SEC may give another extension for SOX 404

20 Sep 2005

The (PDF 65k) for the meeting of the US Securities and Exchange Commission for Wednesday, 21 September 3005, includes a proposal to give smaller public companies an additional one-year deferral for compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires that companies and their auditors file reports on the strength of their internal controls over financial reporting.

The new compliance date would be a company's first financial year ending on or after 15 July 2007. In March of this year, the SEC gave foreign private issuers and non-accelerated filers a deferral until 15 July 2006 (see our News Story of 3 March 2005). At that time, the SEC noted that one reason for the deferral is that "many foreign companies are facing regulatory and reporting challenges in addition to internal control reporting as companies incorporated in a European Union member country are required to prepare their financial statements for 2005 in accordance with new International Financial Reporting Standards."

Insurance Working Group Meeting

20 Sep 2005

The IASB's Insurance Working Group will meet on Wednesday and Thursday, 28-29 September 2005, at the Crowne Plaza London City Hotel, London.

The meeting is open to public observation. The agenda is available on the IASB's website. Here is a summary:

Insurance Working Group Meeting Agenda

Wednesday 28 September 2005, 10:00-17:30

  • Unit-linked contracts
  • Universal life insurance
  • Embedded derivatives (including embedded options and guarantees)
  • European embedded value
  • Life insurance
    • Overview of possible accounting approaches
    • Accounting approaches: summary
    • Illustrations of accounting approaches
    • Explanation of illustrations
    • Assumptions
    • Acquisition costs
Thursday 29 September 2005, 09:00-16:00
  • Life insurance (continued)
  • Risk margins
  • Unbundling
  • Reinsurance
    • Reinsurance assumed
    • Reinsurance ceded
  • Premium recognition
  • Update on other relevant projects

September 2005 edition of EITF Flash

19 Sep 2005

We have posted the (PDF 76k).

This inaugural issue of EITF Flash reports on the 15 September 2005, meeting of FASB's Emerging Issues Task Force within a day of the meeting, to enable readers to spot relevant topics and to understand quickly the meeting's outcome. Deloitte & Touche LLP's EITF Roundup, published within a week of the EITF meeting, will provide more in-depth information on each of the issues. You will find past issues of EITF Roundup and EITF Flash Here.

BIS study on accounting and prudential regulation

19 Sep 2005

The Bank for International Settlements has published a working paper on Accounting, Prudential Regulation and Financial Stability: Elements of a Synthesis (PDF 263k).

The fundamental issue addressed is "What information about the financial condition of firms is conducive to efficient and stable operation of the financial system and of the economy more broadly?" With regard to company-specific information, the paper identifies significant differences in perspective between accounting standard setters and prudential supervisors:

We examine the reasons for these differences and propose ways in which they could be reconciled. We propose a strategy based on two principles: first, in the long term, the 'decoupling' of the objective of accurate financial reporting about the firm from that of instilling the desired degree of prudence in its behaviour; and second, a 'parallel' process towards that objective so that at all points the prudential authorities can neutralise any undesirable implications for financial stability of changes in financial reporting standards. We stress that close cooperation between accounting standard setters and supervisory authorities is called for both in developing the final set of information and in implementing it.

Unlisted Belgian banks must use IFRSs

15 Sep 2005

Under a Royal Decree dated 5 December 2004, unlisted banks and other credit institutions in Belgium will be required to use IFRSs in their consolidated financial statements starting in 2006. Listed Belgian companies, including credit institutions, must prepare their consolidated financial statements using IFRSs starting in 2005 under the EU Accounting Regulation.

If an unlisted credit institution is a wholly-owned subsidiary of a foreign parent, preparation IFRS consolidated statements may not be required if certain conditions are met, including the filing of consolidated financial statements of the foreign group in French or Dutch in Belgium. Belgium does not permit IFRSs to be used in separate financial statements.


Statistics database updated

15 Sep 2005

We have updated our Database of Statistics that, we believe, provide clear evidence of the globalisation of the world's capital markets and of the need for global financial reporting standards. .

We have updated our Database of Statistics that, we believe, provide clear evidence of the globalisation of the world's capital markets and of the need for global financial reporting standards.

EFRAG seeks views on financial guarantees

14 Sep 2005

The European Financial Reporting Advisory Group (EFRAG) has invited comments on its Draft 'Endorsement Advice' Letter (PDF 20k) to the European Commission on the IASB's August 2005 amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts relating to Financial Guarantee Contracts.

EFRAG supports the amendments and proposes to recommend their adoption for use in Europe. Comments are due by 14 October 2005.

Steps toward convergence: China, Japan, Korea

13 Sep 2005

On 6 and 7 September 2005, representatives of accounting standard setters in China, Japan, and the Republic of Korea met in Xi'an, China, the fifth such meeting.

Over 40 delegates attended, including observers from HK SAR, Macau SAR, and the IASB. The delegates discussed recent developments in the three countries' accounting standards and convergence issues, including obstacles and specific measures to address some of them. The three countries' accounting standard setters reached the following consensus set out in a published (PDF 21k) posted on the websites of the three standard-setters:



First, the three parties recognise that the international convergence of accounting standards is the irreversible trend under the economic globalisation, and the three countries support the efforts by the IASB to develop a single set of high-quality and globally-acceptable accounting standards. In the meantime, the parties believe that convergence is not equal to being identical. The international convergence of accounting standards shall be a market-driven gradual process and this process shall be two-way interactions between national accounting standard setters and the IASB, giving considerations to special local environments.

Secondly, the three parties have confirmed that they shall work for the resolution of practical issues encountered in their respective accounting standard setting and international convergence efforts that should be continuously tested in their respective capital markets. That shall, on the one hand, be helpful to set the national accounting standards and on the other hand, to identify major obstacles and issues the countries encounter in the international convergence process and to communicate with the IASB to contribute to the improvements of the International Financial Reporting Standards (IFRSs).

Thirdly, the three parties have decided to set up a joint working group composed of their technical staff. The primary task of the working group is to carry out joint research on main technical issues confronted by the three countries in their standard setting and international convergence. The joint working group may meet on a non-regular basis and produce research results for the discussion at the Three Countries' Accounting Standard Setters' Meeting and as inputs to the IASB.

EFRAG seeks views on endorsement of IFRIC 6

12 Sep 2005

The European Financial Reporting Advisory Group (EFRAG) has invited comments on its Draft 'Endorsement Advice' Letter (PDF 23k) to the European Commission on IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment.

EFRAG supports the interpretation and proposes to recommend its adoption for use in Europe. EFRAG requests comments by 30 September 2005.

SEC views on valuing employee stock options

10 Sep 2005

US FASB Statement 123R, like IFRS 2, requires that share-based payments to employees be measured by estimating the grant-date fair value of the equity instruments (such as options) that an entity is obligated to issue when employees have earned the right to benefit from the instruments (that is, when the right to the option has vested).

The standards also say that the best evidence of fair value for employee stock options is observable market prices of identical or similar instruments in active markets. Some US companies have proposed to design and issue in the market financial instruments that replicate the terms and conditions of employee stock options, for the purpose of obtaining a market-based value of the employee options. At the request of the Office of the Chief Accountant of the US SEC, the SEC's Office of Economic Analysis (OEA) has prepared a report on the potential use of such instruments for valuing employee stock options as an alternative to modelling. The OEA report concludes:

The main conclusion of our analysis to date is that instruments that track the future flows of net obligations facing the company or net receipts by its employees under the option grant can yield reasonable estimates of fair value as defined in Statement 123R. Further, our analysis indicates that instruments that replicate the terms and conditions of employee stock options or other share-based compensation do not produce reasonable estimates of fair value.

Based on the OEA report, the Chief Accountant of the SEC issued a public statement that concluded:

Replicating all of the terms and conditions of employee stock options with a market instrument is difficult. I also recognize that there may be alternative ways to provide an adequate estimate of the fair value of an employee stock option. As noted in the memo from OEA, there already are several methods that have been considered. Broadly speaking, my staff and I, with help from OEA, have become comfortable that it should be possible to design instruments whose transaction prices would be a reasonable estimate of the fair value of underlying employee stock options using either of the methodologies that seek to track returns to holders of options or the obligations of the issuer of those options. Further, while I recognize alternative views and new facts are possible, at this point, we have significant doubts based on OEA's views, as to whether it would be possible to design an instrument that would achieve the measurement objective of Statement 123R by relying on similar contractual terms and conditions. That is primarily because of the difficulties inherent in replicating the employer-employee relationship in an issuer-investor arrangement.

Click to download:

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.