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Russell Golden outlines priorities for the FASB

May 31, 2013

In a speech delivered at the 32nd Annual SEC and Financial Reporting Institute Conference in Pasadena, CA, on May 30, incoming FASB Chairman Russell Golden presented his views on the FASB’s current and future tasks.

Mr. Golden commented on the FASB’s and IASB’s convergence projects, noting that they are “critically important” and a top priority. The FASB’s current plan is to issue (1) a standard on revenue recognition in the coming months, (2) two financial instruments standards in early 2014 (on classification and measurement and impairment), and (3) standards on leasing and insurance sometime in 2014. Mr. Golden also explained that shortly after issuing each standard, the FASB will create a "transition resource group" to facilitate implementation of the standards. The groups will focus on issues related to education, amendments, and interpretation and will include FASB and IASB members as well as representatives from preparer, auditor, and investor communities.

In addition, Mr. Golden discussed the new Accounting Standards Advisory Forum (ASAF) and how the FASB’s membership in the ASAF will help advance the convergence process.

Regarding the FASB’s future agenda items, Mr. Golden noted that the Financial Accounting Standards Advisory Council has published a survey seeking information from stakeholders on what projects they believe the FASB should prioritize. Possible projects include disclosure framework, hedging, pension accounting, and liabilities and equity. Further, the FASB will continue to work with the Private Company Council to address the needs of users of private company financial statements.

Lastly, Mr. Golden stated that in response to feedback from stakeholders about the FASB Accounting Standards Codification, the FASB plans to “conduct an analysis of areas where the codification may be improved.” The focus of the analysis will be to improve how changes to the codification are written and communicated and “to rewrite some of the more confusing sections” (the FASB is presently rewriting the liabilities and equity sections).

The full text of the speech is available on the FASB's Web site.

FASB responds to post-implementation review of business combinations accounting

May 31, 2013

The FASB has issued a response that evaluates the outcome of the Financial Accounting Foundation’s (FAF's) Post-Implementation Review (PIR) of FASB Statement No. 141(R), "Business Combinations" (codified in Topic 805 of the "FASB Accounting Standards Codification").

The report notes the following challenges faced by companies in adopting the new standard: “(1) applying the definition of a business, (2) accounting for purchased loans, and (3) separately reporting some intangibles and goodwill.” The FASB has noted that it will consider these findings while working on other ongoing projects.

The PIR findings also note that companies experienced issues implementing FASB Statement No. 157, Fair Value Measurements, to certain types of assets and liabilities acquired in a business combination. The FASB also noted that it will decide on starting any additional standard-setting activities after the upcoming PIR on Statement 157 is available and it has an opportunity to work with the IASB once the review of IFRS 3 is complete. The FASB will continue to keep the FAF’s Oversight Committee and the Board of Trustees updated of any progress that is made.

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Latest IASB work plan tweaks delivery timeframes for a number of projects

May 31, 2013

After its recent meeting, the IASB has updated its work plan and the timing of issuing a number of pronouncements. The timing of expected milestones have been deferred or clarified in relation to general hedge accounting, annual improvements, and other narrow-scope projects. Following the issue of the reexposed leases proposals, the work plan formally schedules the expected commencement of redeliberations in the fourth quarter of 2013.

Summary of changes

Details of the changes are:

Updates to major projects

Updates to narrow-scope projects

Projects for which due process documents are expected in the second quarter include an exposure draft on insurance contracts, a discussion paper on the conceptual framework project, a published report on the post-implementation review of IFRS 8, and finalized amendments on the novation of derivatives. In addition, an exposure draft of proposed amendments to IAS 41, Agriculture on bearer plants, is expected to be issued in the second or third quarter of 2013.

Click for IASB work plan dated May 30, 2013 (link to the IASB's Web site). We have updated our project pages to reflect the updated work plan and other known developments.

IASB amends IAS 36 regarding recoverable amount disclosures for nonfinancial assets

May 29, 2013

The IASB, as a consequential amendment to IFRS 13, "Fair Value Measurement," modified some of the disclosure requirements in IAS 36, "Impairment of Assets," regarding measurement of the recoverable amount of impaired assets. However, one of the amendments potentially resulted in the disclosure requirements being broader than originally intended. The IASB has rectified this through the issue of "Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)."

Exposure Draft ED/2013/1, Recoverable Amount Disclosures for Non-Financial Assets (Proposed amendments to IAS 36), was published on January 18, 2013. The amendments published today result from the proposals of the ED and the feedback received on it.

The amendments to IAS 36:

  • Remove the requirement to disclose the recoverable amount of each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant when compared to the entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives.
  • Require an entity to disclose the recoverable amount of an individual asset (including goodwill) or a cash-generating unit for which the entity has recognized or reversed an impairment loss during the reporting period.
  • Require an entity to disclose additional information about the fair value less costs of disposal of an individual asset, including goodwill, or a cash-generating unit for which the entity has recognized or reversed an impairment loss during the reporting period, including:
    • The level of the fair value hierarchy (from IFRS 13) within which the fair value measurement is categorized.
    • The valuation techniques used to measure fair value less costs of disposal.
    • Key assumptions used in the measurement of fair value measurements categorized within "Level 2" and "Level 3" of the fair value hierarchy.
  • Require an entity to disclose (1) the discount rate used, (2) where an entity has recognized or reversed an impairment loss during the reporting period, and (3) that the recoverable amount is based on fair value less costs of disposal determined using a present-value technique (this amendment originated in the 2010–2012 cycle of annual improvements in the exposure draft published in May 2012).

The overall effects of the amendments are (1) to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, (2) to clarify the disclosures required, and (3) to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) when recoverable amount (that is based on fair value less costs of disposal) is determined using a present-value technique.

Overall constituent comments on the original proposals were supportive of the amendments. One notable change from the exposure draft is the removal of the proposed illustrative example, responding to constituent concern about its usefulness and the potential for confusion, and in light of existing examples in IFRS 13. Other constituent comments around inconsistencies in the use "costs to sell" and "costs of disposal" have been referred to the IFRS Interpretations Committee for possible consideration as an annual improvement.

The amendments apply on a retrospective basis for annual periods beginning on or after January 1, 2014. An entity may apply the amendments earlier to any period in which it also applies IFRS 13.

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IASB releases Feedback Statement on disclosure

May 28, 2013

The IASB has published a Feedback Statement summarizing the discussions at a forum hosted by the IASB on financial information disclosure and outlining its response to the matters raised. The IASB wishes to act as a catalyst for collective action by preparers, regulators, and the accounting profession as well as the IASB to address ongoing concerns about the quality and quantity of financial reporting disclosure. In its response, the IASB has indicated it will consider a number of initiatives, including narrow scope amendments to IAS 1, "Presentation of Financial Statements," seeking to develop educational material on materiality, and considering a project as part of its research agenda to address broader challenges associated with disclosure.

The disclosure discussion forum was held in London on January 28, 2013, and sought to foster dialogue among preparers, auditors, regulators, users of financial statements, and standard setters. The key objective of the forum was to get a clearer picture of the "disclosure problem" and its causes. The forum involved around 120 people, mainly from the United Kingdom, but also included representatives from wider Europe, the United States, and Asia-Oceania.

The Feedback Statement contains a summary of the discussions, the IASB's response, a summary of work already undertaken on disclosure, and the outcomes of the IASB's survey on disclosure launched in December 2012. The IASB states that the discussion forum makes it clear that users, preparers, standard setters, auditors, and regulators all contribute to the perceived problems about disclosure and that each of these parties can contribute to improvements.

The Feedback Statement notes some of the steps that the IASB will be asked to consider in the near and medium term to take the lead in improving disclosure, relating to materiality, perceptions existing standards to prevent the exercise of judgement, and a more general review of disclosure requirements.

In this regard, the key responses the IASB intends to consider are as follows:

Short term

  • Narrow scope amendments to IAS 1 —this will be considered by the IASB in the second half of 2013 and will look at proposals such as:
    • Adding an explanation in IAS 1 similar to more recent standards explaining that too much detail can obscure useful information, i.e., why materiality should "filter out entity-specific information that is not relevant to the users of the financial statements of a particular entity."
    • Clarifying that materiality applies to whole financial statements and that information that is not material need not be presented in the primary financial statements or disclosed in the notes.
    • Clarifying that some disclosures specified in standards are simply not important enough to justify separate disclosure for a particular entity.
    • Making it clear that preparers should exercise judgement in presenting their financial reports.
    • Removing the perception of a "normal order of presentation" of financial statements, making it easier for entities to provide more contextual and holistic information.
    • Reducing restrictions on how accounting policies should be presented, allowing important accounting policies to be given greater prominence in financial reports.
    • Adding additional explanations with examples of how IAS 1 requirements are designed to shape financial statements instead of specifying precise terms that must be used, including whether subtotals of IFRS numbers such as before interest
      and tax and earnings before interest, tax, depreciation
      and amortization should be acknowledged in IAS 1).
    • Adding a requirement that entities disclose and explain their net debt reconciliation.
  • Educational material on materiality — the IASB plans to start a project on materiality with a view to creating either general application guidance or education material. Such a project will look at how materiality is applied in practice and whether more guidance should be added to IAS 1. This project will be started in the second half of 2013.
  • Disclosure requirements in new exposure drafts — the IASB intends to draft future exposure drafts using less prescriptive language and having clear disclosure objectives, while avoiding requirements that would affect the auditability of the standards. The IASB also considers that it has already "made considerable progress in this regard in its recent Standards."

Medium term

  • Research project on disclosure — the IASB will be asked to commence a research project reviewing IAS 1, IAS 7, and IAS 8, with the goal of replacing all of those standards and "in essence" creating a disclosure framework. This work may build on the IASB's previous work on the financial statement presentation project (suspended in 2010), and consider how this project might be developed in parallel with the work on the Conceptual Framework project.
  • Review of existing disclosure requirements — a systematic review of all existing standards may be undertaken in light of the revised Conceptual Framework and any work arising from the research project on disclosure. The IASB has signalled that it intends to consider whether there are ways to accelerate this standards-level review of general disclosure requirements, notwithstanding a preference to complete its work on disclosure principles as part of its Conceptual Framework project (although any disclosure related principles developed will not have a direct effect on current disclosure requirements). The review is expected to be undertaken over the next two years.

The Feedback Statement also indicates an intention to develop additional outreach events and briefly discusses broader issues such as technology, the impact of disclosures on smaller listed entities, country-by-country reporting, and integrated reporting.

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May 2013 IASB meeting notes — Part 4 (Final)

May 27, 2013

The IASB's meeting was held on May 21–24, 2013, in London. Deloitte observer notes are posted from Friday's session on limited amendments to IFRS 9, when the IASB and FASB discussed feedback received by the IASB on its exposure draft ED/2012/4, "Classification and Measurement: Limited Amendments to IFRS 9."

Click for direct access to the notes:

Friday, May 24, 2013

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

May 2013 IASB meeting notes — Part 3 (continued)

May 24, 2013

The IASB's meeting was held on May 21–24, 2013, in London. Deloitte observer notes are posted from Wednesday's session on novation of derivatives and continuation of hedge accounting (IAS 39), from Thursday's sessions on macro hedge accounting and revenue recognition, and from Friday's joint IASB/FASB session on revenue recognition.

Click for direct access to the notes:

Wednesday, May 22, 2013

Thursday, May 23, 2013

Friday, May 24, 2013

The remaining notes on the session on classification and measurement will be available soon.

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

Chinese and U.S. regulators enter into cooperative agreement

May 24, 2013

The China Securities Regulatory Commission (CSRC), the Ministry of Finance (MoF) of China, and the PCAOB have announced a cooperative agreement on the oversight of audit firms subject to the regulatory jurisdictions of both regulators.

The Memorandum of Understanding (MOU) allows for the mutual exchange of confidential information of firms performing in both jurisdictions. Further, the PCAOB is working with the CSRC and MoF on an agreement to permit joint inspections in China of audit firms that are registered with the PCAOB and audit Chinese companies that trade in U.S. exchanges.

The press release is available on the PCAOB's Web site.

May 2013 IASB meeting notes — Part 2 (continued)

May 23, 2013

The IASB's meeting was held on May 21–24, 2013, in London. Deloitte observer notes are posted from Wednesday's sessions on mandatory purchases of NCI (IFRS 3), interim financial report (IAS 34), contingent consideration (IFRS 3), valuation of biological assets (IAS 41/IFRS 13), equity method in separate financial statements (IAS 27), and conceptual framework.

IFRS Foundation Annual Report 2012

May 23, 2013

The IFRS Foundation (IFRSF) under which the IASB operates has published its Annual Report for 2012. The report is split into three sections: IFRS Foundation, Standard-setting activities, and Financials.

In his "Report of the Chairman of the IFRS Foundation Trustees" Michel Prada describes the organisation in two chapters. The first chapter depicted by the developments and accomplishments between 2001 to 2011 and chapter two, which began in 2012, “will be characterised by consolidating and building on the successes of the first chapter.” Additionally, for 2013, the report states the following three priorities for the IFRSF:

First, we will work to ensure that the initiatives resulting from the strategy and governance reviews are fully bedded in. Second, we will work in close co-operation with the Monitoring Board and others to further develop the long-term funding arrangements for the organisation. Third, we will undertake several initiatives to encourage the adoption and consistent application of IFRS globally. These include the development of country and jurisdictional profiles on the use of IFRS, which are to be published and maintained on the IFRS website.

In his “Report of the Chairman of the IASB” Hans Hoogervorst describes various standard setting projects, including the convergence project with the FASB (revenue recognition, financial instruments, and leases) and conceptual framework. Regarding the convergence project, Chairman Hoogervorst states:

The decade-long convergence programme has been quite an achievement. While full convergence has not been possible in all areas, our work with the FASB has harmonised and improved financial reporting requirements globally. It is a credit to both boards that we have been able to achieve so much coming from, in many cases, very different starting points.

The full report which contains additional statements from the Monitoring Board, Due Process Oversight Committee, IFRS Interpretation Committee, and Advisory Council, as well as audited financial statements is available on the IASB's website.

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