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FASB's impairment testing proposal deviates from IFRSs

Jan 26, 2012

The FASB has published a proposal under which an entity testing indefinite-lived intangible assets for impairment would have the option of performing a qualitative assessment to determine whether it is more likely than not that the asset is impaired.

Under current U.S. GAAP, assets with indefinite useful lives are similar to those under IAS 36, Impairment of Assets; they are reviewed at least annually for impairment. Under the proposal, certain assets such as trademarks, licenses, and distribution rights could be exempt from this requirement if the asset is determined to be more likely than not less than its fair value. In its proposal, the FASB acknowledges that this new guidance does not converge U.S. GAAP and IFRSs.

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Yael Almog appointed as executive director of the IFRS Foundation

Jan 24, 2012

The Trustees of the IFRS Foundation have announced the appointment of Yael Almog as executive director of the IFRS Foundation.

Ms. Almog will manage day-to-day operations of the organization and provide executive leadership, supporting the work of the Trustees. She currently serves as director of the Department of International Affairs of the Israel Securities Authority (ISA), the Israeli market regulator.

Ms. Almog's appointment follows the departure of Tom Seidenstein, chief operating officer, who after more than 10 years of service left the Foundation to return to the United States.

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

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Trustees reappoint three IASB members

Jan 24, 2012

The Trustees of the IFRS Foundation have announced the reappointment of three current IASB members.

Stephen Cooper (Great Britain) and Wei-Guo Zhang (China) have been appointed for a second five-year term. Their terms in office now end on August 1, 2017, and June 30, 2017, respectively. Paul Pacter (United States) had initially indicated to the board that he wanted to be available for only one two-year term. He has agreed to a re-appointment of six additional months to allow sufficient time for the appointment of a successor. His term now ends on December 31, 2012.

The Trustees are continuing their search for three additional members to fill the existing or upcoming vacancies. Elke Konig stepped down in December 2011 and John Smith will be stepping down in June 2012 after serving the maximum of two five-year terms. In addition, a new board position will be available in July 2012 as the IASB expands its membership to 16.

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

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Scott Evans reappointed as a trustee of the IFRS Foundation

Jan 24, 2012

The Monitoring Board of the IFRS Foundation has approved the re-appointment of Scott Evans to serve as a Trustee for a second three-year term. His term in office now ends December 31, 2014.

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

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The Bruce Column — Integrating the thinking

Jan 23, 2012

The idea of an agreed-upon system of integrated reporting creates much enthusiasm. But there are challenges ahead in terms of agreeing to a structure and creating a regulatory framework to ensure that it works. Robert Bruce, our regular, resident columnist, reports.

Just before the end of last year a roundtable was held in London on the day that the last of the responses to the International Integrated Reporting Council’s initial consultation paper were due. That paper had outlined the concepts underlying an integrated reporting system. Put simply, the aim was to encourage and enable business reporting to reflect the links between an organisation’s financial performance and its social, environmental and economic context and performance, and to place the effects centre stage. The purpose was to ensure that this wider perspective was what informed decisions and future strategy.

There are two sides to the process of trying to bring about this change. The first is to harness the enthusiasm and the positive outcomes of efforts made so far to use the underlying principles of integrated reporting. The second is to face up to the difficulties and challenges of bringing the process to some kind of global implementation.

First, the enthusiasm. At the roundtable event it was palpable. Professor Mervyn King, who chairs the IIRC, and who is a former judge of the Supreme Court of South Africa and Chairman of the King Committee on Corporate Governance, personifies it. South Africa has been a pioneer in integrated reporting’s application. All companies listed on the Johannesburg Stock Exchange are mandated to produce an integrated report under a ‘comply or explain’ principle. Integrated reporting is now part of the South African Code of Responsibility. The trustees of pension funds are charged with the need to look at long-term sustainability. And, from the beginning of this year, trustees can be sued if they do not do this.

King read out some comments he had been sent by the team which had produced the report for the communications company Vodacom in South Africa. For King the significant part was not in the methods by which it had been achieved. The process had been successful and useful. For him the importance lay in the comments which suggested that integrated reporting was bringing about a management revolution. Vodacom had created an integrated reporting committee to oversee the production of the report. And as integrated reporting requires information and thoughts from all over the company rather than just from the traditional financial reporting stream it reflected cross-company inputs. ‘Remarkably’, said the comments, ‘some of us had never sat around the same table before’. And that is what is changing the perspective. Widen out the information base on which you base your corporate strategy and that strategy will inevitably change. And breaking down corporate information silos will always be productive.

For King all of this provides something which traditional reporting cannot. He reflected on the various demonstrations and activities around the world which erupted last autumn and which reflected a public unease with the way business and wider society were perceived to connect. ‘They are saying the operation of companies and society isn’t working’, he said. Integrated reporting would go some way to assuaging the critics, he suggested. It would be much more obvious through a wider system of integrated reporting that an organisation was operating as ‘a good corporate citizen’. And institutional investors would follow that.

There were, he suggested, two great challenges in these days of economic uncertainty. The first was the need for financial stability and the second was sustained value creation by business. ‘The one cannot happen without the other’, he said.

Lord Sharman, Chairman of insurance giant, Aviva, weighed in. Long-term sustainability of the business was even more important when customers in its pensions business could be with the company for 50 years. It had to be a long-term business. He had no doubt about the need for integrated reporting. ‘Reporting non-financial issues should be reported to the same high professional standards as financial information’, he said. ‘People don’t want more information. They want better information’.

It is in the field of those high professional standards where the challenges for integrated reporting lie ahead. And certainly observers of the reporting scene realise the need for some sort of process of bringing the whole system together. Various new disclosures, new reports and reporting responsibilities have, in recent years, been bolted on to the basic reporting model of the traditional financial statements, with all the associated management commentary on the financial position and performance of the business along with corporate social responsibility reports and sustainability reports. It's a sizeable jigsaw out there for an investor or stakeholder. To many people the idea of one report with the material risks, opportunities, strategy, objectives, items of performance and position across all the capitals utilised by a business, whether recognised in the financial statements or not, seems a sound and sensible idea. But this is not always clear in the discussion paper published for comment by the IIRC in the autumn of 2011.

One problem is simply one of terminology. Paul Druckman, the IIRC Chief Executive, admits to being surprised by this but takes it on board. ‘One of the big things which has come out of the process is that we need to be careful about language’, he said. ‘It can confuse the market’. For example, he cites the use of the term ‘exposure draft’ as an outcome of the discussion paper. ‘It is not going to be an “exposure draft” in the same terms that standard setters would use’, he points out.

There is also confusion about regulation. And after careful analysis of the 200 plus comment letters received the issue of whether the primary stakeholders should be investors or regulators must be grappled with.

Much of this is inevitable. To get the concept off the ground the initial discussion paper needed to concentrate on the high level ideas and the detail tended to get left behind at this stage. But it is the detail which respondents to the discussion paper will have worried about. Grasping a high level concept is fine. What immediately crops up are the ‘What if?’ and ‘How can?’ questions. Druckman is also keen to learn the lessons from the South African experience of applying integrated reporting. ‘There is an expectation gap around what can be done in a short period of time’, he says. ’Integrated reporting is a catalyst which should follow from a management which is thinking in an integrated way. If management isn’t thinking in that way then it just becomes lots of KPIs which don’t mean much to the business.’

Meanwhile up to a hundred companies will set out on pilot programmes. And a two-year roadmap has been drawn up. There should be a draft framework in place by the end of the year and a formal framework, which people can follow, by 2013 or early in 2014. A technical taskforce is being set up to deal with the detail around which so much of the arguments in the comment letters centre. There will also need to be hard work around policy and awareness so that change can be brought about.

And there is, of course, politics. An example cropped up in Professor Mervyn King’s words at the roundtable event. He talked about the latest European Commission efforts to split audit firms into entirely separate firms, one dealing with ‘pure’ audit and one with other services. ‘The European Commission is split’, he said. ‘The left hand deals with integrated reporting. The right hand wants to split audit from services. But companies will need professional advice on integrated reporting and they will need more than just an audit for integrated reporting assurance. The European Commission looks at the failure of the banks through the lens of the financial statements’. In other words politics was failing to see that integrated reporting needs an integrated assurance approach. It was a small but fundamental example of the problems of implementation up ahead. Integrated reporting is in the right place at the right time. But the hard grind to ensure it succeeds has hardly started.

Robert Bruce
January 2012

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New board-level guide to sustainability

Jan 23, 2012

Deloitte's Global Center for Corporate Governance has released "The Sustainable Board," a white paper that provides a board-level overview of sustainability and its impact on organizations.

According to the paper, sustainability is increasingly becoming a top-of-mind issue for boards that are seeking to enhance performance and reputation, mitigate risks, and foster innovation and growth. The paper is presented as a series of topics, with examples of questions that boards may wish to ask themselves and management to further their understanding. There are specific sections on the measurement of sustainability information and sustainability transparency and disclosure.

The questions in the paper in relation to disclosure are reproduced below:


Questions for directors to ask
  • What are the organization's policies regarding setting goals and measuring performance in economic, environmental and social areas (i.e. internal reporting) and disclosing those activities to investors and other stakeholders (i.e. external reporting)?
  • Does management voluntarily disclosure sustainability and social responsibility related strategies, performance and risks beyond the general requirements set forth by regulators (e.g. Management's Discussion & Analysis guidance)? Is the board required to review and approve all sustainability disclosures before they are released?
  • What information, if any, does management provide on sustainability issues to regulators, customers, suppliers, non-governmental organizations or other stakeholders?
  • Does the organization disclose the metrics used to measure performance towards achieving its sustainability objectives? Is there a third party verification process for sustainability reports?
  • How does the board satisfy itself regarding the accuracy of the sustainability information that is publicly disclosed?

The paper notes the following in its conclusion:

Demand for reporting and disclosure of sustainability performance continues to increase – both as a response to regulation, and stakeholder and investor pressure, but also from internal management looking for better ways to manage risk and measure and improve performance.

Click for The Sustainable Board.

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IFRS Foundation issues exposure draft of updated XBRL taxonomy

Jan 20, 2012

The IFRS Foundation has published an exposure draft of the IFRS Taxonomy 2012. The proposed taxonomy is consistent with IFRSs, including IASs, and the IFRS for SMEs.

The IFRS Taxonomy 2012 is a translation of IFRSs as issued as of January 1, 2012, into eXtensible Business Reporting Language (XBRL).

The proposed taxonomy includes "common practice" extensions, which were derived from an analysis of IFRS financial statements and are designed to diminish the need for preparers to customize the taxonomy to fit their individual businesses. The need for these extensions originally arose from SEC concerns about the suitability of the existing IFRS taxonomy for U.S. filing purposes and the outcomes of a pilot XBRL study conducted in 2011.

The proposed taxonomy is open for comment until March 17, 2012. Click for more information (link to the IASB's Web site). The FASB has also recently announced the 2012 U.S. GAAP taxonomy.

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Notes available from the January IFRS Interpretations Committee meeting

Jan 18, 2012

Deloitte observer notes are now available from the IFRS Interpretations Committee meeting held in London on January 17–18, 2012.

The topics discussed include (click for detailed Deloitte observer notes for that topic):

Tuesday, January 17, 2012

Wednesday, January 18, 2012

Click for the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

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Deloitte publication update

Jan 16, 2012

A reminder that you can access all the latest IFRS-related Deloitte newsletters through the "Publications" tab on the home page, including the latest edition of our "Model Financial Statements."

The most recent publications include:

The page also highlights that Deloitte's 2011 Model Financial Statements that reflect the early application of new and revised standards are now available. The model financial statements illustrate the impact of a number of new and revised standards and interpretations that are mandatorily effective on January 1, 2011, and the impact of the early application of new and revised Standards that are not yet mandatorily effective on January 1, 2011 (e.g., IFRS 9, Financial Instruments; IFRS 10, Consolidated Financial Statements; IFRS 11, Joint Arrangements; and IFRS 12, Disclosure of Interests in Other Entities, and amendments to IAS 1, IAS 12, and IAS 19). They also contain additional disclosures that are considered to be best practice, particularly when such disclosures are included in illustrative examples provided with a specific standard.

Click for IFRS Model Financial Statements for 2011 including early adoption.

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Deloitte issues U.S. alert on accounting for eurozone sovereign debt holdings

Jan 12, 2012

Deloitte has issued a "Financial Reporting Alert" on the impairment of Greek government bonds (GGBs) and debt issued by other eurozone states. The alert notes that under U.S. GAAP and IFRSs, GGBs and other loans that are issued by the Greek state are impaired (other-than-temporarily impaired in the case of GGBs) as of December 31, 2011. The alert provides guidance on the measurement of the impairment loss for the different types of investments.

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.