can reasonably hope that this problem will now be a matter of the past."

Judicious use of fair value accounting to show inherent volatility in business models and markets - during the financial crisis there were often calls to abandon fair value accounting as it was believed to lead to artificial volatility. Hoogervorst pointed out, however, that the financial sector is an industry with a lot of inherent volatility, not showing it would diminish transparency not increase it. At the same time the standard setters are well aware that for some instruments, amortised cost is deemed to provide more relevant information than short‑term market fluctuations. Therefore, the IASB has decided to continue with a mixed measurement model in IFRS 9. Hoogervorst also briefly touched on the recent developments in the limited reconsideration of IFRS 9 and the decision to re-establish a fair value through OCI category for certain debt instruments.

Providing a well-functioning impairment model for reliable and credible amortised cost measurements - the current impairment model based on incurred losses came also under criticism during the financial crisis and the Euro crisis. Hoogervorst admitted that this was probably partially justified, even though the model also suffered from a less than vigorous application as triggers to start writing off were abundant yet for various reasons ignored. Still, IASB and FASB are developing a model that is based on expected losses, not on incurred losses, and that Hoogervorst believes will be a major improvement and a great contribution to increased transparency. (A re-exposure of the exposure draft on impairment is expected in the fourth quarter of 2012.) However, Hoogervorst also pointed out the limitations of the new model:

[As] I said before, the expected loss model relies to some extent on judgement. Before the present crisis, many banks and their supervisors obviously were not able to perfectly anticipate risk [... and] there is no guarantee that future bankers will do a much better job of anticipating risk than current bankers. So it is not likely that all the risks that are building up during an economic boom will be recognised in time. Even with an expected loss model, many losses will only become apparent when the economic downturn sets in.

Please click for access to the full speech on the IASB website.

The public meeting was attended by representatives of standard setters from Australia, Austria, Belgium, Brazil, Canada, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peoples Republic of China, Republic of Korea, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Syria, Taiwan, the United Kingdom, and the United States. Representatives of the European Financial Reporting Advisory Group (EFRAG), the International Accounting Standards Board (IASB), International Public Sector Accounting Standards Board (IPSASB) and the IFRS Advisory Council also attended.

A full summary of the topics covered is available in our earlier story where the agenda of the meeting was posted.  Some highlights from the various discussions are outlined below.

International standard setting and interpretation

The IFASS participants discussed a number of related topics on how international standard setting should be undertaken, and the role of national standard setters in that process.  In addition, the interaction with regional standard setters (such as EFRAG, AOSSG and GLASS, which also gave reports) was considered.

The participants discussed a paper A Model for National Standard Setters and noted the following.  A lot of the discussion focused on the role of national standard setters in the standard-setting process and the resolution of jurisdiction-specific issues.  Delegates noted that national standard setters should wherever possible "not deviate from or provide jurisdiction-specific interpretations of IFRSs" and should consult throughout the IFASS network to ensure there is no misinterpretation and that the interpretation is not "causing problems for others".

The meeting also discussed a draft Statement of Best Practice Between the IASB and IFASS.  Mr Mackintosh (IASB Vice Chairman) commented that the "IASB wants to formalise its relationship with national standard setters and work productively with them".  Participants commented that the relationship should be seen as a 'partnership' and "standard setters wanted to be listened to, and heard by, the IASB".  A number of suggestions to improve the drafting of the document were discussed and will be actioned before the next meeting.

The group also discussed the role and selection of an IFASS Chairman, which will be provided by a standard setter of a jurisdiction and will also have a Chairman's Advisory Committee.

Comments on the possible adoption of IFRS in the United States

Tom Linsmeier, a FASB member, spoke in a personal capacity on the possibility of the United States.

In a candid analysis, Mr Linsmeier noted that no decisions have been made and that a "the report of staff's recommendations will be made public if and when the [SEC] Commissioners make a decision about the direction forward in the U.S. but likely not before June or July".  He went on to note that the ability of the SEC to make a decision may be constrained by the presidential election in which policy activity generally ceases from July or August, which although the SEC is "not bound by such restrictions, but often voluntarily chooses to comply".  He added that there will be a need to directly engage the United States Congress on the decision and so "the timing of the final decision is not known".

In another comment, Mr Linsmeier noted that:

The SEC staff acknowledges that its current thinking generally reflects a step back from potential full adoption of IFRSs and from its original "condorsement" proposal

The other participants noted the comments.  The IASB Chairman (Hoogervorst) "expressed disappointment" with the observations and "was discouraged by the delay" and called for "the SEC to make a decision one way or the other" to eliminate uncertainty.  Various other representatives commented in similar tones and made other consequences of the United States potentially not adopting IFRSs.

Topical issues

The representatives discussed the following issues:

• Improving the financial reporting of income tax - discussion on the discussion paper on this topic published by the UK Accounting Standards Board and EFRAG
• Business combinations under common control - discussion on the paper on this topic published by the Italian standard setter and EFRAG
• Research and development costs under IFRSs - consideration of a paper prepared by the Accounting Standards Board of Japan (ASBJ) outlining issues with IAS 38 Intangible Assets
• Foreign currency convertible bonds - consideration of paper prepared by the Indian standard setter on the difficulties in applying IAS 32 Financial Instruments: Presentation to bonds issued in India
• Accounting for small (or micro)-sized entities in different jurisdictions - a report of a survey on the financial reporting framework for these entities prepared by the Korean Standard setter
• Goodwill amortisation and impairment - query from the Italian standard setter on whether representatives would support a potential project to investigate whether the current requirements for goodwill measurement are still valid
• Going concern and liquidity risks: developments in the UK
• Operating profit or loss - issues experienced by Korea in relation to 'operating profit or loss' following its adoption of IFRSs

Other matters discussed

The other items discussed at the meeting included:

• Reports from regional groups (AOSSG, EFRAG, GLASS, PAFA) and support for developing jurisdictions
• IASB post-implementation reviews
• Effects analysis
• Public Sector Conceptual Framework
• Unit of account
• IASB work programme
• Other matters

The next meeting of the IFASS is scheduled to be held in Zurich on 22-23 October 2012.

Click for access to the full summary of the meeting (link to the AASB website).