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FASB issues proposal for disclosing liquidity and interest rate risk

Jun 29, 2012

On June 27, 2012, the FASB issued proposed amendments relating to disclosures about liquidity risk and interest rate risk. The proposals would require a reporting entity to adopt new qualitative and quantitative disclosures about liquidity and interest rate risk. Under the proposals, all entities must provide disclosures about liquidity risk, and “financial institutions” would also provide disclosures about interest rate risk.

Public entities would be required to provide the proposed disclosures for interim and annual periods; however, nonpublic entities would only be required to provide disclosures for annual periods. The FASB believes that the proposed amendments would address stakeholder concerns that certain inherent risks of financial instruments and their effect on an entity’s broader risk exposures would not be fully reflected in the measurement model for such instruments, and that the breadth of such risks could only be communicated through supplemental disclosure. The proposals do not specify an effective date; instead, the effective date of such requirements will be established during redeliberations. Comments on the proposal must be submitted to the FASB no later than September 25, 2012. The proposals, if finalized, would move the U.S. GAAP requirements closer to the existing requirements under IFRS 7. However, differences would remain, including FASB proposals that would require disclosures about issuances of time deposits and available liquid funds that are not required under IFRS, as well as the following:

  • IFRS 7 requires that all entities (not just financial institutions) disclose a maturity analysis of their nonderivative and derivative financial liabilities that is segregated by time intervals and based on the earliest period in which a reporting entity could be required to pay the liability (not expected maturity).
  • IFRS 7 requires that an entity (not just a financial institution) disclose a sensitivity analysis for each type of market risk (e.g. interest rate risk) to which it is exposed at the end of a reporting period, and its impacts on net income and shareholders’ equity to changes.
  • Unlike IFRS 7, in which the amounts by which interest rates change in the analysis are based on an entity’s judgment, the FASB proposals would prescribe the amounts by which interest rates change when performing the sensitivity analysis.

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IASB amends transition guidance for IFRS 10

Jun 28, 2012

The IASB has published "Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)." These amendments will help to alleviate concerns that the transitional requirements of IFRS 10, "Consolidated Financial Statements," are more burdensome than had been intended. The line-by-line information required by paragraph 28(f) of IAS 8 is limited to the immediately preceding period.

The amendments are intended to provide additional transition relief in IFRS 10, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interests in Other Entities, by “limiting the requirement to provide adjusted comparative information to only the preceding comparative period.” In addition, amendments were made to IFRS 11 and IFRS 12 to eliminate the requirement to provide comparative information for periods before the immediately preceding period.

The effective date of these amendments, annual periods beginning on or after January 1, 2013, is aligned with the effective dates of IFRS 10, IFRS 11, and IFRS 12.

Click for the press release (link to the IASB's Web site). A PDF of the amendments is available to subscribers through the IASB's Web site.

GRI opens second comment period on its next generation sustainability reporting guidelines

Jun 28, 2012

The Global Reporting Initiative (GRI) has released an exposure draft of the next generation of its Sustainability Reporting Guidelines ("G4"). This document outlines the G4 project development and the proposed significant changes to the current guidelines.

The exposure draft (ED) calls for comments on five specific areas of revision on which GRI is seeking public feedback:

  • Application levels — It is proposed to discontinue the "Application Levels" originally designed to assist organizations in communicating the degree of transparency of their sustainability reports against the guidelines. This is on the basis that the levels are currently wrongly understood by some report users to be an opinion on the quality of the report, or even a reflection of the sustainability performance, of the organization.
  • Boundary — Revisions are proposed to the process in the existing protocols to better direct organizations on how to define the content and boundaries of a sustainability report in one sequence of process steps, thus answering the question of what to report.
  • Disclosure on management approach — The ED outlines a generic approach for all topics and proposes that the "Disclosures on Management Approach" (explaining how an entity is managing material economic, environmental, and social impacts) should be provided at the "Aspect" level to reflect management practices.
  • Governance — The ED has proposed a number of changes to governance and remuneration disclosures to strengthen the link between governance and sustainability performance.
  • Supply chain — New and amended disclosures on the supply chain are proposed, including new definitions and disclosure of the procurement practice, screening, and assessment as well as remediation.

The ED also outlines proposed amendments to improve the clarity and technical quality of the text as well as to facilitate the implementation of the guidelines.

The ED does not discuss the following matters, which are expected to be addressed in due course:

  • Proposed updates to two or more of the following thematic topics: anti-corruption, biodiversity, greenhouse gas (GHG) emissions, and occupational health and aafety — a further comment document is expected in August 2012.
  • How to link the sustainability reporting process to the preparation of an integrated report aligned with the guidance to be developed by the International Integrated Reporting Council (IIRC).

Comments on the ED are open until September 25, 2012, with the GRI seeking to launch the new sustainability guidelines in 2013.

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

IFRS Foundation chairman speaks at IFRS Foundation Conference in Frankfurt

Jun 27, 2012

Michel Prada, chairman of the IFRS Foundation Trustees, addressed the IFRS Foundation Conference in Frankfurt and spoke about the past, the present, and the future of international standard setting.

Michel Prada opened his speech with an overview of the history of standard setting. He traced the beginning of the international success of International Accounting Standards (IASs) to Europe's decision in 2002 to adopt them and in 2005 for the consolidated accounts of listed companies on regulated markets: "Overnight, this transformed the IASB from an interesting but somewhat obscure accounting think-tank into Europe’s accounting standard-setter." Mr. Prada continued to illustrate the increasing demand for global accounting standards with many examples — among them the global financial crisis that showed "the pressing need for a single set of high quality global accounting standards."

For the present, Mr. Prada drew a very positive picture pointing of the many countries around the world that require or permit the use of IFRSs, the acceptance of IFRSs among the G20 members, and the use of IFRSs by almost half of Global Fortune 500 companies. He also mentioned very encouraging experiences in China and Japan.

However, Mr. Prada claimed, the IASB is currently an international standard setter, not the global standard setter. The last part of his speech was devoted to the future of standard setting. Mr. Prada indicated that the reviews conducted by the Monitoring Board and the Trustees showed three major areas for improvement and, therefore, for increased success of IFRSs:

  • Standard setting in cooperation with national and regional bodies with an interest in accounting standard setting will increase the effectiveness of the work of the IASB. This will also offer a better integration of the global perspective into the standard-setting process and might reduce the risk of nonendorsement of a new standard.
  • A stronger focus on the implementation of the standards, in part in cooperation with IOSCO and other international organizations, will ensure that standards are endorsed and enforced on a globally consistent basis.
  • Enhancements to the IASB’s due process will enhance confidence in the standard-setting process and will improve the robustness of the standards.

Mr. Prada closed on the note that international standard setting has made tremendous progress in the past, still does, and has a good chance of doing so in the future if the above aims are achieved.

Click for the full text of the speech on the IASB's Web site.

IASB publishes "Request for Information: Comprehensive Review of the IFRS for SMEs"

Jun 26, 2012

The IASB, in cooperation with the SME Implementation Group (SMEIG), has developed and issued a request for information seeking comments on specific sections of the "IFRS for SMEs" as well as soliciting general feedback from respondents on their experiences with it. Respondents are encouraged to discuss potential amendments they would like to see made to the "IFRS for SMEs" and raise any other issues they would like to put forward. The document does not contain any preliminary views of the IASB or the SMEIG. Responses are due by November 30, 2012.

IFRS for SMEs was first issued in July 2009. At that time, the IASB announced that after two years, it would assess entities' experiences with implementing IFRS for SMEs. The IASB also said that after an initial review, it would consider amendments to the IFRS for SMEs approximately once every three years.

The request for information is divided into two parts:

  • Part A contains specific questions on particular sections of the IFRS for SMEs for respondents. These issues have been frequently raised by interested parties. Respondents are also invited to raise any other specific issues they may have relating to possible changes to particular sections of the IFRS for SMEs.
  • Part B contains general questions about the IFRS for SMEs. Respondents are invited to raise any other general issues they may have relating to possible changes to the IFRS for SMEs.

A summary of the questions asked in each part is set out in the table below.

During the first half of 2013, the SMEIG is expected review comments on the request for information and make recommendations to the IASB on possible amendments. The IASB will convene to develop and approve an exposure draft of proposals. The IASB does not expect to publish final revisions to the IFRS for SMEs until the second half of 2013 or first half of 2014, with an estimated effective date of 2015.

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Summary of Questions Asked in the Request for Information

Part A — Specific issues.

S1. Use by publicly traded entities — Are the scope requirements of the IFRS for SMEs currently too restrictive for publicly traded entities?

S2. Use by financial institutions — Are the scope requirements of the IFRS for SMEs currently too restrictive for financial institutions and similar entities?

S3. Clarification of use by not-for-profit (NFP) entities — Should the IFRS for SMEs be revised to clarify whether an NFP entity is eligible to use it?

S4. Consideration of recent changes to the consolidation guidance in full IFRSs — Should the changes introduced by IFRS 10, Consolidated Financial Statements (including agency relationships, "de facto control" and potential voting rights), be considered for incorporation into the IFRS for SMEs but modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S5. Use of recognition and measurement provisions in full IFRSs for financial instruments — How should the current option to use IAS 39, Financial Instruments: Recognition and Measurement, in the IFRS for SMEs be updated once IFRS 9, Financial Instruments, has become effective?

S6. Guidance on fair value measurement for financial and nonfinancial items — Should the fair value guidance be expanded to reflect the principles in IFRS 13, Fair Value Measurement, modified as appropriate to reflect the needs of users of SME financial statements and the specific circumstances of SMEs (for example, it would take into account their often more limited access to markets, valuation expertise, and other cost-benefit considerations)?

S7. Positioning of fair value guidance in the standard — Should the guidance be moved into a separate section?

S8. Consideration of recent changes to accounting for joint ventures in full IFRSs — Should the changes to joint venture accounting introduced by IFRS 11, Joint Arrangements, be reflected in the IFRS for SMEs, modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S9. Revaluation of property, plant, and equipment (PPE) — Should an option to use the revaluation model for PPE be added to the IFRS for SMEs?

S10. Capitalization of development costs — Should the IFRS for SMEs be changed to require capitalization of development costs meeting criteria for capitalization (on the basis of the criteria in IAS 38, Intangible Assets)?

S11. Amortization period for goodwill and other intangible assets — Should the amortization requirements be modified to state when the entity is unable to make a reliable estimate of the useful life of an intangible asset, the life shall be presumed to be 10 years unless a shorter period can be justified?

S12. Consideration of changes to accounting for business combinations in full IFRSs — Should the business combination accounting requirements be amended to incorporate changes introduced by IFRS 3, Business Combinations (2008) (including expensing of acquisition costs, measurement of contingent consideration at fair value, and determination of goodwill that is based on a remeasurement of previously held interests and noncontrolling interests), modified as appropriate to reflect the needs of users of SME financial statements and cost-benefit considerations?

S13. Presentation of share subscriptions receivable — Should the requirements be amended either to permit or require the presentation of the receivable as an asset?

S14. Capitalization of borrowing costs on qualifying assets — Should the IFRS for SMEs be changed so that SMEs are required to capitalize borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset, with all other borrowing costs recognized as an expense when incurred?

S15. Presentation of actuarial gains or losses — Should the option to recognize actuarial gains and losses in profit or loss be removed, to be consistent with IAS 19, Employee Benefits (revised 2011)?

S16. Approach for accounting for deferred income taxes — Should SMEs recognize deferred income taxes and, if so, how should they be recognized?

S17. Consideration of IAS 12 exemptions from recognizing deferred taxes and other differences under IAS 12 — Should the IFRS for SMEs be revised to conform it to IAS 12, Income Taxes, modified as appropriate to reflect the needs of the users of SME financial statements?

S18. Rebuttable presumption that investment property at fair value is recovered through sale — Should the IFRS for SMEs incorporate a exemption similar to that introduced into IAS 12 for investment property at fair value?

S19. Inclusion of additional topics in the IFRS for SMEs — Are there any topics that are not specifically addressed in the IFRS for SMEs that should be covered?

S20. Other specific issues — Are there any additional issues to bring to the IASB’s attention on specific requirements in the sections of the IFRS for SMEs?

Part B — General issues.

G1. Consideration of minor improvements to full IFRSs — How should the IASB address minor improvements when the IFRS for SMEs is based on old wording from full IFRSs?

G2. Further need for Q&As — Should the current, limited program for developing Q&As continue after this comprehensive review is completed?

G3. Treatment of existing Q&As — Should the Q&As be incorporated into the IFRS for SMEs?

G4. Training material — Any comments on the IFRS Foundation’s IFRS for SMEs training material?

G5. Any further general issues — Any additional issues to bring to the IASB’s attention relating to the IFRS for SMEs?

New resource on sustainability and integrated reporting

Jun 26, 2012

A new publication, "Making investment grade — The future of corporate reporting," has been released by Deloitte, the United Nations Environment Programme, and the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School. The publication serves to provide an international perspective on integrated reporting by articulating the views of internationally pre-eminent role players on topical issues associated with integrated reporting and integrated reports.

The publication, Making investment grade — The future of corporate reporting, includes contributions from Ernst Ligteringen (chief executive, Global Reporting Initiative), Paul Druckman (chief executive, International Integrated Reporting Council), Mervin King (chair, South African King Committee on Corporate Governance), and representatives from academia, government, business and sustainability organizations, the accounting profession, and investors.

The publication provides a comprehensive look at sustainability and integrated reporting through the eyes of thought leaders, key industry players, and others.  Structured as a series of short essays, the publication covers the following topics:

  • Context and challenges.
  • Who drives reporting?
  • One report or multiple reports?
  • What are the material issues?
  • Who reads the report?
  • Who governs reporting?
  • Who regulates reporting?
  • What does the future hold?

The publication is available on IAS Plus with the kind permission of Deloitte (South Africa), the United Nations Environment Programme, and the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School.

Click to download Making investment grade — The future of corporate reporting.

IPSASB consults on public sector combinations

Jun 26, 2012

The International Public Sector Accounting Standards Board (IPSASB) has released a consultation paper "Public Sector Combinations." The consultation paper is the result of the IPSASB's project on on accounting for public sector combinations and aims to present a principles-based approach to developing guidance for public sector entities accounting for such combinations. Some of the possible accounting approaches outlined in the paper are significantly different to those prescribed under IFRSs.

The consultation paper describes different types of public sector combinations, proposes a distinction between acquisitions and amalgamations, and considers combinations of entities and operations that both are, and are not, under common control. The paper makes it clear that it "considers the wide range of combinations that may occur in the public sector, and, consequently, this project is not an IFRS convergence project."

The consultation paper uses the term “public sector combinations” rather than “business combinations” (as used in IFRS 3, Business Combinations) on the basis of key differences between for-profit and public sector combinations identified. These differences include public sector combinations lacking a profit motive, often being conducted by nonexchange transactions, and the frequent involuntary imposition of such combinations by law or other authority.

These differences also lead to some possible accounting approaches that are fundamentally different to the "acquisition method" contained in IFRS 3 for for-profit entities. In particular, the paper explores a possible approach for acquisitions when no or nominal consideration is transferred that would result in the recipient recognizing acquired assets and liabilities at their carrying amounts in the acquired operation’s financial statements (after adjustment for any different accounting policies). Similar approaches are also proposed for combinations under common control and amalgamations.

The paper also explores whether the amount of any consideration transferred in excess of net assets acquired should be recognized as goodwill, expensed, or for combinations under common control, as a distribution to or contribution by owners.

The consultation paper is open for comment until October 31, 2012. Click for the IPSASB press release (link to the IFAC's Web site).

IAASB seeks comments on the future of audit reports

Jun 25, 2012

The IAASB released an invitation to comment "Improving the Auditor’s Report," which sets out the indicative direction of the Board’s future standard-setting proposals to improve how and what auditors report in accordance with International Standards on Auditing (ISAs).

The invitation to comment asserts that, on the basis of research and feedback the IAASB has received on its May 2011 Consultation Paper, there is clear demand for auditors to provide greater transparency about significant matters in the financial statements as well as the conduct of the individual audit. Further, the IAASB considers that meaningful change now, rather than incremental change over time, is seen as necessary to better meet the information needs of users of audited financial statements.

The invitation to comment includes the following key proposals:

  • Auditor commentary — Additional information would be included in the auditor’s report to highlight matters that, in the auditor’s judgement, are likely to be most important to users’ understanding of the audited financial statements or the audit. This information would be required for public interest entities (PIEs) — which includes, at a minimum, listed entities — and could be provided at the discretion of the auditor for other entities. In the IAASB's view, this new concept of auditor commentary is consistent with, and builds upon, the existing concepts of "Emphasis of Matter" and "Other Matter" paragraphs included in some audit reports. It also responds to calls for similar reforms from the PCAOB and the European Commission (EC).
  • Going concern — The auditor's report would contain the auditor's conclusion on the appropriateness of management’s use of the going concern assumption in preparing the financial statements and an explicit statement about whether material uncertainties in relation to going concern have been identified. The report would also include a description of management’s responsibilities with respect to going concern.
  • Other information included with the financial statements — The report would have an auditor statement on whether any material inconsistencies between the audited financial statements and other information have been identified on the basis of the auditor’s reading of other information and specific identification of the information considered by the auditor.
  • Other matters — Further suggestions to provide clarity and transparency about audits performed in accordance with ISAs, including the ordering of the items in the auditor's report (prominently displaying the auditor's opinion), disclosure of the engagement partner’s name in the auditor’s report, an explicit statement of compliance with relevant ethical requirements, disclosure about the involvement of other auditors in the audit, enhancements to the description of the auditor’s responsibility to explain more fully the concept of a risk-based audit and address fraud, internal control, and other matters.

The invitation to comment includes a section illustrating an example auditor's report prepared in accordance with the proposals.

The invitation to comment was open for comment until October 8, 2012. The IAASB will continue deliberations during 2012 and 2013, including holding roundtables on the proposals, and the next consultative document will be an exposure draft.

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

Rio+20 "encourages" sustainability reporting

Jun 24, 2012

The outcome document from the United Nations Conference on Sustainable Development (Rio+20) held on June 20–22, 2012, has acknowledged the importance of sustainability reporting. Paragraph 47 of the document "encourages" companies to integrate sustainability information into their reporting cycle. The development has been championed by the governments of Brazil, Denmark, France, and South Africa, which are forming a group of "friends of paragraph 47" to advance corporate sustainability reporting.

As reported in our earlier story on the precursor Rio+20 Corporate Sustainability Forum, the final outcome document is quite different from the original "zero draft" proposals, which called for a "global policy framework" effectively requiring sustainability reporting.

Instead, the final outcome document reads as follows (with only slight wording changes from the pre-meeting final draft text):

We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments and relevant stakeholders with the support of the United Nations system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account experiences from already existing frameworks and paying particular attention to the needs of developing countries, including for capacity-building.

Before the release of the outcome document, the governments of Brazil, Denmark, France, and South Africa announced at the Rio+20 conference the formation of a group of "friends of paragraph 47." The group's vision is that corporate transparency and accountability are key elements to enhancing the private sector’s contribution to sustainable development and that making sustainability reporting standard practice among companies will contribute to monitor the impacts on and the contribution to sustainable development by the corporate sector.

Brazil, Denmark, France, and South Africa are considered pioneers in sustainability reporting practice and policy, having various degrees of sustainability reporting requirements in place. In the press release announcing the group, it is noted that these countries are now "taking the opportunity provided by the global political agreement at Rio+20 to share their experience with the rest of the world and contribute to making corporate sustainability reporting standard practice." The Global Reporting Initiative (GRI) and the United Nations Environment Programme (UNEP) have been invited  to support them, and other governments have been invited to join the group.

Other governments have also announced related initiatives, such as the United Kingdom government's announcement of the introduction of mandatory carbon footprint reporting for FTSE main market listed companies.

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Chief accountant to leave the SEC

Jun 21, 2012

The SEC announced that Chief Accountant James L. Kroeker will leave the SEC in July to enter the private sector.

Mr. Kroeker came to the SEC in 2007 as deputy chief accountant and has been the SEC's chief accountant since January 2009. He guided the SEC’s efforts in its consideration of convergence of U.S. GAAP and IFRSs.

A decision about a possible IFRS adoption in the United States is eagerly awaited internationally, and any indications of what this decision might look like, what it would entail, or even just when it might take place is much noticed. Mr. Kroeker's remarks at the February 2012 IFRS Advisory Council meeting that "condorsement" was no longer used to characterize a possible move to IFRSs in the United States were seen as an encouraging message. The "few months" until the publication of final report under the work plan mentioned by Mr. Kroeker at the same meeting have since been updated to a "matter of weeks" in a speech given by SEC Commissioner Elisse B. Walter at the end of May. However, Julie Erhardt, a member of the SEC staff, clarified at the June 2012 IFRS Advisory Council meeting (click for audio recordings on the IASB's Web site) that the report will only respond to the Commissioners' request for evidence, not contain a suggested course of action.

Whether Mr. Koeker's leaving the SEC will have an impact on the SEC's activities around IFRSs remains to be seen. This will certainly also depend on the question of who is to replace him. So far the SEC has made no announcement regarding a successor candidate.

Click for the press release SEC Chief Accountant James Kroeker to Leave the Commission on the SEC's Web site.

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