Conference on Danish GAAP and IFRSs

02 Nov 2005

On 1 December 2005 Deloitte in Denmark is again hosting the yearly Deloitte Accounting Conference on Danish GAAP and IFRS.

The first part will focus on news about Danish GAAP relevant to the annual financial statements for 2005 and on changes to the Danish Financial Statements Act, which are expected during the fourth quarter of 2005. The second part will cover the latest news about IFRSs, which all listed companies in Denmark must follow from 2005 for their consolidated financial statements. This year's current topic for discussion is the IASB Proposal to significantly modify the standards dealing with business combinations and provisions. Finally an update on the latest developments on European accounting scene will be provided.

Four 'new style' IAASB exposure drafts

02 Nov 2005

The International Auditing and Assurance Standards Board (IAASB) has issued exposure drafts of four proposed International Standards on Auditing (ISAs) in a new drafting style.

The release of these documents marks the beginning of the IAASB's ambitious 18-month program to redraft its standards and to develop new standards using the new style. Key elements of the new drafting style include:

  • basing the standards on objectives, as opposed to procedural considerations;
  • use of the word 'shall' to identify requirements that must be followed;
  • eliminating the present tense to describe actions by the professional accountant, which some had regarded as ambiguous in terms of obligation; and
  • structural improvements to enhance the overall readability and understandability of the standards.
These are the four new EDs drafted in the new style:
  • ISA 240 (Redrafted) The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements.
  • ISA 300 (Redrafted) Planning an Audit of Financial Statements.
  • ISA 315 (Redrafted) Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement.
  • ISA 330 (Redrafted) The Auditor's Procedures in Response to Assessed Risks.
Comment deadline is 28 February 2006. The EDs may downloaded from IAASB's Website.
Click for IAASB Press Release (PDF 58k).


FASB fair value standard nears completion

02 Nov 2005

Responding to the growing emphasis on fair value in financial statements, in June 2004 the US FASB issued an Exposure Draft on Fair Value Measurements.

The ED would establish a framework for measuring fair values of both financial instruments and non-financial items. As a framework, the final standard will not expand current requirements for the use of fair value measurements in financial statements. Such changes would be considered in future standards. The FASB has recently posted on its Website a revised version it calls a Working Draft. A final standard is expected in late 2005. Here are a few highlights of the Working Draft and of major changes from the 2004 Exposure Draft, excerpted from the newsletter:

  • The definition of fair value now includes the notion of a reference market. The transaction price is presumed to be fair value, but in certain instances (when the transaction did not take place in the reference market and the entity would trade in a more advantageous market for the item), the actual transaction price may be rebutted.
  • The fair value of a liability must incorporate the entity's own credit standing.
  • The Working Draft increases to five the number of levels in the fair value hierarchy. The levels are based on the nature of the inputs used to establish estimated fair value and descend in reliability from Level 1, constituting market inputs that reflect quoted prices for identical assets or liabilities, to Level 5, representing values that are significantly based on entity inputs that are extrapolated or interpolated but that are not corroborated by other market data.
  • The Working Draft prohibits the use of blockage adjustments in estimating the fair value of large blocks of financial instruments.
The IASB has on its research agenda a project on Measurement Objectives. A discussion paper is expected before the end of 2005.

New Technical Corrections page

01 Nov 2005

We have created a new Technical Corrections Page.

Technical Corrections are IASB's fast-track process to deal with issues for which it is clear that the words in a standard do not properly convey the IASB's intention, even when considered with the basis for conclusions and any related guidance. There are links to this page on our Standards and Agenda pages, and on our Sitemap.

We comment on Draft Technical Correction 1

01 Nov 2005

We have posted Proposed Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation (PDF 30k). .

We have posted Proposed Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation (PDF 30k).

We concur with the proposed amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates (IAS 21) on the basis that the accounting treatment in the consolidated financial statements should not depend either on the currency in which the monetary item is denominated or on which entity within the group transacts with the foreign operation. We express some concern about requiring that the Technical Correction be applied retrospectively.

We comment on Basel IAS 39 FVO proposals

01 Nov 2005

In July 2005, the Basel Committee on Banking Supervision issued a consultative document Supervisory Guidance on the Use of the Fair Value Option by Banks under IFRSs (PDF 83k) that discusses supervisory expectations for banks' use of the IAS 39 Fair Value Option.

Deloitte has submitted a (PDF 24k). We express concern that the proposed guidance could have the effect of modifying the fair value option provisions of IAS 39. Our overall view:

We believe that the guidance proposed by the Basel Committee on Banking Supervision will be perceived as an additional set of accounting rules applying to the banking industry in order to limit the use of the fair value option. We recognise that on page 1 of the Consultative Document it is stated that the Committee does not consider this proposal to be a set of additional accounting requirements, but we believe that this will be the effect, in practice. We are strongly of the view that the objective of the International Accounting Standards Board (IASB) is to set high quality accounting standards that entities across all industries have an equal opportunity to apply. We believe Banking Supervision has an important but separate and different objective and we support the Committee's work in promoting Prudential Supervision. We are concerned therefore that the proposals in the Consultative Document go beyond addressing the regulatory objective and will hinder the ability of a specific industry to apply an explicit option in the IASB's accounting standards.

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.