New members appointed to EFRAG

28 Feb 2007

The Supervisory Board of the European Financial Reporting Advisory Group (EFRAG) has approved the composition of the EFRAG Technical Expert Group (TEG) effective 1 April 2007.

The composition is as follows:

  • Stig Enevoldsen, Auditor, Denmark - TEG Chairman (reappointed)
  • Mike Ashley, Auditor, member of the UK ASB (reappointed)
  • Alan Dangerfield, Industry, Switzerland (new appointment)
  • Francoise Flores, Industry, France
  • Manuel Garcia-Ayuso, Academic, Spain
  • Catherine Guttmann, Insurance Advisor, France (reappointed)
  • Roberto Monachino, Banking specialist, Italy
  • Hans Schoen, Auditor, The Netherlands (new appointment)
  • Thomas Seeberg, Industry, Germany (reappointed)
  • Anna Sirocka, Auditor, Poland
  • Mike Starkie, Industry, UK (reappointed)
  • Carsten Zielke, User, Germany


IFAC lends its support to the IFRS for SMEs

27 Feb 2007

At its meeting last week in New York City, the Board of the International Federation of Accountants (IFAC) agreed to assist the International Accounting Standards Board (IASB) in obtaining feedback on its proposed International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs) through field testing and other means.

At the meeting, Paul Pacter, IASB Director of Standards for SMEs, outlined the proposed IFRS for SMEs. "Among other matters, Mr. Pacter urged all Board members and regional accountancy organizations to encourage responses from their respective constituencies on the proposed standard and perceived challenges to its adoption."

IFAC President Fermin del Valle stated: IFAC is highly supportive of this project and recognizes the considerable progress made. To ensure that the final standard meets the needs of the SMP/SME marketplace, it is crucial that IFAC and its members help the IASB seek out and capture the views of all relevant constituents, primarily SMEs, SMPs, and users of SME financial statements.

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Forum of Firms paper on application of IFRSs

25 Feb 2007

IFAC's Forum of Firms has released a new good practices document entitled Perspectives on the Global Application of IFRS.

Launched in January 2001, the Forum of Firms (FOF) is an organisation of international firms that perform audits of financial statements that are or may be used across national borders. The new FOF guidance document was developed by the FOF's Transnational Auditors Committee, which is chaired by P Nicholas Fraser of Deloitte (France). It is based on interviews with ten Forum members, illustrates the progress made with IFRSs, and sets out examples of good practices that the network firms are implementing. Click Download the Guidance Document (PDF 192k).

When the document refers to IFRSs, it includes not only IFRSs as issued by the IASB but also:

  • IFRS as adopted by the European Union
  • Australian GAAP (which incorporates Australian equivalents to IFRS)
  • Hong Kong Financial Reporting Standards
  • South African GAAP (which closely follows IFRS)

"This does not mean that the firms endorse departures from IFRS as issued by the IASB. Ideally, the firms would prefer all countries adopting IFRS to do so without variation. But the firms recognise the practical reality that these limited differences in IFRS frameworks exist."

End of reconciliation 'is clearly in sight' – SEC official

24 Feb 2007

In remarks on The Promise of Transparency presented at the 29th Annual Conference on Securities Regulation and Business Law in Dallas, Texas, John W White, director of the Division of Corporation Finance of the US Securities and Exchange Commission spoke about a range of topics of international interest, including:

  1. Foreign deregistration
  2. Guidance on implementing Sarbanes-Oxley Section 404 (internal controls)
  3. E-proxies
  4. The SEC's new executive compensation disclosure ("the Division's biggest project from last year... historic rulemaking")
  5. Proxy access
  6. International Financial Reporting Standards ("I believe the time when the staff will recommend the 'end of reconciliation' is clearly in sight.")
  7. Interactive Data.
  8. PIPEs (private investment, public equity offerings)
  9. Restatements and Item 4.02 of Form 8-K
  10. Small business capital raising and private offering reform
An excerpt from Mr White's remarks is below. Click for full text of Mr White's Remarks (PDF 77k).

International Financial Reporting Standards

This is a big one. Last Tuesday (on February 13, 2007), the Commission issued a press release announcing a staff roundtable we have coming up on International Financial Reporting Standards ('IFRS') as promulgated by the International Accounting Standards Board (the 'IASB') The roundtable will explore where things stand today with the so-called 'roadmap' laid out by then-Chief Accountant Donald Nicolaisen as to how we might eliminate the requirement that companies filing IFRS financial statements reconcile those with US GAAP The roundtable will be held on Tuesday, March 6, at the Commission's headquarters in Washington.

The Division of Corporation Finance has already been extremely busy reviewing filings from foreign private issuers that use IFRS. I detailed that review and where we stand with our growing understanding of IFRS in a speech I gave last month in London, and I do not have the time to go into that much detail here today. Suffice it to say, the recognition and growing use of IFRS is an exciting topic today and something we should all keep in focus. I believe the Commission and the staff will be devoting considerable attention and energy following the March 6 roundtable to developing and announcing next steps, and I believe the time when the staff will recommend the 'end of reconciliation' is clearly in sight.

Heads Up on new US fair value option

24 Feb 2007

In our news story of 16 February 2007, we reported that the US Financial Accounting Standards Board has issued a standard that provides companies with an option to report selected financial assets and liabilities at fair value.

Statement 159 The Fair Value Option for Financial Assets and Financial Liabilities also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. Deloitte (United States) has prepared a Special Issue of the Heads Up Newsletter (PDF 120k) explaining FASB's new fair value option.

Statistics database on cross-border securities updated

23 Feb 2007

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.

The latest updates reflect January or February 2007 data on the number of non-US companies listed on member exchange of the World Federation of Exchanges and details of cross-border listings on the New York Stock Exchange, NASDAQ, and the London Stock Exchange.

Notes from day 3 of the February 2007 IASB meeting

23 Feb 2007

The International Accounting Standards Board held its February 2007 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 20-22 February 2007.

Click here for Complete Meeting Notes (preliminary and unofficial) taken by Deloitte observers at the February 2007 IASB meeting.

Proposal to amend related party disclosure standard

22 Feb 2007

The IASB has published an exposure draft of proposed amendments to IAS 24 'Related Party Disclosures'.

The amendments would:

  • Exempt some state-controlled entities from related party disclosures
  • Change the definition of a 'related party'.

Comment deadline is 25 May 2007. The ED is now available for eIFRS subscribers and will be freely available on the IASB's website from 5 March 2007.

Click for Press Release (PDF 63k). Here is the IAS Plus Project Summary for the IAS 24 amendment project.


Proposed amendments to IAS 24

State controlled entities

The ED proposes to reduce the disclosure requirements in IAS 24 for some entities that are related only because they are each state-controlled or significantly influenced by the state. The changes respond to concerns expressed by interested parties about the difficulties that these entities have in obtaining the information required by IAS 24. In many cases, the entities affected may not even know that they are related to others controlled or influenced by the state. The IASB concluded that for those entities affected the cost of complying with IAS 24 is likely to outweigh the benefits of the disclosures to users of their financial statements. The exemption proposed is limited to those circumstances in which it is clear that the related entities are not influencing each other.

Definition of 'related party'

The main amendments to the definition are:

  • the inclusion, in the definition of a related party, of the relationship between a subsidiary and an associate of the same entity, in the individual or separate financial statements of both the subsidiary and the associate.
  • the removal, from the definition of a related party, of situations in which two entities are related to each other because a person has significant influence over one entity and a close member of the family of that person has significant influence over the other entity.
  • the inclusion, within the definition of a related party, of two entities where one is an investee of a member of key management personnel (KMP) and the other is the entity managed by the person that is a member of KMP.


UK FSA risk outlook includes IFRSs

22 Feb 2007

The United Kingdom Financial Services Authority has published Financial Risk Outlook 2007.

This annual publication is intended to raise awareness of the priority risks which the FSA believes it, along with providers and users of financial services, should consider. In the areas of accounting and auditing, the FSA sees three potential risks stemming from:
  • the move to International Financial Reporting Standards
  • the convergence between IFRSs and US Generally Accepted Accounting Principles
  • the concentration of audit services, and international coordination.
In the area of financial reporting, the FSA sees "two major risks to the continued success of IFRSs": Inconsistent application across national economies, and the potential direction of the future development of the IFRS Framework, including decision-usefulness, greater emphasis fair value accounting, and convergence with US GAAP. Some excerpts:

Inconsistent application

With regard to inconsistency, the true benefit of IFRS can only be realised through enabling a better comparison of similar entities across national boundaries, which, in turn, will provide enhanced transparency for markets and a more efficient global capital market. We also acknowledge that, under a principles-based accounting framework, there may be relevant economic and legal differences between countries such that similar transactions might legitimately be reported in different ways. However, should local custom or national interest operate to threaten the consistent application of IFRS, much of this anticipated benefit could be lost.

IASB Framework

For the development of the IFRS framework itself, there are concerns that the standards in some areas are of lesser quality than those that they have replaced. There is also a growing concern that IFRS will be interpreted and audited in a more prescriptive and rules-based way than was typically the case under UK GAAP – a risk of more 'form-over-substance' when agreeing accounting treatments. Going forward, the main areas of concern arise, in part from convergence with US GAAP and in part from the move towards 'decision usefulness' and an increasing emphasis on fair-value accounting.... Should the move towards fair value for all assets and liabilities advance significantly, many question whether the resulting information would remain sufficiently reliable to enable investors to make informed decisions about the effectiveness of the stewardship of their companies. At the same time, the ability of the audit profession to apply judgement on what constitutes a 'true and fair' view might be ever more constrained by detailed rules, resulting in a 'presents fairly in accordance with' model of financial reporting. The progress made over the next 18 to 36 months will be critical in determining whether the potential benefits of IFRS and convergence are realised, or whether the costs connected and the ultimate outcomes experienced are potentially disproportionate, or even negative, for UK stakeholders.

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