UK audit firms' technical reviews of IFRS statements

21 Jun 2005

The United Kingdom Professional Oversight Board for Accountancy – which is part of the UK Financial Reporting Council, under which the UK Accounting Standards Board also operates – has released the report of its review of the auditing function of the Big Four firms.

Although the report relates to auditing issues, one of its recommendations is for greater technical review of IFRS financial statements:

Appropriate input from technical specialists is likely to be particularly important in view of the adoption of International Financial Reporting Standards by listed companies in 2005 (at least in their consolidated accounts). Where this is not already the case, therefore, we believe that the coverage of such technical reviews should be extended to all listed and other higher risk entities and that the firms should consider whether more input from technical specialists is needed.

Click to download:

Hong Kong interview with Sir David Tweedie

20 Jun 2005

We have posted "Take It from the Top", an Interview with IASB Chairman Sir David Tweedie from the June 2005 issue of 'A Plus', the newly revamped magazine of the Hong Kong Institute of Certified Public Accountants.

Hong Kong has adopted every IFRS word for word as Hong Kong Financial Reporting Standards effective in 2005, replacing old Hong Kong GAAP. Issues that Sir David addresses in the interview include the pace of change, the need for further improvements in existing standards, bringing the US on board with IFRSs, and the need for simplified standards for small and medium-sized entities.

Click for the interview (PDF 97k), copyright 2005 by HKICPA and posted with permission.

IASC Foundation 2004 annual review is published

19 Jun 2005

The IASC Foundation has published its annual review for 2004. The report may be Downloaded from IASB's Website (PDF 1,486k).

The report includes a review by IASCF Chairman Paul A. Volcker of the trustees' activities during 2004, with emphasis on the constitution review and financing the operations of the IASB, IFRIC, SAC, and IASCF. Also included is a 10-page report from Sir David Tweedie, IASB Chairman, He noted that the IASB's three major objectives during 2004 were:
  • To provide a stable platform of acceptable standards for companies changing to IFRSs in 2005
  • To continue, and accelerate, the convergence programme with FASB and other standard-setters
  • To encourage other jurisdictions to join those who either allow or require IFRSs to be used by domestic companies

Trustees to consider final constitution amendments

18 Jun 2005

At their meeting in Paris on 21 June 2005, the Trustees of the IASC Foundation, under which the IASB operates, will discuss a draft of the proposed final report of the Constitution Review.

Below are some of the key proposed conclusions. Click here for more information about the Constitution Review.

Proposed Final Conclusions of IASC Foundation Constitution Review

  • Incremental rather than fundamental changes. "Having assessed the organisation's progress against the objectives laid out in the constitution, the trustees have concluded that the basic structure, set out by the 2000 constitution, is sound and therefore have not contemplated fundamental change."
  • Addition to IASCF objectives for SMEs and emerging economies. In fulfilling the objectives of developing and promoting high quality, understandable, and enforceable global accounting standards, take account of the special needs of small and medium-sized entities and emerging economies.
  • Number of trustees. Expand board of trustees from 19 to 22 members.
  • Geographical balance of trustees.
    • Six from North America (unchanged).
    • Six from Europe (unchanged).
    • Six (was four) from the Asia/Oceania region
    • Four (was three) from any area, subject to establishing overall geographical balance.
  • Backgrounds of trustees. The constitution will require an appropriate balance of professional backgrounds, including auditors, preparers, users, academics, and other officials serving the public interest. Two will normally be senior partners of prominent international accounting firms. This is essentially unchanged.
  • Selection of trustees. Trustees will adopt procedures for appointing trustees. Those procedures must include consultation with national and international organisations of auditors (including IFAC), preparers, users, and academics and public solicitation of nominees including self-nominations. To achieve this objective, the trustees plan to establish a high level advisory group of five to seven leaders of official international and regional organisations. The trustees will consult that body before making decisions on trustee appointments. Currently, five trustees are nominated by IFAC and three others are nominated after consultation with certain specified organisations.
  • Term of chairman. The trustees appoint one of their own number as chairman. While trustees will normally serve a maximum of two three-year terms, the chairman may serve for a maximum of two three-year terms as chairman regardless of prior service as a trustee. Currently all trustees including the chairman serve a maximum of two three-year terms.
  • Liaison IASB Board Members. Requirement for designating seven IASB members as liaisons with major national standard setters has been removed from the constitution.
  • Trustee consideration of IASB agenda. The trustees' annual review of the strategy of the IASC Foundation and the IASB and its effectiveness is expanded to include "consideration, but not determination, of the IASB's agenda".
  • IASB responsibility for its agenda.
    • New: IASB has full discretion in developing and pursuing the technical agenda.
    • Was: IASB has full discretion over the technical agenda.
  • Trustee oversight of IASB, IFRIC, SAC. In addition to establishing and amending operating procedures for the IASB, IFRIC, and SAC, the trustees will also establish, amend, and review compliance with "consultative arrangements and due process".
  • Education. New trustee responsibility would be to foster and review the development of educational programmes and materials.
  • Number of part-time IASB members. Kept at two.
  • Main qualification for IASB members. Changed from "technical expertise" to "professional competence and practical experience".
  • Geographical mix of IASB members. "Trustees shall ensure that the IASB is not dominated by any particular constituency or geographical interest" (trustees rejected specifying a geographical mix).
  • Background mix of IASB members.
    • New: "Appropriate mix of recent practical experience among auditors, preparers, users and academics".
    • Was: Minimums of five practising auditors, three preparers of financial statements, three users of financial statements, and one academic.
  • IASB voting. A vote of 9 of the 14 IASB members is required to approve an exposure draft, final Standard, and Interpretation (was 8 of 14).
  • Due process steps. IASB is required to explain its reasons if it decides not to follow any of the non-mandatory due process steps. Such non-mandatory steps are:
    • Publishing a discussion document before an exposure draft.
    • Forming working groups.
    • Publishing a basis for conclusions.
    • Holding public hearings.
    • Conducting field tests.
  • Steering committees. Now referred to as 'working groups' consistent with recent IASB practice.
  • Chairman of Standards Advisory Council. Appointed by trustees. Will not be a member of the IASB or its staff. Currently the IASB chairman is also the SAC chairman.

SEC Commissioner comments on GAAP reconciliation

18 Jun 2005

In a (PDF 69k) earlier this week in Washington, US SEC Commissioner Cynthia A.

Glassman spoke about elimination of the IFRS-US GAAP reconciliation requirement:

We are but one player in the global economy, and we do not operate in a vacuum. As many of you may be aware, beginning January 1, 2005, all listed European Union companies must prepare their consolidated financial statements in accordance with International Financial Reporting Standards ('IFRS'). As a result of this change, there has been increased focus on the desired elimination of our current reconciliation requirement and on the ultimate convergence of IFRS and U.S. GAAP. Since October 2002, the Financial Accounting Standards Board and the International Accounting Standards Board have been jointly pursuing a convergence project, and we have been very supportive of this effort. Don Nicolaisen, our Chief Accountant, has proposed a (PDF 228k) to convergence that lays out the staff's thinking about conditions and actions that would need to take place prior to ending our reconciliation requirement. Our staff has already begun this analysis, and the Commission is intent on considering the eventual elimination of the reconciliation requirement and the ultimate convergence of IFRS and U.S. GAAP. The consistent application and interpretation of the standards and the pace towards convergence will depend on companies and accounting firms as well as standard-setters and regulators.

IASB 'convergence update'

18 Jun 2005

The IASB has released a brief Convergence Update (PDF 18k) of its joint efforts with the US Financial Accounting Standards Board to converge IFRSs and US GAAP.

The IASB intends to post further convergence updates from time to time.

IVSC ED on valuation of plant and equipment

17 Jun 2005

The International Valuation Standards Committee (IVSC) has issued an exposure draft of a proposed revised International Valuation Guidance Note 3 Valuation of Plant and Equipment.

This draft reflects significant amendments to an exposure draft that was issued during 2004. Comments are due by 30 September 2005. Click for:

Europe may establish an IFRS interpretations 'forum'

17 Jun 2005

In an (PDF 100k), European Commissioner for Internal Market and Services Charlie McCreevy indicated that the EC is considering a proposal for a 'European Forum' to identify and analyse IFRS implementation issues, to allow IFRIC to focus on key issues.

While Mr McCreevy did not provide details about the forum, in several recent speeches members of EFRAG have said that EFRAG would seek to be such a forum. An excerpt from Commissioner McCreevy's comments:

The main question in the medium term will be how to ensure consistent application of IFRS within Europe. This is crucial, to have a uniform set of standards and not effectively 25 national standards in place. It is also crucial to the objective of removal of the US GAAP reconciliation. A number of proposals are being considered, including one for a 'European Forum' consisting of interested parties, regulators, standard setters, preparers, and auditors in their peer groups. The forum would be tasked with promoting consistent application.

But we do not want to add layers of interpreting bodies. International Accounting Standards are principles-based and should remain so. I see the chief advantage of a possible European Forum in identifying and analysing issues, acting as a filter and thus allowing the International Financial Reporting Interpretation Committee to concentrate on the key issues requiring their attention.

Commissioner McCreevy also spoke about EU-US mutual recognition of each other's GAAP:

The European Commission has always been a strong advocate of global standards – not just for accounting but also for auditing. While IFRS is the basis for a true global standard we must recognise the role US GAAP plays in the largest capital market in the world, i.e. the US. We do not necessarily need to apply exactly the same accounting standards, but differences should be narrowed down to such an extent that we can at least recognise each other's standards as equivalent. The world is moving towards IFRS – so this convergence issue is a key nut to crack.

IFAC President reiterates global importance of IFRSs

17 Jun 2005

Graham Ward, President of the International Federation of Accountants (IFAC), recently made a presentation on Restoring Confidence in the Global Profession (PDF 43k) to The World Bank in Washington.

Mr. Ward reviewed IFAC initiatives toward strengthening the worldwide accountancy profession by establishing and promoting adherence to high-quality professional standards and furthering the international convergence of such standards. An excerpt:

My belief, and one of IFAC's founding principles, is that auditing and accounting standards worldwide need to be converged. Why? First, globalisation demands high-quality standards that can be applied from Madrid to Manila, from New York to Nairobi. Everyone should be on a level playing field.

Second, global standards will result in increased transparency and accountability. I also believe that developing countries that adopt international standards will see increased outside investment in their economies, by institutional and retail investors who are familiar with, and confident in, the standards, regardless of geography.

IASB issues final IAS 39 fair value option amendment

16 Jun 2005

The IASB has amended IAS 39 'Financial Instruments: Recognition and Measurement' to restrict the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit and loss (the 'fair value option').

The IASB developed this amendment after commentators, particularly prudential supervisors of banks, securities companies, and insurers, raised concerns that the fair value option contained in the 2003 revisions of IAS 39 might be used inappropriately. The new revisions limit the use of the option to those financial instruments that meet certain conditions. Those conditions are that:
  • the fair value option designation eliminates or significantly reduces an accounting mismatch
  • a group of financial assets, financial liabilities, or both are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy,
  • an instrument contains an embedded derivative that meets particular conditions.
The amendment is effective 1 January 2006, with earlier application encouraged. Click for Press Release (PDF 55k).


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