This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.


IASB podcast on insurance contracts

Oct 23, 2012

The IASB has made available a podcast on the current state of debate in the IASB/FASB joint project on insurance contracts. The podcast, by Darrel Scott (IASB member) and Andrea Pryde (Technical Principal), reports on developments in the project as a result of the October 2012 joint IASB/FASB meeting.

This podcast focuses on the presentation of premiums and claims in the statement of comprehensive income (the "earned premium approach"), participating contracts, transitional requirements, and the time value of money in the premium allocation approach.

To listen to the podcast, please click here (mp3, 14.3 MB; link to the IASB's Web site).

Trustees publish IFRS Foundation Staff Analysis of SEC Final Staff Report on IFRS

Oct 23, 2012

The Trustees of the IFRS Foundation today published a staff analysis of the SEC Final Staff Report on IFRSs. Shortly after the SEC Staff Report was published, the Trustees asked the IFRS Foundation staff to conduct an analysis of the SEC Staff Report for the benefit of both the IASB and the international community.

The staff analysis summarizes the IFRS Foundation staff’s assessment of the observations included in the SEC final staff report Work Plan for the Consideration of Incorporating IFRSs into the Financial Reporting System for U.S. Issuers, published on July 13, 2012.

The Trustees had asked especially that:

  • To maximize the benefit of the analysis to both the IASB and the international community, the IFRS Foundation staff should evaluate the U.S. research within an international context.
  • The staff should draw upon other credible sources of information, which should include academic research as well as relevant documentation and experience from other jurisdictions that have already completed their own transitions to IFRSs.
  • The staff should identify opportunities to further enhance the activities of the IFRS Foundation and the IASB on the basis of the findings of both the SEC staff report and the other studies.

While acknowledging that many points in the SEC report are correct and welcoming the comments made, the IFRS Foundation staff makes additional points that supplement, or in some cases, even contradict the findings by the SEC staff. Among these points are following:

Funding: At least 69 jurisdictions provide financial support for the work of the IFRS Foundation, not "fewer than 30 jurisdictions," as maintained in the SEC report. Furthermore, the staff of the IFRS Foundation points out that the United States contribution to the operational budget of the IFRS Foundation seems to be calculated too favorably and should be corrected down. Ultimately, the lack of public funding in the United States, which is made out in the SEC report, would be something that can only be resolved by the U.S. authorities, directly or indirectly, and should not be laid at the IFRS Foundation's door.

Comprehensiveness: In response to the SEC staff's belief that industry guidance should not be removed from U.S. GAAP until the IASB has had the ability to fully evaluate such guidance and address any voids in IFRS, the staff of the IFRS Foundation points out that the IASB has always advocated financial reporting requirements that account for transactions and activities across industries, rather than developing industry-specific guidance. It is also pointed out that, in 2008, the SEC published the findings of the Pozen Report, which recommended that industry guidance should be eliminated from U.S. GAAP to reduce avoidable complexity.

National standard setters: In response to the SEC staff's recommendation that the IASB should extend and formalize its involvement with national standard setters, the staff of the IFRS Foundation points out that the IASB has begun preparatory work to establish an Accounting Standards Forum (the Forum) comprised of national standard setters and other regional bodies as envisaged in the IFRSF Trustees’ Strategy Review Report.

Issues related to adoption, endorsement, and transition: In response to various issues related to incorporating IFRSs into U.S. GAAP included in the SEC staff report, the staff of the IFRS Foundation points out that many IFRS jurisdictions have dealt with different issues while adopting IFRSs and have shown that there are that there are no insurmountable obstacles for adoption of IFRSs by individual jurisdictions and the experience of the international community of making the transition to IFRSs would provide the provide SEC with an important resource to draw upon.

Although the IFRS Foundation staff's report makes the above comments on the findings in the SEC staff's report, it also agrees with many other findings and welcomes the contribution the SEC staff has made to ensuring the continued success of the IFRS Foundations work:

In conducting this analysis, the IFRS Foundation staff have concluded that the SEC Staff Report provides a valuable contribution to the already extensive body of research and information on IFRS. It not only informs the discussion in the US on whether, and if so, how IFRS could be incorporated into the US financial reporting system, but it makes an important contribution to the IFRS Foundation’s evaluation of its own strategy, governance and activities.

Please click for the following documents on the IASB's Web site:

Final notes from the October IASB meeting

Oct 22, 2012

The IASB's October meeting was held in London on October 15–19, 2012; some of it was a joint meeting with the FASB. The remaining Deloitte observer notes are posted from Friday's session on insurance contracts.

The IASB discussed financial instruments with participating features and (1) the transitional requirements of the final insurance standard and (2) the interaction with the requirements and effective date of IFRS 9, Financial Instruments.

Click for direct access to the notes: Insurance contracts (IASB only).

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

IASB updates work plan for October meeting decisions

Oct 21, 2012

The IASB has released a revised work plan reflecting changes as a result of decisions made at its October 2012 meeting. The project on IAS 8 effective dates and transition has been removed, and a new project on revenue-based methods of depreciation under IAS 16 and IAS 38 has been added (splitting it out from the annual improvements 2011–2013 cycle).

Background to the changes

At its October meeting, the IASB tentatively decided that the ballot draft on amendments to IAS 8 was to be withdrawn and the narrow scope project removed from the IASB work plan. Issues arising from the project may instead be dealt with in an upcoming disclosure forum and as part of the Conceptual Framework project.

At the meeting, the IASB also discussed the forthcoming exposure draft on the 2011–2013 annual improvements cycle and noted concerns of the Due Process Oversight Committee within the last Trustees meeting that the amendments to IAS 16 and IAS 38 regarding revenue-based depreciation may not meet the annual improvements criteria. Accordingly, the Board decided to expose the proposals on IAS 16 and IAS 38 as a separate exposure draft.

Due process documents expected before the end of 2012

The following due process documents are expected to be issued by the end of 2012 (this includes those items already noted above):

Click for IASB work plan as of October 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.

Further notes from the October 2012 IASB meeting

Oct 19, 2012

The IASB's October meeting was held in London on October 15–19, 2012; some of it was a joint meeting with the FASB. Deloitte observer notes are posted from Wednesday's joint session on insurance contracts, Thursday's joint session on revenue recognition, and Friday's sessions on the IFRIC update, due process papers, and IAS 8.

Click for direct access to the notes:

Wednesday, October 17, 2012

Thursday, October 18, 2012
Friday, October 19, 2012

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

Deloitte releases new IFRS e-learning modules

Oct 19, 2012

Deloitte’s Global Audit Learning group has released three e-learning modules on IFRS 9, "Financial Instruments: Classification and Measurement"; IFRS 10, "Consolidated Financial Statements"; and IFRS 11, "Joint Arrangements." These modules are additions to the extensive catalog of IFRS e-learning content made freely available by Deloitte.

Deloitte’s e-learning on IFRSs has been a leading educational resource on IFRSs since it was initially released in 2004. There are over 5.6 million modules downloaded to date and a wide range of corporate, educational, and professional organizations use the content as their primary tool for IFRS education.

The three new modules that have been released are:

  • IFRS 9, Financial Instruments: Classification and Measurement — Covers the requirements of classification and measurement of financial assets and liabilities under IFRS 9, as modified by the IASB’s  "Mandatory Effective Date and Transition Disclosures."
  • IFRS 10, Consolidated Financial Statements — Covers the requirements of IFRS 10 with a focus on the control definition, how to apply the principle of control in various real-life situations, and how to apply the accounting requirements for the preparation of consolidated financial statements.
  • IFRS 11, Joint Arrangements — Covers the requirements of IFRS 11 with a focus on the various ways in which joint ventures can be structured and how the structure impacts the accounting treatment and transactions between joint ventures.

Note: You may be requested to register to access the above modules — no personally identifying information is requested in the registration process.

There are also modules in development, which are expected to be released in the near future:

  • IFRS 9 and derecognition.
  • IAS 32 and offsetting.
  • IFRS 13 and fair value measurement.

There are now 40 modules are available, which tackle the key extant and new standards issues by the IASB. The modules have been designed to help users develop their knowledge and application of the basic principles and concepts of the IFRSs and IASs. Each module provides:

  • Real-life scenarios to demonstrate application of the standards.
  • "Coach me" sections to explain the principles and theory.
  • Working examples to show aspects of the standards in action.
  • Reference materials to support learning.
  • A printable certificate after you pass the assessment at the end of each module

The IFRS e-learning modules are available free of charge and may be used and distributed freely, without alteration from the original form and subject to the terms of the Deloitte copyright over the material.

Click to go to Deloitte’s IFRS e-learning.

The Bruce Column — Quality, not quantity, should define materiality

Oct 19, 2012

The use of materiality as a means of bringing coherence to disclosures has come to the fore in the latest thinking from the UK Financial Reporting Council, says our resident columnist, Robert Bruce.

There is probably only one aspect of current financial reporting on which everyone can unequivocally agree. There is too much of it. As a result there have been cascades of suggested solutions for trimming the mass of information. People have tried to cut clutter. They have tried to shorten the reports. They have tried to make them more readable. But we still face a forest of trees and little chance of seeing the wood within.

Another tack is required. And as the IASB rolls up its sleeves to start its work on a disclosure framework there is no shortage of advice. It would be best to start from the point of agreement. There is too much stuff being disclosed in a relatively disorganised way. What is required is a better way of defining what should and shouldn’t be there without making the process too rigid and prone to excess boilerplatery.

Back in 2011 ESMA, the European Securities and Markets Authority, pointed to one way forward with its consultation paper on the issue of materiality in financial reporting. And in August this year it produced a summary of the responses which it received. Perhaps the most significant was this: ‘Responses across most stakeholder groups raised concerns about the length of disclosures reaching the point where they could obscure readers’ understanding of the entity’s financial position and performance. Many respondents considered that proper application of the materiality concept could address this position.’

And so it comes as no surprise to find the UK’s Financial Reporting Council devoting a sizeable chunk of its new paper, ‘Thinking about Disclosures in a Broader Context’, to the topic. ‘In our view’, it says at the outset, ‘the “disclosure problem” is not just about quantity; the quality of disclosures, in terms of meeting the needs of users, is also an issue. Financial reports have become a disjointed collection of disclosures driven by different authoritative sources. The objective of financial reporting seems to have been forgotten as disclosures have become more about compliance than communication’.

And for the FRC too the answer is a disclosure framework as an attempt to ‘empower preparers to apply materiality more robustly to disclosures’. From there a principle is developed: ‘Materiality is entity-specific. Preparers apply materiality to disclosure requirements set by regulators so that financial reports only provide disclosures that are relevant to the entity’.

But the water simply becomes muddier when it comes to disclosure. ‘Materiality as a concept in relation to recognition and measurement is well-established’, the paper says. ‘However, what materiality means from a disclosure perspective is less clear. Therefore, it is not surprising that materiality is not being applied robustly to disclosures’. So there is a resulting confusion. ‘Some would say that we have a principle-based model for recognition and measurement, but a compliance-based model for disclosures’. And what does this lead to? ‘The overall result is disclosure of immaterial information that leads to clutter’, concludes the paper.

The problem is the lack of precision, something which both preparers and users of financial reporting like to depend upon. The IASB’s Conceptual Framework essentially defines whether information is material or not by whether its omission or misstatement would mislead users. The UK Accounting Standards Board adds the point that by shunting too much immaterial information into the financial statements ‘the resulting clutter can impair the understandability of the other information provided’ And amongst IFRSs IAS 1 makes it clear that ‘an entity need not provide a specific disclosure required by an IFRS if the information is not material’.

So the building blocks do exist. It is just that they are scattered about in disparate places and not made plain in some central repository. What the FRC is suggesting is that some classification criteria might make it simpler. They suggest three: ‘top-level’, the sort of disclosures ‘that would be of interest to the 10-minute reader’; middle level, based on the ‘concept of materiality as described in accounting standards; and bottom level where ‘items that are considered to be insignificant or trivial’ would languish.

As so often the problem will be definitions, boundaries and precision. Or, as the FRC puts it: ‘Determining the order of magnitude of these different terms can be difficult’.

It suggests the following: ‘significant, material, not material, immaterial’, and, finally, ‘insignificant’. That makes sense. But the task ahead would be to set boundaries between them. The FRC agrees that this is ‘not an easy task’ but is sure that the IASB will be up to it. ‘We recommend that the IASB considers this point and as a minimum uses the terms consistently’, it says. And then provides a helpful graphic showing how the application of a framework to materiality in disclosures within financial statements might work.

It is a start. But it is only one of many proposals, ideas and initiatives which the IASB will be presented with as it starts its own thinking process. There is a long way to go and Hans Hoogervorst’s proposed timeline for completing the IASB’s conceptual framework programme by 2015 is very ambitious.

IFRS Foundation issues educational material to support IFRS 13

Oct 19, 2012

As part of the IASB’s Education Initiative, the IFRS Foundation staff, with the assistance of the valuation expert group, is developing educational material to support IFRS 13. The draft of the first chapter of this educational material, "Measuring the fair value of unquoted equity instruments within the scope of IFRS 9 Financial Instruments," is now available.

The staff is not seeking any comments on the draft and will keep the draft available until the end of November 2012. The final version of the document is expected in December 2012.

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

IPSASB releases consultation paper on government reporting

Oct 19, 2012

The International Public Sector Accounting Standards Board (IPSASB) has published a consultation paper that aims to help reduce differences between Government Finance Statistics (GFS) reporting guidelines and International Public Sector Accounting Standards (IPSASs).

The consultation paper, IPSASs and Government Finance Statistics Reporting Guidelines, was developed by a task force that included representation from both the IPSASB and the statistical community, including the International Monetary Fund and Eurostat, and national representatives from Brazil, the United Kingdom, South Africa, and Switzerland.

The paper outlines the two key types of financial information produced by Governments:

  • GFS on the general government sector (GGS) for the purpose of macroeconomic analysis and decision making and applying GFS reporting guidelines.
  • General purpose financial reports (GPFRs) for accountability and decision making at an entity level, including the whole of government reporting entity, prepared using IPSASs applicable to accrual-based financial statements.

The paper asserts there is considerable overlap between these two reporting frameworks, but also provides an overview of differences between GFS reporting guidelines and IPSASs. The paper identifies opportunities to reduce these differences, which include:

  • Potential changes to the IPSAS standard-setting process, ranging from a positive commitment to avoid all unnecessary differences to inclusion of GFS comparisons in all IPSASs.
  • Possible IPSASB projects to reduce differences, e.g., "reporting entity" definition, currency on issue, inventory measurement, defence weapons, and measurement and financial statement presentation.
  • The use of accounting information for GFS, only considering alternative sources of data, and alternative measurement approaches if the financial reporting data has clearly failed to address GFS issues.
  • Possible changes to measurement requirements under GFS, particularly the valuation of assets for which there is no active and liquid market, heritage assets and long-lived, specialized assets, for which market prices are unavailable.

The paper notes that using a single integrated financial information system can result in significant benefits, including reduction of GFS report preparation time, costs, and effort. Improvements are also likely to the source data for GFS reports, with flow-on benefits in terms of report quality.

The consultation paper is an important step toward more global acceptance and adoption of IPSAS and is open for comment until March 31, 2013. Click for the IPSASB press release (link to the IFAC's Web site).

Additional notes from the October 2012 IASB meeting

Oct 18, 2012

The IASB's October meeting was held in London on October 15–19, 2012; some of it was a joint meeting with the FASB. Deloitte observer notes are posted from Monday's joint session on insurance contracts and Thursday's sessions on classification and measurement and impairment.

Click for direct access to the notes:

Monday, October 15, 2012

Thursday, October 18, 2012

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.