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November

IOSCO statement on International Standards on Auditing

12 Nov 2007

The International Organization of Securities Commissions (IOSCO) has issued a statement supporting the work of the International Auditing and Assurance Standards Board (IAASB) and outlining the approach that IOSCO expects to follow in its possible future endorsement of International Standards on Auditing (ISAs) for use for cross-border securities offerings.

Click to download IOSCO Statement on ISAs (PDF 44k).

Excerpt from IOSCO Statement on International Standards on Auditing

The process and structure for setting ISAs has been the subject of reform and improvement efforts in recent years. In 2003, IOSCO and other regulatory and international financial organizations worked with the International Federation of Accountants (IFAC), to create a set of reforms for international audit standard setting and other public interest activities of IFAC. These reforms included the establishment of the international Public Interest Oversight Board (PIOB) to carry out independent oversight of the IAASB's standard setting activities and other IFAC public interest activities, as well as other process changes. The reforms also included provisions for a future evaluation of their effectiveness. IOSCO recognizes the importance of the work of both the IAASB and PIOB.

In recent years, the IAASB has developed and issued a number of new and updated standards in the Board's Clarity project. Additional revised standards are expected in 2008. IOSCO is currently evaluating under what conditions IOSCO could endorse ISAs for use for cross border purposes and the form of such an endorsement. The IAASB's responses to public interest concerns in its standards setting will be relevant to such an endorsement.

 

IOSCO task force the 'subprime crisis'

12 Nov 2007

The International Organization of Securities Commissions (IOSCO) has formed a dedicated task force on the subprime crisis to review the issues facing securities regulators following the recent events in the global credit markets.

Among other things, the task force will consider valuation of assets and accounting issues, particularly accounting for special purpose entities. Click to download IOSCO Announcement of 'Subprime Task Force' (PDF 53k).

IOSCO Task Force mandate regarding valuation of assets and accounting issues:

Given that investors may have relied on the ratings provided by credit rating agencies as not only an assessment of the probability of default by an entity, but also as an assessment of the product's liquidity, the Task Force will assess whether alternative models of valuation are needed and whether IOSCO should develop valuation principles or best practices in this area.

The Task Force, in order to evaluate potential problems raised by the accounting treatment of structured products, will also consider revisiting last year's the report on special purpose vehicles (SPVs) in order to better analyse the mechanisms whereby SPVs are kept on the balance sheet and the possible implications in terms of risk measurement and information to investors where listed companies are involved.

 

Summary of issues not added to IFRIC agenda is updated

12 Nov 2007

We have updated our Summary of Issues Not Added to IFRIC's Agenda to reflect the IFRIC's final decisions at its November 2007 meeting not to add the following two topics to its agenda.

Our summary now includes over 125 issues:
  • IAS 19 – Change to a defined benefit plan resulting from action by a government
  • IAS 19 – Treatment of employee contributions

The role of accounting in a single European market

11 Nov 2007

Charlie McCreevy, the European Commissioner for Internal Market and Services, made a presentation titled Striving for a Single European Market – The Role of Accounting at the Congress of German Public Auditors in Berlin on 7 November 2007.

Click to Download Commissioner McCreevy's Remarks (PDF 87k). Here are a few excerpts. With respect to accounting standards Commissioner McCreevy commented:

A cornerstone for building an integrated single European capital market is the system of accounting standards. For companies to be able to raise capital throughout Europe, and for investors to compare company performance across borders, we need a common reporting language. Some years ago the EU set the course for building an integrated European capital market. We had come to a point where our financial reporting practices no longer met the new requirements for integrated markets. We had to rethink our approach. Finally, we decided to move to International Accounting Standards. That move was bold and visionary.

The changeover to IFRS did not come easy. It took a huge effort from our listed companies, auditors and regulators to adapt to the new accounting environment.

Now, more than two years later we can look back and see how it has gone. A number of studies have been carried out on the first year of IFRS implementation. One of them was issued very recently - that undertaken by the Institute of Chartered Accountants of England and Wales (ICAEW) at the request of the Commission. This study concludes that IFRS implementation has been 'challenging but successful'. Other studies, including the one issued by CESR on the first year of enforcement, convey the same message. Research also shows that the overall quality of accounts and disclosures have improved and that the changeover to IFRS has been achieved without disturbance to the market.

With respect to the possible adoption of International Standards on Auditing (ISAs) in Europe, Commissioner McCreevy said:

We are currently considering the merits of introducing ISAs in Europe. Before the end of this year, my services will launch a study on the costs and benefits of introducing ISA's as well as any potential differences with US standards. Once we have some results we shall be able to reassess the situation.

 

Proposal to delay tax interpretation for nonpublic entities

09 Nov 2007

The US Financial Accounting Standards Board has proposed a one-year delay of the effective date of Interpretation 48, on accounting for uncertainty in income taxes, for nonpublic entities that have not already applied the Interpretation's provisions.

Proposed effective date of the delay would be for periods beginning after 15 December 2007. The proposal will have a 30-day comment period. FASB's decision responds to a request from the Private Company Financial Reporting Committee, which is concerned about a lack of awareness of Interpretation 48 among nonpublic entities. The Interpretation will continue to be effective for public companies for fiscal years beginning after 15 December 2006.

Principles in FASB Interpretation 48

  • A tax position is a filing position that an entity has taken or expects to take on its tax return. Examples include a decision not to file a tax return, an allocation of income between jurisdictions, and a decision to exclude income from a tax return.
  • An entity cannot recognise a tax benefit in its financial statements unless it concludes that it is 'more likely than not' that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. In that evaluation, the entity must assume that the position:
    • will be examined by a taxing authority that has full knowledge of all relevant information, and
    • will be resolved in the court of last resort.

Comparison with IFRSs

While convergence of US GAAP and IFRSs is a high priority of both FASB and the IASB, the requirements of FIN 48 differ in several respects from those of IFRSs, including differences in when a tax liability is recognised and how it is measured. Deloitte's book on Interpretation 48 includes a comparison of the requirements of the Interpretation and IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

 

Request for international education research proposals

09 Nov 2007

The International Association for Accounting Education and Research (IAAER) and the Association of Chartered Certified Accountants (ACCA) have issued a global invitation for research proposals to advance the field of accounting education.

Up to five research grants of $25,000, funded by ACCA, will be awarded under the programme, which aims to support the work of IFAC's International Accounting Education Standards Board (IAESB). Click for Press Release (PDF 17k).

 

FASB response to SEC on use of IFRSs in the United States

09 Nov 2007

In a Letter to the US Securities and Exchange Commission signed jointly by the Chairmen of the FASB and its oversight Foundation, the two bodies have recommended that the SEC wait on removing the requirement that foreign companies using IFRSs submit a reconciliation of earnings and equity to US GAAP figures until two things have happened:

  • Agreement in the United States on a 'blueprint' for allowing US domestic companies to use IFRSs, and
  • Commitment by key international parties to undertake the steps necessary to strengthen and sustain the IASB as the independent body responsible for establishing high-quality international standards.
They also expressed support for:
  • Requiring all US public companies to use 'an improved version of International Financial Reporting Standards' rather than allowing a choice of US GAAP and IFRSs.
  • Removing the reconciliation requirement only for companies applying IFRS as adopted by the IASB, rather than jurisdictional variations.
An excerpt:

The views contained in our letter can be summarized in the following four main points:
  1. Investors would be better served if all US public companies used accounting standards promulgated by a single global standard setter as the basis for preparing their financial reports. This would be best accomplished by moving US public companies to an improved version of International Financial Reporting Standards (IFRS). We believe permitting extended periods of choice between US Generally Accepted Accounting Principles (GAAP) and IFRS results in a two-GAAP system that creates unnecessary complexity for investors and other users of financial information. Permitting choice would add to the overall complexity of our reporting system.
  2. We, the SEC, and other affected parties should work together to develop a transition plan or 'blueprint' for moving US public companies to IFRS. As noted in the Concept Release, a move to IFRS by all US public companies would be a complex, multi-year endeavor. The US needs a blueprint that provides an orderly move to IFRS that minimizes the disruptions and costs to capital market participants and to other US entities that use FASB standards.
    • The blueprint should identify a target date or dates for completing the transition to IFRS along with interim milestones. The target date should allow adequate time to make the many necessary changes to the various elements of the US financial reporting infrastructure (auditing standards, GAAP-based regulations, education systems, licensing requirements, etc).
    • The blueprint should identify the areas of IFRS that should be improved during the period of transition to IFRS by US public companies. We believe the best way to make those improvements would be through the continued joint development of common standards by the International Accounting Standards Board (IASB) and the FASB. To complete the move to IFRS, the blueprint should outline the process by which we would adopt IASB standards in other areas 'as is'.
  3. The SEC should seek international cooperation to identify and implement changes we believe are necessary to sustain the IASB and to secure it as the independent global body that establishes high-quality international accounting standards. In particular:
    • Mechanisms should be established to provide the IASB with sufficient and stable funding and staffing levels, thereby ensuring its sustainability as an independent setter of high-quality accounting standards.
    • Agreements are needed to eliminate the separate review and endorsement processes that various jurisdictions apply to each IFRS after it is issued by the IASB. These after-the-fact jurisdictional processes are inconsistent with the objective of a single set of high-quality international accounting standards, as evidenced by the local variants of IFRS that have developed in some jurisdictions. Jurisdictions, including the US, need to make their views known as part of the IASB's due process rather than after the standards are issued.
    International cooperation in these two areas is needed to foster the sustainability of the IASB as a global standard setter and to ensure that IFRS, as promulgated by the IASB, becomes and continues to be a single set of high-quality international accounting standards. If the recommended changes in these two areas are not made, we believe the benefits from transitioning US public companies from our well-established financial reporting system to IFRS could decrease dramatically.
  4. The removal of the requirement that foreign private issuers reconcile their reported results to US GAAP is a difficult and sensitive issue that could have important implications for the continued development of a truly international financial reporting system. We suggest the timing of any removal of this requirement should coincide with the following:
    • Development of and commitment to the blueprint by key parties in the US; and
    • Commitment by key international parties to undertake the steps necessary to strengthen and sustain the IASB as the independent body responsible for establishing high-quality international standards.
  5. We strongly agree with the SEC that the reconciliation requirement would be removed only for companies applying IFRS as adopted by the IASB.

Click to view Letter to the US Securities and Exchange Commission (PDF 146k).

 

US SEC will vote on dropping the IFRS reconciliation

08 Nov 2007

At its public meeting in Washington on Thursday, 15 November 2007, the US Securities and Exchange Commission will vote on whether to allow foreign companies to submit financial statements to the Commission using International Financial Reporting Standards (IFRSs), without reconciling the data to US Generally Accepted Accounting Principles.

The Commission had made this Proposal in July 2007. Here is an excerpt from the Commission's Meeting Notice:

The Commission will consider whether to adopt amendments to Form 20-F, Rules 1-02, 3-10 and 4-01 of Regulation S-X, Forms F-4 and S-4, and Rule 701 under the Securities Act to accept financial statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board without reconciliation to generally accepted accounting principles as used in the United States when contained in the filings of foreign private issuers with the Commission.

 

We comment on and support two IAASB proposals

08 Nov 2007

Deloitte has recently submitted letters of comment to the International Auditing and Assurance Standards Board (IAASB) on two proposed International Standards on Auditing:

In both cases, we are supportive of the proposed guidance and believe that the overall drafting was completed in accordance with the clarity conventions and criteria adopted by IAASB. You will find our past comments to the IAASB Here.

 

IASCF Trustees agree to expand IFRIC to 14 members

07 Nov 2007

At their meeting in New York last week, the Trustees of the IASC Foundation approved a proposal to expand the membership of the International Financial Reporting Interpretations Committee (IFRIC) from 12 to 14 members in order to broaden IFRS expertise on the committee.

The Trustees will publish the revised Constitutional language and an advertisement for new members shortly.

 

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