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SME Implementation Group publishes two final Q&As

Apr 27, 2012

The IASB's SME Implementation Group (SMEIG) has published two final Q&As on the IFRS for SMEs. Q&As are nonmandatory guidance.

Q&A 2012/03, Fallback to IFRS 9, "Financial Instruments," states that the option of applying the recognition and measurement provisions of IAS 39 instead of Sections 11 and 12 of the IFRS for SMEs refers to IAS 39 exclusively. SMEs are not permitted to apply IFRS 9.

Q&A 2012/04, Recycling of cumulative exchange differences on disposal of a subsidiary, states that the cumulative exchange differences that arise on
translation into a presentation currency are prohibited from being recognized in profit or loss on disposal of the subsidiary.

These two Q&As are expected to be the last Q&As published by the SMEIG for the time being because the IASB has committed to undertaking a post-implementation review of the standard and first steps for this process are already being prepared.

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Panel discussion with Sir David Tweedie, Bob Herz, and Paul Cherry on the future of accounting

Apr 27, 2012

On April 24, the AICPA and the Institute of Chartered Accountants of Scotland (ICAS) hosted a panel discussion, "Shaping the Future: Lessons from Accounting Standards Leaders," that featured the former chairmen of the Canadian Accounting Standards Board, the FASB, and the IASB.

The discussions at this invitation-only event touched on the big questions of:

  • U.S. adoption of IFRSs — Sir David claimed that the world is waiting for the United States to move and has been doing so for a long time.
  • Small and medium-size entities in the United States — The Financial Accounting Foundation (FAF) is expected to decide in May whether a separate council for accounting by private companies will be created.
  • Integrated reporting — Chairman of the IASB's IFRS Advisory Council Paul Cherry had to admit that there is a certain reluctance regarding this topic among the council members.
  • Political pressure on standard-setting processes — Bob Herz stated that it is simply not realistic to wish for a world in which politicians do not try to influence standard setting.

The hosting organizations of the panel discussion have published the following information:

  • AICPA — A section on media and photo coverage as well as information on the panelists and moderators is availbale on this dedicated page (link to the AICPA's Web site).
  • ICAS — A short summary of the event is available here (link to the ICAS's Web site); a full report of the debate, including video clips, is expected to be posted soon.

The Bruce Column — Ringing the changes in telecoms accounting

Apr 26, 2012

Mobile phones are a boon to mankind. But when it comes to revenue recognition all manner of problems arise. Robert Bruce, our regular, resident columnist, looks at a way out of the current entanglements.

Change is rapid. But often the consequences and ramifications of change take much longer to be properly assimilated into business and management thinking. We are good at bright ideas. We are quite good at implementing them. But changing the way we see things afterwards is often the slowest part of the process. And this is why the issue of revenue recognition and the telecoms business has proved so intractable.

What are needed are principles which can cope with flexibility and still make sense. And that flexibility needs to reflect the nature of the industry. The ways in which mobile phone services are sold are in a constant state of flux. They change with astonishing rapidity on a day by day, week by week, basis. But the way that the business is accounted for may be hung up, if that is the right thing to say about a phone business, on the old model, the old way of seeing the business. Once upon a time you bought a land-line phone and paid for its use. The phone was a solid fixed bit of equipment which didn’t change from the day you bought it to the day, often many, many years later, when it got chucked out. Now the reasons for deciding on a particular mobile phone are based on the services it can provide and the way it can be used. They are just as much, if not more, about what you expect to be able to do with it. And that too changes on a rapid basis and, reflecting that, so do the phones. Most telecom companies say they are in the business of selling airtime, not phones.

And that is why at a basic level many telecoms companies believe the problem with the current revenue recognition proposals are that they stumble over the issue of the phone and not the service. They may source new customers directly by offering a free or subsidised handset in return for entering into a contract or through an agent who provides the handset and then charges the telecoms company for introducing the customer. Economically, the two arrangements are very similar but under the proposals in the exposure draft they would be accounted for very differently (through reallocation of subsequent billings to recognise revenue for providing the handset in the former case and by recognition of a contract cost asset in the latter). And even then the timing of profit recognition might be very different even where the two contracts would ultimately produce the same total profits.

And then there are the practical issues. Telecoms companies are driven by market forces and changing circumstances. The deals for customers change with astonishing rapidity to cope with this. Telecoms companies believe the handset is not the driver. It is simply the cost of getting the customer. And it is this maelstrom of ever-changing contracts which would make it so hard to apply the exposure draft in its current form. It would mean calculating everything contract by contract. But this is a business with millions of customers all doing different things at different times. Contracts are changed, upgrades are provided, usage patterns alter. Computer software can be written to cope with that. But that is expensive and it is not a quick solution, particularly in an industry which has grown by acquisition and where companies operate on a whole range of patched-together legacy systems.

During the current programmes of roundtables to discuss these issues it would make sense to recognise that the telephone business has changed significantly over the years. One idea aired in recent discussions that could help recognise the change in the business is to capitalise the handset discount given in a directly sourced customer contract as a cost of obtaining that contract. This would enable a consistent profile for revenue from calls, texts and data and consistent profit recognition between directly and indirectly sourced customers.

The whole revolution which mobile phones have brought about is an extraordinary one and an easy one. And it also goes to show that people are remarkably happy to embrace change if it brings them astonishing benefits. What this revenue recognition debate has done is highlight the need at times of such great change to recalibrate our own minds to properly understand the nature of a business and reflect the economics of the business in the way it is accounted for.

Robert Bruce
April 2012

Sir Callum McCarthy appointed as a Trustee of the IFRS Foundation

Apr 26, 2012

The Trustees of the IFRS Foundation, responsible for the governance and oversight of the IASB, announced the appointment of Sir Callum McCarthy to serve as a Trustee.

Sir Callum currently serves as a nonexecutive director of Industrial and Commercial Bank of China, IntercontinentalExchange and the UK HM Treasury. Between 2003 and 2008, he served as chairman of the Financial Services Authority (FSA), the UK financial services regulator.

The appointment, approved by the IFRS Foundation Monitoring Board, begins immediately and will expire on December 31, 2014. The term is renewable once.

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Chairman Hans Hoogervost speech on XBRL

Apr 25, 2012

On April 25, 2012, IASB Chairman Hoogervost gave a speech on XBRL during the IFRS Taxonomy Annual Convention held in London.

In his speech, the chairman gave a high-level overview of the potential benefits of XBRL. He notes that XBRL can potentially supplement financial statements to give users an extract of only the information they need, eliminate re-keying of financial information, allowing users a choice of which language to use.

Chairman Hoogervost also noted that XBRL should not define the Board's standard-setting activities and that additional work needs to be done before XBRL is more widely used. The chairman outlines three XBRL priorities, which will help it gain wider acceptance:

    1. Ensure IFRS Taxonomy is of the highest quality.
    2. Be more sensitive to XBRL requirements throughout the lifecycle of the Board's standard-setting activities.
    3. Work with members of the XBRL community to improve the technology.

Click to view Chairman Hans Hoogervorst's speech (link to the IASB's Web site).

Summary of the April 2012 DPOC meeting

Apr 23, 2012

The IASB has posted a summary of the April 13, 2012, Due Process Oversight Committee (DPOC) meeting.

The DPOC is responsible for (1) approving due process and overseeing the IASB’s compliance with due process and (2) reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

Click for a summary of the meeting (link to the IASB's Web site).

Results from the meeting of the G20 Finance Ministers and Central Bank Governors

Apr 22, 2012

On April 19–20, 2012, the G20 Finance Ministers and Central Bank Governors met in Washington, D.C., to assess progress on the financial regulatory reforms.

In advance of the meeting, organizations such as the International Federation of Accountants (IFAC) and the Private Sector Taskforce (PSTF) urged the G20 to continue their push for financial regulatory reforms and to follow through on earlier recommendations.

The PSTF strongly encouraged the G20 to implement all 15 of the recommendations presented in its 2011 report, with a strong emphasis on its first two recommendations, encouraging the G20 to:

  • Continue to focus on regulatory convergence in the financial sector, ensuring that G20 nations work together to identify and narrow gaps in regulatory practice.
  • Discourage nations from implementing unilateral national regulatory reforms that are inconsistent with international standards and that widen — rather than narrow — the convergence gap.

The IFAC urged the G20 to take action against inconsistent, unreliable public sector financial reporting: “For the last ten years IFAC has consistently promoted the need for better financial reporting and financial management in the public sector. The sovereign debt crisis has given rise to a very significant number of policy developments at an international level, but this issue has yet to be adequately addressed. The use of IPSASs by governments worldwide will improve the quality of financial information reported by public entities, which is critical for investors, taxpayers, and the general public.”

On April 20, the chairman of the Financial Stability Board (FSB) reported to the G20 Finance Ministers and Central Bank Governors on progress in the financial regulatory reform programme. He reported "solid progress . . . in the priority areas identified by the G20 Leaders at Cannes and reiterated by Ministers and Governors in Mexico this past February." The FSB report was accompanied by  a joint report from the IASB and the FASB on their progress in converging their standards, together with a report on enhancements to the governance of the IASB. The boards stated that they are "close to completing the MoU programme" and expect to issue final standards on the remaining projects by mid-2013.

In the communiqué published after the meeting, the G20 Finance Ministers and Central Bank Governors reaffirmed their commitment to international convergence and regulatory reform: "We assessed progress on the implementation of our financial regulatory reform agenda as outlined in our February 2012 Communiqué in order to deliver on our commitments looking ahead to the Los Cabos Leaders’ Summit, and reaffirmed our commitment to common global standards by pursuing the financial regulatory reform agenda according to our agreed timetable in an internationally consistent and non-discriminatory manner." They also commented on the completion of the IASB/FASB MoU programme: “We support . . . the efforts of the IASB and FASB to achieve convergence to a globally accepted set of high quality accounting standards and urge them to meet their target of issuing standards on key convergence projects by mid-2013, at the latest, in order to achieve a single set of high quality international accounting standards” (emphasis added).

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Final notes from the April IASB meeting

Apr 20, 2012

The IASB held its April meeting on April 16–19, 2012, in London; part of it was a joint meeting with the FASB. Final Deloitte observer notes are posted from the sessions held on Wednesday and Thursday.

Click for direct access to the notes:

Wednesday, April 18, 2012

Thursday, April 19, 2012

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

Outcomes from recent Capital Markets Advisory Committee meeting

Apr 20, 2012

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting which was held in London on 22 February 2012. The CMAC was previously known as the Analyst Representative Group (ARG) and is a group of professional financial analysts who regularly meet with members of the IASB to provide the views of professional investors on financial reporting issues.

The topics discussed at the meeting include:

  • EFRAG/FASB disclosure framework project — The committee was given a status update from the EFRAG and FASB on their respective disclosure framework projects. Both have scheduled to release separate discussion papers in the second quarter of 2012.
  • Financial instruments — The committee shared its views on the IASB's and FASB's current tentative decision on the "three-bucket" approach for the impairment of financial assets measured at amortized cost.
  • Leases — The committee voted on which of the three approaches on subsequently measuring lessee's right-of-use asset will be the most approriate. The votes were divided among the members with a slight edge going to the "underlying asset" approach, which treats a lease contract as being equivalent to the purchase of the underlying asset being leased and is financed separately.
  • ESMA's materiality consultation paper — A presentation was given by the ESMA on its November 2011 consultation paper Considerations of materiality in financial reporting. The CMAC responded with a concern about whether the materiality guidance would challenge existing accounting requirements.
  • Investment entities — An overview of proposals on investment entities was given to the CMAC.
  • Revenue recognition — CMAC members were updated on the status of the revenue recognition project. Examples of proposed disclosures and results from a Securties Analysts Association of Japan's survey were given. The committee discussed the need for the boards to better understand the types of information on revenue that entities can provide at a reasonable cost.
  • Post-implementation review of IFRS 8 — The committee discussed whether IFRS 8 achieved its stated objectives and whether it has improved financial reporting.
  • IFRSs 10, 11, and 12 effective dates — The general view of CMAC members was that it would not be significantly detrimental to add an additional year to the effective dates.

Click for more information (link to the IASB Web site).

Additional notes from the April IASB meeting

Apr 19, 2012

The IASB held its April meeting on April 16–19, 2012, in London; part of it was a joint meeting with the FASB. Deloitte observer notes are posted from the session held on Tuesday.

Click for direct access to the notes:

Tuesday, April 17, 2012

Notes from the remaining sessions held on Wednesday and Thursday will be posted soon.

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

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.