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ESMA work programme for 2011

06 Jan, 2011

The newly established European Securities and Markets Authority (ESMA) has published its first work programme.

Items 48 through 52 concern IFRSs with the objectives of investor protection and market integrity, transparency, and efficiency. Thus ESMA will monitor IFRS development and endorsement, map the application of requirements (e.g. IFRS 8) and consider post implementation work on IFRS 9. ESMA will also analyse the equivalence of the application of IFRS in China and India; a report on the results is to be expected in July 2011. Click for ESMA work programme for 2011 (PDF 116k, link to ESMA website).
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The Effect Of Shariah Principles on Accounting Methods for Islamic Banks

04 Jan, 2011

Further to our story published yesterday, we make available a presentation by Daud Vicary Abdullah, Deloitte's Global Islamic Finance Leader.

The Effect Of Shariah Principles on Accounting Methods for Islamic Banks points out the rapid acceptance of Islamic finance, explains the fundamental principles and shows the three options for the way forward in Islamic accounting:
  • Exclusivity: Live side by side with its conventional counterpart; all Islamic financial institution transactions will be recorded by way of Islamic accounting
  • Harmonisation: International Financial Reporting Standards (IFRSs) are fine tuned; then certain exemptions are allowed/disallowed
  • Convergence: Applying IFRS in every aspect

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Three new European authorities for the supervision of financial activities start their work

03 Jan, 2011

As reported earlier, three new regulatory authorities offering direct EU supervision of systemically important financial institutions (the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA)) have been established.

These new authorities have started their work on 1 January 2011. Michel Barnier, the European Commissioner responsible for Internal Market and Services, commented on the "turning point for the European financial sector":

With this new framework of financial supervision in Europe in place, we are putting into effect in practical terms the lessons learnt from the crisis. This framework is at the heart of the ongoing financial reforms.

[...]

This move forward also demonstrates that Europe is leading the way and upholding its international commitments. These new authorities will work with others across the world to ensure better global supervision.

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New IAS Plus page on Islamic accounting

03 Jan, 2011

We have created a new IAS Plus page offering background information on Islamic accounting and a history of recent developments in Islamic accounting requirements and practices.

Accounting Standards for financial reporting by Islamic financial institutions have to be developed because in some cases Islamic financial institutions encounter accounting problems because the existing accounting standards such as IFRSs or local GAAP were developed based on conventional institutions, conventional product structures or practices, and may be perceived to be insufficient to account for and report Islamic financial transactions. Sharia'a compliant transactions that observe the prohibition to charge interest may not have parallels in conventional financing and therefore, there may be significant accounting implications. Likewise, the Islamic finance industry is under considerable pressure to enhance practice and improve risk management systems and protect investors.

Click for our Islamic accounting page.

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OBE for Ken Wild

31 Dec, 2010

The 2011 New Year Honours List published today recognising outstanding achievement and service across the whole of the United Kingdom includes Ken Wild as an Officer of the Order of the British Empire (OBE).

He is honoured for services to financial reporting.

Ken Wild was a partner at Deloitte for 26 years until his retirement in 2010, for much of that time he led the UK firm's technical department and, more recently, the Global IFRS Leadership Team. Mr Wild was also a member of the ASB from 1994 to 2003 and IFRIC from 2003 to 2009. He also helped maintain IAS Plus and has written numerous articles and books on accounting. He is currently a Fellow, Judge Business School, Cambridge University, where he lectures on financial reporting in the School's masters' programmes.

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Upcoming meeting of the FASB/IASB joint working group on lease accounting

30 Dec, 2010

On Friday 7 January representative members and staff of the FASB and the IASB will meet with members of the Joint Working Group on Lease Accounting to discuss the 2010 Exposure Draft on Leases.

The objectives of this meeting are to:
  • Discuss tentative decisions made by the Boards in the ED
  • Obtain the views and suggestions of the working group on certain key areas of the leases project
  • Discuss feedback received through outreach activities and comment letters.
  • Topic: ED Leases
  • Date and time: Friday, 7 January 2011, 9:00 a.m. 4:00 p.m. EST
  • More information on the meeting: Click here
  • More information on IAS Plus: Our Leases project page

 

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The Bruce Column — Governance: Everything to play for at the IASB

30 Dec, 2010

Back in the early days of the International Accounting Standards Board (IASB), its Chairman, Sir David Tweedie, knew what represented the frontline in protecting the independence of the Board.

It was a person, a very large person, six foot seven inches tall and big with it. He was Paul Volcker, the Chairman of the Trustees. Volcker had been Chairman of the Federal Reserve in the US and was then, as now as President Obama showed, a go-to person if heavy-lifting was required somewhere in the financial and business world. Tweedie used to refer to him as "a superb second-row", a reference to a key man in the scrum in a game of rugby who provides the shove which would deter, then overpower, and finally defeat the opposition.

But as time went on and the work of the IASB extended across Europe, then out across the rest of the world, and even into the heartland of US corporate life the need for a rather more sophisticated, urbane, but still effective governance system became necessary. It needed the strength to protect the Board's independence. But it needed to show real accountability acceptable to all.

This is always difficult. The perennial problem of who regulates the regulators has echoed down the centuries. The US standard-setter, FASB, had a set of trustees who reported upwards to the nation's senior regulator, the SEC, whose Chairman was appointed by the President. The IASB had set up a similar Board of Trustees, but it had not been obvious who these people should report to, if anyone. But, post-2005 when all listed companies in Europe had to follow international financial reporting standards, the IASB was effectively setting the law. Accountability through a simple statement of independence backed by the trustees was no longer enough to satisfy both opponents and supporters.

So the long and sometimes drawn-out process of creating an effective further tier began. And last year the Monitoring Board, drawn from and accountable to the world's great public regulatory bodies, the SEC, the European Commission, the global stock market organisation, IOSCO, and the Financial Services Agency of Japan, with the Basel Committee on Banking Supervision as an observer, took its place at the top of the accountability pyramid.

And once in place it decided that it needed a full review of whether the current governance structure worked. And, more or less at the same time, the Board of Trustees decided that, with the end of the IASB's first decade coming into sight next June, it should also take a look as how the whole system worked. We are now in the midst of an unprecedented bout of discussions and consultations aimed at reinforcing the governance system. And, as with any effort at throwing everything up in the air and seeing how it looks when it lands, all manner of hares are starting to run.

This is a good thing. The credibility of any organisation depends on its transparency and its perceived openness to change. But there is also an inherent danger. Old arguments, previously rebuffed and dismissed, can gain traction again. No one doubts the need for independence. At the most recent meeting of the Monitoring Board, in New York at the end of October, the European Commission's Commissioner for Internal Market and Services, the powerful Michel Barnier, went out of his way to say that any discussion of governance "should not undermine the Board's independence", and then, to underline his point, followed that with: "Never". But the points of friction which emerged so sharply at the height of the financial crisis are there for fighting over once more. Are financial reporting standards and the process which creates them there for the benefit of capital market investors? Or are they there to provide a balance between capital markets and prudential financial stability concerns which regulators strive for? Should the members of the Monitoring Board be endorsers or enforcers? This could be an interesting argument in the future. The man who takes over as Chairman of the IASB when Tweedie steps down at the end of June next year, Hans Hoogervorst, was Chairman of the Financial Crisis Advisory Group and in both its report on the standard-setting response to the financial crisis and in Hoogervorst's public pronouncements it is obvious on which side of the line he sees himself. "Accounting rules cannot make stable what is inherently unstable", is a favourite line. Even the Governor of the Bank of England appeared to weigh in to this argument recently when he declared it to be "very silly" to assume that all risks and challenges could be encompassed by one magic number.

But the two processes of re-assessing the role of both the Monitoring Board and Trustees run wider than that. They encompass the nature of quite what public interest the IASB is acting in. They look at the primary role of financial reporting. They look at how you balance independence with accountability. And they puzzle about where the finance should come from. And above all they are looking to see if the intensity of standard-setting can be lowered and more time devoted to how effective standards are and the benefits they provide. An organisation which devotes much time to measurement needs to probably conduct itself in a more measured way.

The products of all this debate are supposed to emerge in the earlier part of next year. They should provide more indications of precisely where the IASB, and its governance bodies, are moving. But as its first, hugely successful, decade moves to a close there is still everything to play for.

Robert Bruce
December 2010

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Agenda for 6-7 January 2011 Interpretations Committee meeting

30 Dec, 2010

The IFRS Interpretations Committee will meet at the IASB's offices in London on Thursday and Friday 6 and 7 January 2011 (morning only on 7 January). The Committee will continue deliberations on the accounting for production phase stripping costs in the mining industry and put options written over non-controlling interests, consider whether to add a project to its agenda on contingent pricing of property, plant and equipment and intangible assets, and consider a number of other matters.

The meeting is open to the public and will be webcast.

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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Seidman appointment receives positive reactions

29 Dec, 2010

As reported earlier, the Board of Trustees of the Financial Accounting Foundation (FAF) has named Leslie F. Seidman chairman of the US Financial Accounting Standards Board (FASB) effective immediately.

The United States Securities and Exchange Commission (SEC) welcomes the appointment: "Her experience will facilitate the progress of important initiatives on the FASB agenda as they seek to continually improve the quality of financial reporting standards for the benefit of investors." (click for full SEC statement)

The American Institute of Certified Public Accountants (AICPA) through its Center for Audit Quality (CAQ) congratulates Ms Seidman and states: "The public company auditing profession looks forward to working with her as she oversees the development of U.S. accounting standards and coordinates convergence efforts with the International Accounting Standards Board." (click for full CAQ statement)

Financial Executives International (FEI) applauds the appointment: "We believe that Ms Seidman has done a remarkable job since taking on the role as Acting Chair in the fall of 2010. We are confident that she is well suited to lead the rest of the Board and work with organizations such as FEI to ensure the development of high quality accounting standards during this critical time for global standard setting." (click for full FEI statement)

Leslie Seidman herself had commented on the pivotal time of her appointment: "We are at a crucial point in our convergence program, and my fellow Board members and I are working in close partnership with the IASB to improve the comparability of financial information around the world." (click for FAF press release)

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IFRS for Investment Funds

28 Dec, 2010

Deloitte's Global Financial Services Industry (GFSI) network has released two publications on IFRSs for Investment Funds:

Harnessing the forces of change: IFRS for Investment Funds addresses and highlights the major differences between IFRS and the US Generally Accepted Accounting Principles (US GAAP). As the acceptance of IFRS in the US and elsewhere becomes more imminent, this report provides investment managers with key issues they should be considering when approaching IFRS.

The accompanying paper Harnessing the forces of change: Illustrative financial statements 2010 provides descriptive examples. It includes a variety of example industry disclosures to provide investment managers with a clearer idea of what the switch to IFRS would entail.

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