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Proposed revisions to Code of Ethics

Feb 29, 2012

The International Ethics Standards Board for Accountants (IESBA) has released proposed changes to the definition of "engagement team" in the IESBA "Code of Ethics for Professional Accountants" (the Code) to avoid any perceived incompatibility between the Code and the International Standards on Auditing (ISAs).

The proposals address comments received by the IAASB on its exposure draft (ED) on ISA 610 Using the Work of Internal Auditors. A number of respondents to that ED pointed out the perceived inconsistency between the independence requirements for external auditors under the Code and the use of internal auditors to perform external audit procedures. The proposed IESBA changes clarify that individuals in an internal audit function providing direct assistance to auditors do not meet the definition of the engagement team under the Code.

The proposals were open for comment until May 31, 2012. Click for the IESBA announcement (link to the IFAC's Web site).

Notes from the February IASB meeting

Feb 28, 2012

The IASB held its regular monthly meeting in London on February 27–March 2, 2012; part of it was a joint meeting with the FASB. Deloitte observer notes are posted from the impairment session held on Tuesday.

Click for direct access to the notes:

Tuesday, February 28, 2012

Notes from the remaining sessions on Monday (insurance contracts) and Tuesday (insurance contracts and classification and measurement of financial instruments) will be posted soon.

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

IVSC to tackle valuation of derivative instruments

Feb 28, 2012

The International Valuation Standards Council (IVSC) has launched a project on the valuation of financial derivatives.

The types of derivative instrument that will be addressed by the project are equity derivatives, fixed income derivatives, credit derivatives, foreign exchange derivatives, commodity derivatives, and hybrid derivatives. The intention is to examine the factors that influence the value of these instruments and how these are reflected in the models most commonly used for valuing them.

The IVSC Standards Board has formed an expert working group comprised of representatives of some of the major banks, including UBS, Deutsche Bank, and HSBC, independent consultants, and buy-side investors to advise it on the project.

An exposure draft is anticipated in the third quarter of 2012. Click for more information (link to the IVSC's Web site).

IFRS Foundation appoints Ronald Arculli as a trustee

Feb 23, 2012

The Trustees of the IFRS Foundation have announced the appointment of Ronald Arculli as a trustee.

Mr. Arculli currently serves as the chairman of Hong Kong Exchanges and Clearing Limited, which operate the Hong Kong Stock Exchange. In addition, he is a member of the Hong Kong government's executive council.

Mr. Arculli's term is effective immediately and will end on December 31, 2014. The term is renewable once.

Click for the IFRS foundation press release (link to the IASB's Web site).

Latest batch of editorial corrections to IFRSs released by the IASB

Feb 22, 2012

The IASB has posted a new batch of "Editorial Corrections to IFRSs."

This batch makes editorial corrections and changes to the Bound Volume (the "Red Book") 2011; Bound Volume (Education) 2011; Bound Volume (Education) 2010; Bound Volume (the "Blue Book") 2012; Bound Volume (Blue Book) 2011; IFRS 9, Financial Instruments (issued November 2009); IFRS 10, Consolidated Financial Statements (issued May 2011); IFRS 12, Disclosure of Interests in Other Entities (issued May 2011); IAS 19, Employee Benefits (issued June 2011); Disclosures — Transfers of Financial Assets (issued October 2010); Presentation of Items of Other Comprehensive Income (issued June 2011); and Mandatory Effective Date of IFRS 9 and Transition Disclosures (issued December 2011).

Click to access the editorial corrections on the IASB's Web site.

The Bruce Column — Independence, eligibility, and the IASB

Feb 21, 2012

Independence and accountability have always been the big issues for the IASB and the IFRS Foundation. Now the Foundation’s Monitoring Board has produced a report that addresses the most sensitive issues. Robert Bruce, our regular, resident columnist, takes a look.

The question which has faced the IASB from its outset is how to square the circle of independence and accountability. The answer has always been to show more rigorous governance. The better the governance the less wriggle-room there will be for critics. And the latest in these efforts is the report on the review of the IFRS Foundation’s governance by its Monitoring Board (the securities markets authorities responsible for monitoring the activities of the IFRS Foundation).

The process itself was rigorous. Its aim was to assess whether the current governance arrangements promoted  ‘the primary mission of the International Accounting Standards Board, (IASB), of developing high quality, understandable, enforceable and globally accepted accounting standards, and provide for both the accountability and independence of the IASB’.  To achieve this, a series of proposals for governance improvements were published last year, a full consultation period ensued, responses were considered, and roundtables were held around the world.

One of the more obvious concerns was that the crossroads where independence, ownership, influence and other issues could collide should be properly defined. For example, the elusive goal of ‘financial stability’ which motivates prudential supervisors should not be a motivation, necessarily, of standard setters.

All this has been clarified in the report. ‘While there were some strong calls for the involvement of prudential authorities in the monitoring process’, says the report, ‘a larger number of respondents cautioned that financial stability should not be regarded as a primary objective of financial reporting, and that inputs from such standpoint should be made to the standard-setter through other existing channels. Considering the diversity of views and also the possible undesirable effect any changes to the current set-up would have on stakeholders’ perceptions, the Monitoring Board concluded that the status quo should be maintained’.

Overall the report is governed by a simple statement. The aim is ‘to increase understanding and introduce greater clarity’, and a whole variety of measures are introduced to achieve just that. But there is one which contains a degree of political diplomacy. And this is the membership of the Monitoring Board. This will continue on the same basis. ‘Full membership of the Monitoring Board will continue to be confined to capital markets authorities, defined as those authorities responsible for setting the form and content of financial reporting for use in the capital markets in respective jurisdictions’.  And membership is to be expanded from the current five seats to eleven, by including additional capital markets authorities, ‘primarily from major emerging markets’. . But they are also to ‘refine the existing membership criterion’. At present members need to have a strong commitment to: ‘supporting the development of high quality international accounting standards’. But now that commitment has been refined ‘to call for demonstration of this commitment through domestic use of IFRSs in the jurisdiction’s capital market and participation by the jurisdiction in Foundation funding. To become and/or remain a member, all permanent members must meet that criterion, and will be assessed for their eligibility on a regular basis’.

This answers the persistent gripe of countries around the world which see countries participating in the IFRS decision-making process while not using IFRS. Now if you want a seat at the table you have to be in the game as well. So what of the prominent current absentees from the actual playing-field, like Japan and the US, who hold two of the current five seats? Well, like so much in accounting, it is all about the timing.

The report, with a degree of deftness, makes this clear. ‘The first assessment of eligibility will start in early 2013’, it says. And, ‘during early 2012, the Monitoring Board intends to develop and document in its Charter a definition for the criterion “use of IFRSs”’. In other words the development of the criteria and the first assessment will not begin until after the point, hopefully, when the SEC makes it reasonably clear what happens with IFRS in the US. And Japan has long been expected to follow suit. The report itself was, after all, produced by the IOSCO secretariat in Japan.

This report is a clever and helpful piece of work. And by putting independence, understanding and clarity at its centre it has shown that its heart is in the right place.

Fifth edition of IFAC survey reveals key concerns, support for global IFRS adoption

Feb 20, 2012

The International Federation of Accountants (IFAC) has published its Fifth Annual Global Leadership Survey. IFAC received 123 responses to the survey from a total of 93 member bodies and associates in 71 countries and jurisdictions as well as four affiliates, regional accountancy organizations, and groupings.

Key findings of the survey include:

  • The following issues were rated highly:
    • Reputation and credibility of the profession.
    • The needs of small and medium-size practices and small and medium-sized entities.
    • The difficult global financial climate.
    • Public sector and sovereign debt issues.
    • Increase regulation (including proposed European Union (EU) legislation).
  • IFRSs were viewed as being most important for global adoption, implementation, and enforcement, with International Standards on Auditing (ISAs) being ranked second, followed by the Code of Ethics for Professional Accountants and International Public Sector Accounting Standards (IPSASs).
  • Respondents indicated that IFAC's top priority should be setting standards and guidance, but with a number of other areas also important.

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

Sustainability and integrated reporting update

Feb 14, 2012

A summary of recent developments in sustainability reporting, integrated reporting and related topics, focused on developments from the Global Reporting Initiative (GRI), a report from CPA Australia and a survey from the Climate Disclosure Standards Board (CDSB).

The topics include:

  • Australian GRI Conference on Sustainability and Integrated Reporting. The GRI, with the support of the Australian government, is holding its inaugural regional Conference in Melbourne, Australia, on March 26–28, 2012. The outcomes of this conference are designed to help inform GRI’s thinking on integrated reporting and the next generation of its Sustainability Reporting Guidelines ("G4"). More information is available at
  • New sustainability reporting requirements in Brazil and India. The São Paulo stock exchange and the Securities and Exchange Board of India (SEBI) have recently introduced new sustainability reporting requirements. More information is available in this article from the GRI (link to the GRI's Web site).
  • Impact of sustainability issues on capital investment decisions. CPA Australia has published a report outlining preliminary findings on current practices around the integration of sustainability issues in investment decisions. The report is available on the CPA Australia Web site (PDF 1488k).
  • Carbon reporting survey. The Climate Disclosure Standards Board (CDSB) is undertaking a survey on the disclosure of climate change related information under the increasing number of mandatory and voluntary reporting frameworks. The survey can be accessed through the CDSB's Web site.
  • Reporting guidance for event organisers. GRI has published an "Event Organizers Sector Supplement" (EOSS) to its sustainability reporting guidelines. More information is available in this article from the GRI (link to the GRI's Web site).

Click for our sustainability page.

Deloitte summary of public sector standards

Feb 13, 2012

Deloitte has published the 2012 edition of "IPSAS Summary," which provides a summary of the provisions of all International Public Sector Accounting Standards (IPSAS) current as of February 1, 2012.

A number of countries are currently considering whether to adopt IPSAS for public sector entities or nonprofit organizations. For example, New Zealand is currently considering a regime for "public benefit entities" (PBEs), which would lead to the establishment of a set of "NZ PBE standards" that are based on IPSAS modified as appropriate for New Zealand circumstances and not-for-profit entities.

Many IPSAS are based on equivalent IFRSs, with adjustments for matters specific to the public sector. As such, the IPSAS require accrual-based accounting, which is not always applied by public sector entities in many countries of the world. The Confederation of Asian and Pacific Accountants (CAPA) late last year called for many more countries to adopt IPSAS, particularly in light of the "growing number of sovereign debt concerns arising around the world."

Click for:

PAIB report considers growing investor demand for nonfinancial information

Feb 10, 2012

The Professional Accountants in Business Committee (PAIB) of the International Federation of Accountants (IFAC) has released a report that considers trends in investor demand for, and use of, environmental, social, and governance (ESG) information.

The report notes that ESG information is increasingly used by investors to understand an organization's key ESG factors and how they impact overall performance over a longer-time horizon. The reporting includes an appendix that outlines the core sector-neutral ESG metrics demanded by investors and reconciles them to the Global Reporting Initiative (GRI) guidelines — these include such items as greenhouse gas emissions, water and energy use, workplace health and safety, and board effectiveness.

The report also recommends how professional accountants can better support their organizations in responding to investor demands for ESG information and ultimately improve the management and reporting of ESG performance. The recommendations include:

  • Professional accountants should work with their organizations to implement a structured and systematic approach to engaging investors to determine their ESG information needs.
  • ESG factors and performance information should be incorporated into governance and accountability arrangements to improve information and disclosure quality.
  • Financial and nonfinancial performance and outcomes should be linked to improve understanding of sustainable value creation.
  • Investor needs should be met by material, timely, consistent, and comparable information.
  • Data that may be dispersed in different parts of the organization or its supply chain should be brought together to support internal and external decision making.

Click for access to the report (link to the IFAC's Web site).

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.