February

Merits of IFRS debated at US NASD symposium

12 Feb 2003

The NASD – the private-sector self-regulatory organisation for the United States securities industry, stock brokers, and brokerage firm – sponsored an international symposium on "Global Adoption of International Accounting Standards" at the Harvard Law School on 3 February 2003. The purpose of the symposium was to provide a forum at which international business and regulatory leaders could debate the merit and need for establishing a set of internationally accepted accounting standards.

Among those participating were Sir David Tweedie, Chairman of the International Accounting Standards Board; Robert Herz, Chairman, Financial Accounting Standards Board; Howard Davies, Chairman of the UK's Financial Services Authority; Henry Paulson, Jr., Chairman and CEO of Goldman Sachs; Roel Campos, SEC Commissioner; Peter Fisher, US Treasury Undersecretary; and Robert Glauber, Chairman and CEO of NASD. The symposium was the first in a new NASD International Symposium Series on Transparency in Capital Markets. NASD News Release.

Implementation of IFRS in Australia

11 Feb 2003

In a paper presented at an investor relations forum in Sydney, Keith Alfredson, chairman of the Australian Accounting Standards Board (AASB), discusses Australia's approach to full implementation of International Financial Reporting Standards for financial years commencing on or after 1 January 2005. Click to Download Mr.

Alfredson's Remarks (PDF 24k). An excerpt:

Most IFRSs do not operate in isolation because of their frequent cross-references to other IFRSs. Consequently it is most impracticable for the AASB to issue and make operative selective IFRSs in isolation. For this reason, and given the wide-ranging planned amendments to existing standards over the next two years to 2005, while further study is required by the AASB, it is far more likely that the AASB will be forced to make most IFRSs operative for financial years commencing on or after 1 January 2005 in a "big bang" rather in what is somewhat hopefully envisaged in CLERP 9 through a transition process. While this may be considered to be unfortunate, it is, I believe, inevitable and is, of course, largely out of the hands of the AASB, given that implementation is dependent on the IASB's timetable and output.

SEC requires analyst certification of research reports

10 Feb 2003

The US Securities and Exchange Commission has voted to adopt a new regulation that will require research analysts to certify the truthfulness of the views they express in research reports and public appearances, and to disclose whether they have received any compensation related to the specific recommendations or views expressed in those reports and appearances.

Agenda announced for IASB's meeting 19-21 February 2003

10 Feb 2003

The IASB will hold its monthly meeting at its offices in London on 19-21 February 2003. Topics scheduled to be discussed are: .

The IASB will hold its monthly meeting at its offices in London on 19-21 February 2003. Topics scheduled to be discussed are:

  • Business Combinations (Phase II)
  • Convergence Project
  • Employee Benefits - Convergence Issues
  • First-Time Application of IFRSs
  • IFRIC - Matters arising from the February IFRIC Meeting
  • Improvements to Existing IASB Standards
  • Insurance Contracts (Phase I)
  • Reporting Performance
  • Revenue Recognition

Notes from the second day of IFRIC's February 2003 meeting

09 Feb 2003

The International Financial Reporting Interpretations Committee (IFRIC) met on 5 February 2003 – the second day of a two-day meeting.

Our unofficial notes are presented below:

Notes from the IFRIC Meeting5 February 2003

Changes in Decommissioning and Similar Liabilities

The IFRIC discussed several issues related to decommissioning and similar liabilities. The members noted that changes in the liability could be caused by changes in the discount rate, useful life of the asset and/or estimates of future cash flows. The IFRIC concluded on practical grounds that the portion of the asset related to prior years should be expensed and the portion related to future years should be capitalised to the asset for all changes in the liability. Two methods of allocation were discussed, however, the IFRIC decided that any means of reasonable allocation would be appropriate under the draft interpretation. Therefore, the draft interpretation will state a general principle or pro-rating and provide an example of one method that may be used to calculate the amount related to prior periods.

The IFRIC concluded that if a new law is enacted which creates a decommissioning obligation on an existing asset, then the debit should be to the asset-with a pro rata portion assigned to prior years. Changes in existing laws would be accounted for similarly. The IFRIC clarified that the portion allocated to the asset should be based on the assets expected remaining economic life (including reference to the potential annual evaluation of residual values and useful lives under the improvements to IAS 16). The IFRIC also clarified that a negative asset should never occur under this interpretation.

One member expressed a position that the change in the liability should be expensed entirely, however, the IFRIC decided that the change is a change in the original cost of the asset and a pro-rata portion should be assigned to it.

The IFRIC concluded that transition should be prospective. One observer noted that prospective application may be in conflict (depending upon the effective date of the final interpretation) with the first time application which will require retrospective application. The staff will consider the effect of this draft interpretation in drafting and in consideration of an appropriate effective date.

The IFRIC concluded to retain a cumulative catch-up method for changes in estimates (as noted above). The IFRIC concluded that the draft interpretation should not contain guidance on the income statement presentation of changes in decommissioning liabilities. The IFRIC also decided that the draft interpretation should include disclosure guidance.

The staff will prepare a pre-ballot draft for the members and depending on comments received, a ballot draft will be distributed shortly thereafter with the intention for an exposure draft either in late quarter 2 of 2003 or in quarter 3 of 2003.

Decommissioning Funds

The IFRIC concluded that the draft interpretation should be structured so that it states that the accounting for the liability (from which the fund is required or voluntarily entered into) should not impact the accounting for the contributions made to the fund. The first step will be to determine whether the fund should be consolidated by the contributor by reference to IAS 27 and SIC 12. If control does not exist, the entity will need to determine whether significant influence exists and therefore whether the fund is an associate. The entity will then need to determine the extent of its guarantee on the liabilities of others in the fund.

The IFRIC members agree to address the issue of silos separately from this interpretation. The IASB staff clarified that the virtually certain test in IAS 37 should be applied to whether the liability will be incurred, not whether the reimbursement will occur. The test for the reimbursement would be based on the definition of an asset, or probable.

The IFRIC concluded that the right to receive reimbursement from the fund meets the definition of a financial instrument and should be accounted for as an originated loan under IAS 39. However, the IFRIC expressed doubt that the information will be available to compute amortised cost (duration, interest rate, etc.) and therefore believe that in the absence of such information, the asset should be recorded at fair value as a held for trading security. Since the expense related to the liability would be running through expense, the IFRIC believes the income from the asset should also be to earnings.

The IFRIC concluded that decommissioning funds are not similar to insurance contracts and that the requirements in IAS 19 should not be applied by analogy.

Presentation - Operating and Ordinary Activities

After much debate, the IFRIC decided not to address this issue, as any conclusions would pre-empt an ongoing IASB project on performance reporting. The IFRIC, however, made clear that this issues is important in practice and must be addressed immediately.

Linkage

The IFRIC concluded that the draft interpretation should not address situation where one contract should be divided into two or more components and agreed on certain disclosure requirements. IFRIC also agreed to expand the name of the project to "Reporting of Linked Transactions".

The IFRIC concluded that the guidance for when to link transactions should be characterised as indicators. The Staff asked the IFRIC members whether the final conclusions should be documented as an interpretation or given to the Board to be issued as a standard. The IFRIC concluded that preparation of a pre-ballot draft for an interpretation should continue unless instructed by the Board that this should be issued as a standard.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

Bulgaria requires IFRS starting in 2003

06 Feb 2003

As of 1 January 2003, all listed companies, banks, insurance companies, and pension funds in Bulgaria must use International Financial Reporting Standards.

Other companies may choose to apply IFRS. Bulgarian GAAP will remain an alternative for them until 2005.

Notes from the IFRIC meeting on 4 February

06 Feb 2003

The International Financial Reporting Interpretations Committee (IFRIC) met on 4 February 2003. Our unofficial notes of the meeting are as follows.

IFRIC will continue its meeting on 5 February:

Notes from the IFRIC Meeting4 February 2003

Administrative

Ken Wild and Jeannot Blanchet were welcomed to their first IFRIC meeting. Norman Lyle attended as alternate to Clement Kwok.

Rights of Use

The IFRIC continued its discussion of determining when a contract that gives an entity the right to use an asset should be accounted for as a lease. The staff proposed that in assessing whether a lease had arisen all of the following criteria should be present:

  • the agreement is dependent upon a specific item or items ('the asset');
  • the entity obtains control over that asset for a specific period of time; and
  • the entity is contractually, or in substance, required to make payments under the agreement for its right to use the asset rather than for its actual use. Previously it had been proposed that a lease would have been considered to exist when an entity that had rights to acquire substantially all of the output produced by an asset was deemed to have control over the asset (as specified by the above criteria), but only if the supplier obtained a return that was commensurate with that which would be obtained by an asset manager or operator. The requirement to consider the supplier's return was therefore eliminated as it was not considered to be important in assessing whether a lease existed but whether the lease would be an operating or finance lease. Some IFRIC members were concerned that this could result in an inappropriate definition of control arising and were more comfortable with the inclusion of conditions indicating that the payments were in respect of the right to use the asset and not for the actual use of the asset or its output. These members referred the staff to the current EITF proposals in this regard and requested the staff to liaise with the EITF to arrive at similar wording. The IFRIC supported that any agreement that fell within the ambit of the interpretation should be assessed at the inception of the contract and should only be reassessed if there was an amendment or significant modifications to the agreement. Thus the agreement would not be reassessed if there was only a change in circumstances. It was agreed that the interpretation on issue should have retrospective application. One member of the IFRIC strongly disagreed and it was agreed that this would be referred to in the Basis for Conclusions with a specific request to comment. It was agreed that the staff would draft a proposed interpretation to be circulated to the IFRIC prior to the next meeting with a view to finalising the interpretation for exposure at the next meeting. Emission Rights IFRIC previously had agreed that the proposed interpretation should make reference to IAS 20. As a result of the Board's decision to withdraw the current IAS 20 and replace it with something that has not yet been decided it was questioned whether this approach should continue. There was considerable concern amongst various IFRIC members that there should not be an immediate gain recognised on recording the emission certificates as an asset. It was noted that it could be difficult to include alternatives to IAS 20 in the absence of any clear guidelines from the Board as to what they believed the accounting for government grants should be and in the absence of any due process in this area. It was agreed that the interpretation should continue to refer to IAS 20 but that a section would be included in the preamble to the proposed interpretation regarding accounting for these grants in the absence of IAS 20 and requesting comment in this area. It was agreed that the government grant should be taken to income on a systematic basis over the period to which it relates. It was agreed that the staff would include guidance that the liability to be recognised in respect of the environmental damage would be based on the best estimate of whether it would be settled by the delivery of emission certificates at their current market value or the penalty provisions of the scheme as a result of sufficient certificates not being available. It was agreed that the interpretation would not address accounting by traders in emission certificates. An IFRIC member noted that the proposed effective date of three months after issue seemed to be fairly short. It was agreed that the staff would address the issues raised and that a draft interpretation would be prepared with a view to approving it for issue at the next meeting. Employee Benefits - Multi-Employer Plan Exemption The staff proposed guidance that would be issued on when the exemption regarding accounting for multi-employer defined benefit plans as defined contribution plans would apply. The IFRIC noted that it would be extremely rare for the situation to exist that there was no consistent and reliable basis for allocating the obligation, plan assets and cost to individual entities participating in the plan. They agreed that the interpretation would contain wording indicating this. They further agreed that the interpretation contain guidance that indicated that significant effort needed to be made before concluding that the information needed would not be available. An IFRIC member stated that the proposed interpretation should address the measurement implications of cross subsidisation inherent in these plans. It was agreed that the staff would address the issues raised and that a draft interpretation would be prepared. Employee Benefits - Money Purchase Plans with Minimum Guarantee The IFRIC considered how to apply IAS 19 to a plan that would be a defined contribution plan but for the existence of a minimum return guarantee. The terms of the plan are that a contribution is made each year based on the employee's current salary and the employee receives a benefit (a lump sum or an annuity) equal to the contributions paid into the plan plus the return generated on the assets acquired. The employer guarantees a minimum return on the assets over the period to when the benefit is paid. The IFRIC agreed that such plans should be accounted for as defined benefit plans. It was proposed that this would be done by accounting for the minimum return as the defined benefit plan with an additional liability recognised in respect of the excess return on assets over the minimum guarantee. Some concern was raised as how this relates to the position that the minimum guarantee is determined over the employee's service and consequently excess returns in a particular period could be used to offset lower returns in other periods. Further concern was raised that the corridor approach would apply to accounting for returns on assets in excess of that expected whereas the increase in liability would be immediate. It was agreed that the staff would consider these points and bring the issue back to the IFRIC with further proposals.

This summary is based on notes taken by observers at the IFRIC meeting and should not be regarded as an official or final summary.

New Deloitte & Touche (US) Accounting Roundup

05 Feb 2003

We have posted the 3 February 2003 edition of Accounting Roundup, a newsletter published by Deloitte & Touche (US).

Among the topics covered are recent SEC rules relating to implementing the Sarbanes-Oxley Act, recent EITF and AcSEC activity, notes from the January 2003 IASB meeting, and a new Deloitte & Touche publication on corporate governance and internal controls under Sarbanes-Oxley.

Over 100 groups will speak at IAS 39 public roundtables

03 Feb 2003

In December 2002, the IASB announced that it will hold public roundtable discussions during the week of 10 March 2003 on various aspects of its proposals to amend IAS 32 and IAS 39 on financial instruments.

The Board decided to host the discussions following its review of more than 150 comment letters received in response to the proposed amendments. The Board noted that the comments on the proposals "represented a wide range of opinion and raised numerous questions". Over 100 organisations and individuals have signed up to speak at the roundtables. The IASB has released an Information Package (PDF 74k) setting out 42 questions that it would like participants in the roundtables to address.

Six Europe-Africa country summaries are updated

02 Feb 2003

We have updated our summaries of accounting standards activity in France, Germany, the Netherlands, Portugal, South Africa, and the United Kingdom. .

We have updated our summaries of accounting standards activity in France, Germany, the Netherlands, Portugal, South Africa, and the United Kingdom.

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.