IAASB standard on reviews of interim information

12 Jul 2005

The International Auditing and Assurance Standards Board (IAASB) has released a new International Standard on Review Engagements (ISRE) to assist auditors engaged to review the interim financial information of an audit client.

ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity outlines the general principles of a review of interim financial information, provides guidance on the procedures to be performed, and prescribes the content of the review report. In addition, an appendix to the standard includes examples of an engagement letter, management representation letter, analytical procedures the auditor may consider when performing the review, and illustrative review reports. ISRE 2410 is effective for engagements to review the interim financial information of an audit client for periods beginning on or after 15 December 2006. Click for Press Release (PDF 77k).

New Accounting Roundup newsletter posted

11 Jul 2005

We have posted the (PDF 201k) from Deloitte & Touche (United States).

This issue includes:
  • FASB developments - including SFAS 154 on accounting changes; FASB-IASB joint EDs on business combinations and noncontrolling interests; final FSPs on warrants, electronic waste, and employee compensation; and proposed FSPs on minimum revenue guarantees and life settlement contracts.
  • EITF developments - EITF meeting 15-16 June 2005
  • AICPA developments - including an exposure draft of eight proposed auditing standards
  • SEC developments - including the SEC's report on off-balance-sheet arrangements and final Regulation NMS on requirements for US equity exchanges
  • PCAOB developments - including guidance on XBRL attestation
  • International developments - including IASB's amendments to IFRS 1 and IFRS 6 and fair value option amendments to IAS 39; proposed amendments to IAS 37; and summaries of the IASB's 22-23 June 2005 meeting and IFRIC's 2-3 June 2005 meeting.
All past issues of Accounting Roundup are Here.

ARC endorses revised IAS 39 fair value option

11 Jul 2005

At its meeting on 8 July 2005, the Accounting Regulatory Committee, which advises the European Commission on adoption of individual International Financial Reporting Standards for use in the European Union, agreed unanimously to recommend endorsement of an amended version of IAS 39 that includes revised provisions relating to the fair value option (FVO).

When the Commission adopted IAS 39 last year, the FVO provisions were carved out. The Commission has already consulted the European Parliament on the revised FVO and, provided Parliament raises no objections, the Commission intends to adopt the amended standard by the end of September 2005. Adoption will be retroactive to 1 January 2005, so that companies can apply the amended standard for their 2005 final statements. Click for:

CESR advice on national GAAP equivalence to IFRSs

11 Jul 2005

The Committee of European Securities Regulators (CESR) has published its final technical advice to the European Commission on the equivalence between Canadian, Japanese, and US general accepted accounting principles (GAAP) and IFRSs.

CESR's principal conclusion is that "the three countries' GAAPs, each taken as a whole, are equivalent to IFRSs". Therefore, CESR recommends that non-European companies trading in European securities markets be allowed to submit financial statements in Canadian, Japanese, and US GAAP without a full reconciliation of their accounts to IFRSs. However, they must provide information about certain specific differences between those national GAAPs and IFRSs. CESR's advice includes a non-exhaustive standard-by-standard list of differences as of 1 January 2005 for which disclosure of the nature and effect of the differences is required. CESR intends to update the list as of 1 January 2007. In addition, CESR proposes the following:
  • Companies that have subsidiaries such as Qualifying Special Purpose Entities (QSPEs) that are not consolidated for third country GAAP purposes, but are required to be consolidated for the purposes of IFRS, must report a pro-forma balance sheet and profit and loss account on their local GAAP basis, but including the unconsolidated subsidiaries.
  • Companies reporting under Japanese GAAP that have either accounted for mergers by the pooling of interest method and/or have consolidated subsidiaries on the basis of GAAPs that are not consistent with either IFRS or any of the third country GAAPs should report a pro-forma balance sheet and profit and loss account on the basis of IFRS covering business combinations and consistent accounting policies, respectively.
  • Japanese and US issuers must adopt accounting policies for the expensing of stock options on a basis equivalent (but not necessarily identical) to IFRSs, for implementation on or before 1 January 2007. (The US has already adopted such a standard, and Japan is considering doing so.)
Click for:

CESR recommends amending the prospectus regulation

11 Jul 2005

The Committee of European Securities Regulators (CESR) has published a consultation paper that sets out recommendations for a possible amendment of the Commission's Prospectus Regulation regarding historical financial information that must be included in a prospectus.

The Prospectus Regulation, which came into effect on 1 July 2005, requires (among other things) three years' audited historical information for the issuer as a whole. Sometimes, however, the issuer has not prepared its historical financial information as a single business during the whole of the three-year period, for example, because:
  • the issuer is a newly incorporated holding company inserted over an established business;
  • the issuer consists of companies that were under common control or ownership but that never formed a legal group;
  • the issuer has made a significant acquisition (representing more than 25% of the group) during the three-year historical period;
  • the issuer has disposed of a significant part of its business since the last audited accounts;
  • the issuer has changed the end of its financial year during the three year period.
CESR's recommendations relate to what additional information should be included in prospectuses in circumstances such as the foregoing. CESR requests replies by 15 September 2005 and will hold a hearing on 6 September 2005. Click to download:

IASB chairman meets with the ARC

10 Jul 2005

IASB chairman Sir David Tweedie met with the European Commission's Accounting Regulatory Committee (ARC) in Brussels to discuss the development of International Financial Reporting Standards and, in particular, the convergence of international and national accounting standards.

Sir David was accompanied by IASC Foundation Trustee Max Dietrich Kley. The ARC is composed of representatives of EU Member States and was set up to advise the Commission on proposals to endorse individual IFRSs for use in Europe. Click to download (PDF 42k). An excerpt:

The European Commission, the European Parliament and EU Member States deserve much credit for providing the impetus to our efforts. Your choice of an international approach to accounting standards over a national and regional approach for Europe is a model for others. At the same time, if we are to achieve truly global standards and all the benefits that they will bring, accounting convergence must necessarily involve the United States, which accounts for nearly half of the world's total market capitalisation.

Deloitte reply to IASB's SME questionnaire

06 Jul 2005

Deloitte has submitted a response to the IASB's Staff Questionnaire on Possible Recognition and Measurement Modifications for Small and Medium-sized Entities (SMEs).

We continue to support the IASB's efforts to develop an appropriate and comprehensive reporting regime for SMEs. We make a number of recommendations for recognition and measurement simplifications for SMEs, and we request clarification of several aspects of the Board's approach to SME standards, including the definition of SMEs. Overall, we conclude:

We believe it is very important that the Board develops a set of financial reporting standards for SMEs as soon as possible. Many jurisdictions around the world currently have differential reporting regimes. Full IFRS, with their focus on providing information for making economic decisions in the context of developed capital markets, may not be suitable for SMEs simply because they are not designed to meet the needs of this particular sector. In our experience, users of SMEs' financial statements are looking for standards which result in financial reporting which is likely to be meaningful and comprehensible to them. Standards that provide the least cumbersome method of achieving the accounting treatment and/or disclosure that is not complex are sought. Standards are wanted that provide guidance that is widely relevant to the transactions of SMEs and that are written in terms that can be understood by such businesses. We hope that the outcome of this project will be a simplified accounting regime which provides entities with a means of communicating financial information to their stakeholders in a manner appropriate to that entity's nature.

In our comment letter we have detailed a number of accounting choices which we believe should be left open for SMEs. We note that where an SME chooses a particular accounting model, that decision ought to be treated as an accounting policy choice and applied consistently by that SME in respect of all similar transactions.

Click to (PDF 82k). All of Deloitte's past comment letters to the IASB and the IASC may be found Here.

Slight delay in publishing final IFRS 7

05 Jul 2005

The IASB has announced that the publication of IFRS 7 Financial Instruments: Disclosures, previously scheduled for 15 July, has been "delayed by technical publication difficulties".

The Board said it will announce a revised publication date "in due course". IFRS 7 will be effective for annual periods beginning on or after 1 January 2007, with earlier application encouraged. Early appliers will be given some relief with respect to comparative prior period disclosures. Click for Background on Development of IFRS 7.

IFAC releases revised code of ethics and an ED

04 Jul 2005

The Ethics Committee of the International Federation of Accountants has released a revised version of the Code of Ethics for Professional Accountants.

The revised Code establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Under the framework, all professional accountants will be required to identify threats to these fundamental principles and, if there are threats, apply safeguards to ensure that the principles are not compromised. The framework applies to all professional accountants, those in public practice and those in business, industry and government. The revised Code is effective June 30, 2006. Earlier adoption is encouraged. It can be viewed and downloaded by going to www.ifac.org/Store/. The Ethics Committee has also issued an exposure draft that proposes revisions to the definition of a network firm. Network firms are required to be independent of an audit client of a firm within the network. The proposed changes would classify a firm as a network firm of another firm if the two share a common brand name or if they share significant professional resources or revenues, profits, costs or expenses. The new ED, Proposed Revised Section 290, Independence - Assurance Engagements, may be downloaded from IFAC's Website. Comments are due by 30 September 2005. Click for Press Release (PDF 64k).

IAASB exposure draft on auditors' report

04 Jul 2005

The International Auditing and Assurance Standards Board (IAASB) has published the following exposure drafts of proposed International Standards on Auditing (ISAs), which may be downloaded from IFAC's Website.

Comment deadline is 31 October 2005:
  • Proposed ISA 701, The Independent Auditor's Report on Other Historical Financial Information. This proposed ISA 701 addresses auditors' reports for a wide variety of engagements, including reporting on a single financial statement, or a specific element of a financial statement. It also provides guidance on determining the acceptability of the financial reporting framework used in preparing and presenting the financial information, and matters the auditor considers in forming an opinion on the financial information, including considerations relevant to financial statements designed to give a true and fair view or fair presentation on the one hand, and to those prepared under a compliance framework on the other.
  • Proposed ISA 800, The Independent Auditor's Report on Summary Audited Financial Statements. This proposed ISA 800 recognises that criteria for preparing and presenting summary financial statements may not exist. It contains new standards and guidance on the criteria used and procedures performed in an engagement to report on summary financial statements.
Click for Press Release (PDF 64k).

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