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FAF warns against written commitment to a single set of global accounting standards

Dec 31, 2012

The US Financial Accounting Foundation (FAF) has submitted a letter of comment to the IFRS Foundation on its Invitation to Comment 'Proposal to Establish an Accounting Standards Advisory Forum'. In the comment letter, the FAF warns that written commitment to a single set of global accounting standards will exclude many jurisdictions and with them some major players from the proposed new advisory body.

The FAF believes that the proposed Accounting Standards Advisory Forum (ASAF) would offer a good opportunity for sharing technical knowledge and strengthening the cooperation among accounting standard setters. The comment letter also suggests that the new forum would offer a valuable platform for exchanging views on potential agenda items, proposals and research not on the IASB's agenda which might foster convergence even further.

However, for the ASAF to achieve its objectives the FAF maintains the forum would need to include jurisdictions representing the world's major capital markets irrespective of whether they have already adopted IFRSs. Requiring members to sign a commitment to a single set of global accounting standards would exclude among others the United States, which has not yet decided on the adoption of IFRSs:

Requiring a written commitment to a single set of standards written by the IASB, in full and without modification, would exclude many jurisdictions from membership, including those where the standard setter does not have the final authority to adopt or endorse IFRS; those where IFRS has been adopted but has been modified; and those — including the United States — where no decision has been made regarding adoption or endorsement of IFRS. If an overarching goal of the ASAF will be to inform and improve IFRS for potential future use by such jurisdictions, we would encourage changes to the commitment that would allow the broadest possible participation in the ASAF process.

The FAF continues to see a single set of standards as "worthy objective", but for the forseeable future believes that it is more practical to aim for "highly comparable" standards.

Please click for the full comment letter on the FAF website.

FASB releases Financial Reporting Taxonomy 2013

Dec 26, 2012

The FASB has released the 2013 U.S. GAAP Financial Reporting Taxonomy, pending final acceptance by the SEC. The taxomony contains accounting standards updates and other improvements to the official taxonomy, which is used by public issuers registered with the SEC.

The FASB issued proposed improvements to the taxonomy in September 2012, allowing users of the taxonomy to provide feedback on the updates and to provide SEC filers, service providers, software vendors, and other interested parties the opportunity to become familiar with and incorporate new element names for their filings.

Click for the press release (with a link to the taxonomy) on the FASB's website.

Paul Beswick named SEC Chief Accountant

Dec 22, 2012

Paul A. Beswick, the acting chief accountant at the SEC, has been named to the position permanently. Mr. Beswick, who was formerly a deputy chief accountant at the SEC, had been serving as acting chief accountant since James L. Kroeker left the SEC in July.

Mr. Beswick served as staff director of the multi-year effort to help the SEC evaluate the implications of incorporating IFRSs into the financial reporting system for U.S. companies. The SEC final staff report Work Plan for the Consideration of Incorporating IFRSs into the Financial Reporting System for U.S. Issuers was published on July 13, 2012.

Apart from general comments regarding the importance of the SEC's decision on IFRSs, Mr. Beswick gave little away over the last months in terms of the next steps the SEC might take. In his speech at the 2012 AICPA Conference on Current SEC and PCAOB Developments, he merely expressed an expectation of working with the new SEC chair, Elisse B. Walter, and the existing SEC commissioners, commenting that people should "please stay tuned."

Click for SEC press release (link to the SEC's Web site).

IASB Research Director outlines research opportunities

Dec 22, 2012

Peter Clark, the IASB's Research Director, has written an article outlining research opportunities for academics in connection with the IASB's new research phase.

As a result of the agenda consultation 2011 the IASB concluded that a new research phase would be included in the process for developing standards. The use of research and gathering evidence is not new to the IASB, but the IASB now intends to place its research on a more structured footing to make it easier for the IASB to gain access to the wealth of expertise and information that exists in the research community.

Peter Clark, the IASB's Research Director, has written a short article summarising how the IASB intends to approach research and what role academics can play in the IASB’s research. Academics can for example help the IASB by bringing financial reporting problems to the IASB's attention - for instance by contributing to the public agenda consultation, which is intended to take place every three years going forward. Also, the IASB has identified several research topics it intends to work on:

When academics are researching an area of interest to the IASB, such as those identified above, the IASB would welcome information about that research.

The IASB is well aware that rigorous empirical research requires a long lead time and that academics may be reluctant to research topics that do not provide adequate incentives, for example a reasonable prospect of being able to publish the output of the research in a form that will provide them sufficient credit. The IASB will consult academics to seek ways of overcoming these impediments.

Please click to download Peter Clark's thoughts and comments on the IASB's new research phase and the opportunities it offers for academics: The IASB’s research activities.

New IFRS for SMEs training module

Dec 21, 2012

The IFRS Foundation Education Initiative has developed a training module for Section 9 of the IFRS for SMEs "Consolidated and Separate Financial Statements." This section defines the circumstances in which an entity presents consolidated financial statements and the procedures for preparing those statements. It also includes guidance on separate financial statements and combined financial statements.

Ultimately, the IFRS for SMEs training material will include 35 stand-alone modules — one for each section of the IFRS for SMEs. Currently, 32 modules are available. Most are also available in Arabic, Russian, Spanish, and Turkish.

Click for more information on the Section 9 training module or to access all training modules on the IASB's Web site.

IFRS Foundation issues educational material on fair value measurement

Dec 20, 2012

As part of the IASB’s Education Initiative, the IFRS Foundation staff — with the assistance of the valuation expert group — has issued the first chapter of educational material to accompany IFRS 13, titled "Measuring the fair value of unquoted equity instruments within the scope of IFRS 9 Financial Instruments."

This 71-page chapter addresses the fair value measurement of unquoted equity instruments. It presents a range of commonly used valuation techniques for measuring the fair value of unquoted equity instruments within the market and income approaches as well as the adjusted net asset method. This chapter does not prescribe the use of a specific valuation technique but instead encourages the use of professional judgement and the consideration of all facts and circumstances surrounding the measurement.

It is the first of a series of chapters of educational material provided to support IFRS 13. These chapters are being developed to describe, at a high level, the thought process for measuring assets, liabilities, and an entity’s own equity instruments at fair value, which will ensure consistency with the objective of a fair value measurement set out in IFRS 13. Additional chapters will be published as they are finalized.

Click to view (links to the IASB Web site):

Final notes from the December 2012 IASB meeting

Dec 20, 2012

The IASB's December meeting was held in London on 13-17 December 2012, some of it a joint meeting with the FASB. We have posted the remaining Deloitte observer notes from Monday's session on agriculture.

The IASB discussed three fundamental issues related to the limited scope project on bearer biological assets (BBAs): (1) what definition of BBAs should be used, (2) how BBAs should be measured, and (3) how produce growing on the BBAs should be accounted for.

Click for direct access to the notes on agriculture (IASB-only session). You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

FASB proposes an impairment model for all financial assets

Dec 20, 2012

On December 20, 2012, the FASB issued proposed Accounting Standards Update "Financial Instruments — Credit Losses." The proposed ASU introduces the current expected credit loss (CECL) model for accounting for the impairment of financial assets. The proposed CECL model is intended to require more timely recognition of credit losses, while also providing additional transparency about credit risk. It replaces the multiple existing impairment models in U.S. GAAP that generally require that a loss be incurred before it is recognized.

The proposed ASU introduces the sole impairment test for financial assets measured at amortized cost or fair value through other comprehensive income (FV-OCI) — irrespective of the form of the asset (i.e., loan versus debt security). Under the proposed model, a reporting entity would recognize an impairment allowance equal to the current estimate of expected credit losses (i.e., all contractual cash flows that the entity does not expect to collect) for such assets as of the end of the reporting period.

The FASB’s proposed impairment model would apply to all financial assets measured at amortized cost or FV-OCI, but it does permit a practical expedient in limited circumstances. Thus, the proposed model would apply to trade and lease receivables and loan commitments not measured at fair value through net income (FV-NI).

Comments on the proposed ASU are due by April 30, 2013.

Comparison with IFRSs

The approach in the proposed ASU represents the third model that was exposed by the FASB for comment. This model and the first model were included in FASB-only documents; the second model was a supplementary document published jointly with the IASB in January 2011. Through June 2012, the FASB and the IASB continued to jointly deliberate a "three bucket" impairment model for financial assets. However, after constituents expressed significant concerns that the joint model could be difficult to understand, operationalize, and audit, the FASB decided to develop an alternative impairment model. Because the IASB did not receive similar feedback from its constituents, it has tentatively decided to continue deliberations of the jointly developed model. The two boards, however, are committed to joint redeliberations after receiving comments on their respective proposals. The IASB plans to issue its exposure draft on impairment in the first quarter of 2013.

The following table highlights some of the key similarities and differences between the FASB’s proposed model and the IASB’s current thinking:

SubjectFASB’s Proposed ASUIASB’s Tentative Decisions
Scope The proposed ASU applies to:
  • Financial assets measured at either amortised cost or FV-OCI.
  • Trade and lease receivables.
  • Loan commitments not measured at FV-NI.
Same as the FASB.
Recognition threshold

None. Impairment is based on expected (rather than incurred) credit losses.

However, the FASB does not require entities to record an impairment allowance for a FV-OCI financial asset if:

  • Its fair value exceeds its carrying amount.
  • The expected credit losses are deemed insignificant.

None. Impairment is based on expected (rather than incurred) credit losses.

The IASB does not provide an exception for FV-OCI financial assets.
Measurement Current expected credit losses (i.e., all contractual cash flows that the entity does not expect to collect).

For assets in the first category, 12-month expected losses.

For assets in the second category, lifetime expected credit losses.
Transfer criteria between categories Not applicable in CECL model. Only one measurement objective.

Transfer to lifetime expected credit losses when there has been significant deterioration in credit quality since initial recognition, taking into consideration the term and the original credit quality of the asset. For higher credit quality assets, lifetime expected losses would be recognised when the credit quality of those assets deteriorates to below "investment grade."

Transfer back to 12-month expected credit losses when transfer criteria no longer satisfied.

Presentation of impairment allowance Valuation allowance (i.e., contra asset). Same as the FASB.
PCI financial assets Follows CECL model. Impairment allowance represents current expected credit losses. Interest income recognition is based on purchase price plus the initial allowance accreting to contractual cash flows. The impairment allowance for PCI financial assets is always based on the change (from the original expectation at acquisition) in lifetime expected credit losses. Interest income recognition is based on initially expected (rather than contractual) cash flows.
Nonaccrual accounting An entity would be required to place a financial asset on nonaccrual status “when it is not probable that the entity will receive substantially all of the principal or substantially all of the interest.” IFRSs do not currently contain a nonaccrual principle nor would the IASB’s proposed approach introduce one. However, for assets that have deteriorated to being credit-impaired, interest income is based on the net carrying amount of the asset.
Write offs An entity would write off the carrying amount of a financial asset “if the entity [ultimately] has no reasonable expectation of future recovery.”  Same as the FASB.

Click to view the news release (linking to the proposed ASU) on the FASB's Web site. Also see Deloitte's Heads Up newsletter for more detailed information on the proposed ASU.

IASB-EFRAG joint meeting

Dec 20, 2012

After the regular IASB meeting in December 2012, the IASB and a European Financial Reporting Advisory Group (EFRAG) delegation met on December 18, 2012, to discuss a number of topics.

The topics discussed include:

Click for:

    IASB work plan revised

    Dec 20, 2012

    The International Accounting Standards Board (IASB) has released a revised work plan, reflecting the outcomes from the IASB's Agenda Consultation 2011 and other IASB decisions. A number of new projects have been added to the agenda, and new target dates introduced or clarified for many other projects.

    Details of the changes from the previous work plan dated December 4, 2012, are as follows:

    New projects

    • Rate-regulated activities — Inclusion of this project in the active agenda, to be completed in two phases: an interim IFRS (exposure draft expected in first or second quarter 2013) and a comprehensive project (discussion paper expected in the second half of 2013).
      This dual approach is the result of much debate on this contentious topic. Over the past few years, several jurisdictions adopting IFRSs for the first time or considering the adoption of IFRSs, including Canada, have come out very vocal in support of an interim standard (and possibly final standard) that would allow grandfathering of existing accounting practice upon adoption of IFRSs. These views have often been in conflict with the views of other jurisdictions that already adopted IFRSs and having already changed their accounting for regulatory asset and liabilities, they are generally not supportive of exceptions or changes being made for new adopters. The IASB is balancing the desire to have Canada (where companies with rate regulated activities still have not adopted IFRSs) and other jurisdictions fully adopt IFRSs without amendment with the views of those jurisdictions already using IFRSs. Thus the IASB decided (after much debate) to proceed with the issuance of an exposure draft for an interim standard that will allow some sort of grandfathering in addition to their prior decision arising from the Agenda Consultation process to proceed with a comprehensive project on rate regulated activities. There is no certainty at this early stage about what the ultimate outcome will be for either project.
    • IAS 12 — Deferred tax assets for unrealised losses — A new project split out separately from the annual improvements process, which was decided at the December IASB meeting, with an exposure draft expected in the fourth quarter of 2013.
    • IAS 36 — Recoverable amount disclosures for non-financial assets — A narrow-scope amendment designed to clarify relevant disclosure requirements, which the IASB agreed at its December meeting would be fast tracked as an amendment outside the annual improvements process in an attempt to finalize the amendment as timely as possible. An exposure draft is expected in the first quarter of 2013.

    Clarification of target dates on other projects

    Click for IASB work plan dated December 19, 2012 (link to the IASB's Web site). We have updated our project pages to reflect the updated work plan and other known developments.

    Correction list for hyphenation

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