August

IFAC report on risk-based internal controls

24 Aug 2007

IFAC's Professional Accountants in Business (PAIB) Committee has released a new publication on Internal Control from a Risk-Based Perspective.

This information paper features interviews with 10 senior-level professional accountants in business on their experiences and views on establishing effective internal control systems. The interviews help to demonstrate the importance of a risk-based approach to internal control in helping an organisation manage its overall risk. This IFAC Media Release has more information and a Link to download the paper.

 

IFRIC statement clarifying IFRIC 14

23 Aug 2007

On 5 July 2007 the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 14 IAS 19–The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

Since the release of the Interpretation the IFRIC has observed several press articles and statements by market commentators providing an inaccurate assessment of the effect of IFRIC 14. Consequently, IFRIC has released a Statement Addressing the Key Issues that Have Been Raised (PDF 60k).

Key points made in the IFRIC statement (the statement explains each):

  • The Interpretation does not change the rules on funding
  • The Interpretation clarifies how entities should account for the effect of any statutory or contractual funding requirements. It cannot change those requirements.
  • The Interpretation does not affect an entity's ability to get a refund.
  • An additional liability is recognised only if both of the following conditions exist:
    • If the entity has a statutory or contractual obligation to pay additional amounts to the plan and
    • If the entity's ability to recover those amounts in the future by refund or otherwise is restricted.
  • The Interpretation clarifies when a surplus in a pension plan can be recognised
  • The Interpretation ensures that the accounting for surpluses is consistent and transparent

 

FEI conference on global GAAP convergence

22 Aug 2007

Financial Executives International is sponsoring a Global Financial Reporting Convergence Conference to be held in New York City on 28 September 2007. The conference is intended to provide a foundation for understanding the primary differences between US GAAP and IFRSs, and examine what is required to reconcile those differences.

Panels will focus on:
  • Roadmap to Convergence Part I: Standards Setters' Objectives and Perspectives
  • Roadmap to Convergence Part II: Regulatory Perspectives of the US and the European Commission
  • The Potential Impact of IFRS Adoption
  • Applying IFRSs – 'The Good, the Bad and the Ugly'
Keynote addresses will be presented by Rick Ketchum, CEO, New York Stock Exchange Regulation and Kathleen L. Casey, Commissioner, US Securities and Exchange Commission. Click here for Conference Brochure (PDF 361k).

 

FEE's comments on simplification of financial reporting rules

22 Aug 2007

The European Federation of Accountants (FEE) has published a Background Note on The European Commission's Communication on Simplification of EU rules on Company Law, Accounting and Auditing.

The Background Note provides a history of the Commission's current simplification efforts. The Background Note, in turn, references a March 2007 position paper on the simplification project prepared by FEE and submitted to the Commission. Click to download:

Excerpts relating to financial reporting by SMEs are presented below:

Excerpts from FEE's Background Note on the EC Simplification Project (July 2007):

Real life experience shows that the main burdens imposed on companies are not in the financial reporting area, but rather in other areas such as:

  • overlapping requirements for different regulatory purposes such as tax, incorporation, employment and statistics;
  • tax returns (corporate tax, indirect tax, local taxes, including property taxes);
  • dividend distribution requirements;
  • health and safety legislation and returns;
  • administration of miscellaneous social security programs (calculation, payment and statistical reporting to authorities);
  • the frequency of reporting requirements in certain countries, and;
  • the insufficient use of electronic reporting to avoid double reporting....

Accounting is an essential facilitator of cross-border trade. There is a need for more internationally comparable and harmonised financial statements, especially for medium sized and large non-listed companies, because of increasing cross border operations, mergers and acquisitions involving companies in different Member States. Accounting and auditing requirements support the development and the integration of new economies into the EU and contribute to the dissemination of best practices.

SMEs often do not have strong financial expertise in-house so rely on independent external input received from professional accountants to improve financial and management controls that also contribute to preventing risks of failures and fraud. Reporting and related audit, enhancing the quality of the reporting, provides transparency and helps SMEs to get access to finance.

Excerpt from FEE's Position on EC Simplification Project (March 2007):

Our current view is that the Directives should include a Member State option to permit or require use of the 'IFRS for SMEs' by all companies covered by the Directives that are not listed. This gives Member States the possibility to grant a free choice to the individual company whether to apply 'IFRS for SMEs'; or national legislation based on the Accounting Directives; or a requirement to apply 'IFRS for SMEs'; or a requirement to apply national legislation. It will then be up to the Member State to decide, if and for what companies 'IFRS for SMEs' should be required or allowed,

FASB publishes 2007-2008 volumes of standards

22 Aug 2007

The US Financial Accounting Standards Board has published the 2007-2008 annual bound volumes of its standards, including standards issued by its predecessor bodies.

They include standards issued up to 1 June 2007. The books may be purchased in sets:
  • Original Pronouncements As Amended (three volumes, standards organised chronologically): US$140
  • Current Text (two volumes, organised by topic): US125
  • Both (five volumes): US$240

 

We comment on a proposed auditing standard

21 Aug 2007

Deloitte has recently submitted a Letter of Comment to the International Auditing and Assurance Standards Board (IAASB) on proposed International Standard on Auditing 250 The Auditor's Responsibilities Relating to Laws and Regulations in an Audit of Financial Statements.

We are supportive of the development of this guidance and believe that the overall redrafting of the proposed standard was completed in accordance with the clarity conventions and criteria adopted by IAASB.
Click to view our Comment Letter (PDF 42k).

 

Update on financial reporting in Bangladesh

21 Aug 2007

We have updated our Country Page for Bangladesh to include a table setting out our understanding of the status of adoption, by The Institute of Chartered Accountants of Bangladesh, of each IAS and IFRS as a Bangladeshi Accounting Standard as of July 2007.

Click to view our Bangladesh page.

SEC official comments on IFRS reconciliation

21 Aug 2007

In a Presentation at an American Bar Association Meeting, John W. White, Director of the Division of Corporation Finance of the US Securities and Exchange Commission, covered a range of issues including International Financial Reporting Standards.

Here is an excerpt:

 

A couple of matters to note on the release [proposing to allow foreign registrants to use IFRSs without reconciling to US GAAP]: first, the proposal relates solely to IFRS as published by the IASB, the international accounting standard setter in London. While different jurisdictions may have their own versions of IFRS, our acceptance of IFRS would be for the English language version of IFRS as published by the IASB. The second item to note is that the release asks a number of questions, not only with respect to the nuts and bolts but also with respect to the broader issue of whether the various conditions are right to accept IFRS as published by the IASB without a reconciliation – the process of convergence of IFRS and US GAAP, whether IFRS is being faithfully and consistently applied, and various matters relating to the IASB are three important areas of inquiry. The comment period on the proposal closes on September 24, and I encourage all interested parties to provide us with your views.

Click for:

IAASB invites comments on nine exposure drafts

20 Aug 2007

The International Auditing and Assurance Standards Board (IAASB) has published for comment exposure drafts of nine proposed standards, including each of its international quality control and auditor reporting standards.

These have all been redrafted in accordance with the IAASB's new drafting conventions designed to improve the clarity of its pronouncements. Click for Press Release (PDF 41k). The exposure drafts are:

 

NINE PROPOSALS FROM THE IAASB

Quality Control Exposure Drafts – Comments due 31 December 2007

  • International Standard on Quality Control (ISQC) 1 (Redrafted) Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements
  • International Standard on Auditing (ISA) 220 (Redrafted) Quality Control for an Audit of Financial Statements
Auditor Reporting Exposure Drafts – Comments due 30 November 2007
  • ISA 700 (Redrafted) The Independent Auditor's Report on General Purpose Financial Statements
  • ISA 705 (Revised and Redrafted) Modifications to the Opinion in the Independent Auditor's Report
  • ISA 706 (Revised and Redrafted) Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the Independent Auditor's Report
  • ISA 800 (Revised and Redrafted) Special Considerations – Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
  • ISA 805 (Revised and Redrafted) Engagements to Report on Summary Financial Statements
Other Proposed Standards – Comments due 31 October 2007
  • ISA 510 (Redrafted) Initial Audit Engagements – Opening Balances
  • ISA 530 (Redrafted) Audit Sampling

 

CFA Institute's new comprehensive business reporting model

20 Aug 2007

The CFA Institute Centre for Financial Market Integrity has published a new financial reporting model that is intended to enhance the ability of financial analysts and investors to evaluate companies in making investment decisions.

The model proposes 12 principles to ensure that financial statements are relevant, clear, accurate, understandable, and comprehensive. The publication – A Comprehensive Business Reporting Model: Financial Reporting for Investors – may be Downloaded from the CFA Institute Website (PDF 590k). It is organised as follows:
  • Chapter 1. Why Does Financial Reporting Matter to Investors and Investment Professionals?
  • Chapter 2. A Conceptual Framework for the Comprehensive Business Reporting Model
  • Chapter 3. The Comprehensive Business Reporting Model – Our Proposals for Revision
  • Chapter 4. Financial Statement Disclosures
The 12 principles are summarised in an appendix. Those principles are listed below. For each principle, the appendix also includes reasons for its importance and a description of current practice and the perceived shortcomings thereof.

CFA Institute's Comprehensive Business Reporting Model: Summary of Principles

 

  • Principle 1: The primary financial statements must provide the information needed by equity investors, creditors, and other suppliers of risk capital.
  • Principle 2: In financial reporting standard-setting as well as statement preparation, the company must be viewed from the perspective of an investor in the company's common equity.
  • Principle 3: Fair value information is the most relevant information for financial decision making.
  • Principle 4: Recognition and disclosure must be determined by the relevance of the information to investment decision making and not based upon measurement reliability alone.
  • Principle 5: Transactions and events that affect the company's economic position must be recognised as they occur in the financial statements.
  • Principle 6: Investors' information requirements must determine the materiality threshold.
  • Principle 7: Financial reporting must be neutral.
  • Principle 8: All changes in net assets, including changes in fair values, must be recorded as incurred in a single financial statement, the Statement of Changes in Net Assets Available to Common Shareowners.
  • Principle 9: The cash flow statement provides information essential to the analysis of a company and must be prepared using the direct method only.
  • Principle 10: Changes affecting each of the financial statements should be reported and explained on a disaggregated basis.
  • Principle 11: Individual line items should be reported based upon the nature of the items rather than the function for which they are used.
  • Principle 12: Disclosures must provide all the additional information investors require to understand the items recognised in the financial statements, their measurement properties, and risk exposures.

 

 

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