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Deloitte view on endorsement of IFRS 8 in Europe

30 Jun 2007

We reported in our News Story of 5 June 2007 that the European Commission is conducting a public consultation regarding the endorsement of IFRS 8 Operating Segments before finalising a report on the potential impact of endorsement for submission to the European Parliament in September 2007. The Commission's public consultation involved a questionnaire to which responses were due 29 June 2007. The issue is whether it is appropriate to endorse IFRS 8 for use in the EU, thereby superseding IAS 14 Segment Reporting, which is currently in use in the EU.

The Deloitte IFRS specialists centres in a number of the Deloitte European firms have jointly replied to the Commission's consultation supporting the endorsement of IFRS 8. The letter notes that IFRS 8 has currently received a positive advice from the EFRAG (the 'technical level' of the EU endorsement process for accounting standards) and the ARC (the 'political' level of the endorsement process). Deloitte advocates immediate endorsement of IFRS 8 in the EU. Click for:

SME field test questionnaire in French and Spanish

30 Jun 2007

In News Story of 20 June 2007 we reported that the IASB has launched a comprehensive programme for field testing the proposals in the Exposure Draft (ED) of an IFRS for Small and Medium-sized Entities (IFRS for SMEs).

The testing will help to identify aspects of the (ED) that may need reconsideration. Companies taking part in the field test are asked to provide background information about the company, submit their most recent annual financial statements under their existing accounting framework, prepare financial statements in accordance with the proposed IFRS for SMEs for the same financial year, and respond to a series of questions designed to identify any specific problems the company encountered in applying the exposure draft. Initially, the IASB published the field test questionnaire in English. The IASB has now posted the French and Spanish translations of the field test questionnaire:

New Global Offerings Services newsletter

29 Jun 2007

We have posted the May 2007 Edition of the Deloitte Global Offerings Services Newsletter.

Global Offerings Services is a global team of Deloitte practitioners assisting non-US companies and non-US practice office engagement teams in applying US and International accounting standards (that is, US GAAP and IFRSs) and in complying with the SEC's financial reporting rules. The GOs Newsletter is an update on relevant GAAP, regulatory, and other matters, webcasts, and publications, with hyperlinks to source material. Past GOs Newsletters are Here.

Updated Deloitte Guide to IFRS 2 Share-based Payment

29 Jun 2007

The Deloitte IFRS Global Office has published a new 128-page IAS Plus Guide to IFRS 2 Share-based Payment 2007.

The guide not only explains the detailed provisions of IFRS 2 but also deals with its application in many practical situations. Because of the complexity and variety of share-based payment awards in practice, it is not always possible to be definitive as to what is the 'right' answer. However, in this guide Deloitte shares with you our approach to finding solutions that we believe are in accordance with the objective of the Standard. Click for links to other Deloitte IFRS Publications.

When IFRS 2 was issued in 2004, the idea of recording an expense for share-based awards at their fair value in the income statement seemed to be revolutionary. Three years later, despite the ongoing arguments about 'increased volatility' in earnings, preparers and users are generally accustomed to the concept that when an entity grants a share-based award to its service-suppliers (employees and others), it should recognise an expense. The bigger challenges today lie with more practical concerns. To name just a few:

  • how to determine fair value for awards with more complex terms and conditions?
  • when to classify transactions as cash- or equity-settled?
  • whether amendments to terms and conditions represent modifications or replacements?
  • how to account for transactions with multiple features and several potential outcomes?
  • And perhaps the most common issue in practice: how to account for share-based awards in the individual financial statements of group entities in situations when, for example, the parent grants share-based awards to employees of its subsidiaries? IFRIC 11 has partly addressed this issue - but many questions remain.

EFRAG 2006 annual review

29 Jun 2007

The European Financial Reporting Advisory Group (EFRAG) has published its Annual Review for 2006.

The Chairman's report  identifies a range of key events and activities in 2006, including:
  • IFRS implementation in Europe
  • A new formal working arrangement with the European Commission, Accounting Regulatory Committee, Roundtable for Consistent Application of IFRSs, and Standards Advice Review Group
  • New endorsement process under the IAS Regulation giving the European Parliament more influence in the endorsement process.
  • Pro-Active Activities in Europe (PAAinE)
  • IFRS convergence prospects with US GAAP
  • Meetings with the European national standard setters
  • Establishment of an EFRAG User Panel
  • Technical work responding to IASB Exposure Drafts and Discussion Papers and IFRIC Draft Interpretations and giving endorsement advice on issued standards and interpretations.

New Deloitte Australia 'what's new' checklist

29 Jun 2007

Deloitte (Australia) has published What's New for June 2007. This guide provides a high level overview of new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 30 June 2007.

Entities can use this listing to perform a quick check that all new financial reporting requirements have been fully considered as part of their June reporting close process. Other Australia news is Here.
Click for Guide.

SEC panel on streamlining financial reporting

28 Jun 2007

The US Securities and Exchange Commission is forming an advisory committee to study the US financial reporting system.

The SEC Advisory Committee on Improvements to Financial Reporting will study the causes of complexity and recommend to the Commission how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting. The advisory committee will focus on the following areas:
  • the current approach to setting financial accounting and reporting standards;
  • the current process of regulating compliance by registrants and financial professionals with accounting and reporting standards;
  • the current systems for delivering financial information to investors and accessing that information;
  • other environmental factors that drive unnecessary complexity and reduce transparency to investors;
  • whether there are current accounting and reporting standards that impose costs that outweigh the resulting benefits, and
  • whether this cost-benefit analysis is likely to be impacted by the growing use of international accounting standards.
The committee will be chaired by Robert Pozen, the former vice chairman of Fidelity Investments, and will include 13 to 17 members to be named in the next couple weeks, The group is expected to issue a final report in August 2008. The new SEC advisory group will include an observer from the International Accounting Standards Board. Click for:

PCAOB 2006 report highlights international efforts

28 Jun 2007

The US Public Company Accounting Oversight Board has published its Annual Report for 2006.

The report  emphasises the PCAOB's efforts to coordinate its work with auditor oversight bodies in other countries. See especially page 8 for details of the PCAOB's international activities. Two excerpts from the report:

The Board has made it a priority to enhance the PCAOB's coordination with our international counterparts and expand the PCAOB's role in efforts to improve auditor oversight and auditing practices worldwide. During 2006, the PCAOB expanded its participation in cross-border information-sharing and coordination with audit regulators. I am confident that the PCAOB can work with other audit oversight bodies on a multilateral and bilateral basis to minimize the burdens of duplicative or contradictory regulation at the same time that we fulfill our important statutory obligations to investors and the public.

During 2006, the Board continued to expand its activities in the international arena. The PCAOB held discussions regarding cooperation with approximately 20 countries worldwide, thereby facilitating the Board's inspection work in Canada, Asia, Latin America, and the European Union and setting the groundwork for 2007 inspections elsewhere. The Board expects that these discussions and inspections will continue to expand in 2007 as the PCAOB works with non-US regulatory bodies to coordinate resources, reduce unnecessary regulatory burdens, and promote strong and constructive auditor oversight in order to better protect US investors and investors worldwide.

IFRIC issues Interpretation on customer loyalty programmes

28 Jun 2007

The International Financial Reporting Interpretations Committee has issued an Interpretation, IFRIC 13 'Customer Loyalty Programmes'.

IFRIC 13 addresses accounting by entities that grant loyalty award credits (such as 'points' or travel miles) to customers who buy other goods or services.

Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services ('awards') to customers who redeem award credits.

Click for the Press Release (PDF 63k). The IFRIC also published some information questions and answers as a simple introduction to IFRIC 13 (available from the IASB's website).


Key provisions of IFRIC 13 Customer Loyalty Programmes
  • An entity that grants loyalty award credits shall allocate some of the proceeds of the initial sale to the award credits as a liability (its obligation to provide the awards). In effect, the award is accounted for as a separate component of the sale transaction
  • The amount of proceeds allocated to the award credits is measured by reference to their fair value, that is, the amount for which the award credits could have been sold separately
  • The entity shall recognise the deferred portion of the proceeds as revenue only when it has fulfilled its obligations. It may fulfil its obligations either by supplying the awards itself or by engaging (and paying) a third party to do so
  • If at any time the expected costs of meeting the obligation exceed the consideration received, the entity has an onerous contract for which IAS 37 would require recognition of a liability
  • IFRIC 13 is effective for annual periods beginning on or after 1 July 2008, with earlier application permitted
  • If IFRIC 13 causes an entity to change its accounting policy for customer loyalty awards, IAS 8 applies.

Deloitte CEO applauds SEC's IFRS proposal

27 Jun 2007

Deloitte global CEO James H Quigley, speaking at the firm's annual World Meeting in Berlin, said that governments and regulators must continue with genuine efforts to achieve consistency in the development and application of global financial reporting standards and a global reporting infrastructure in order to enhance protection for investors.

Mr Quigley pointed out that the increasing cooperation between the US Securities and Exchange Commission and the European Commission to facilitate mutual recognition of financial reporting standards in the US and Europe is a significant step toward the advancement of a truly global reporting framework. He called the SEC's recent proposal to eliminate the reconciliation requirement for IFRS registrants "testament to the success of the convergence process and a significant milestone in the journey". Click for Press Release (PDF 21k).

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