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EFRAG will do cost-benefit assessments of IFRSs

30 Oct 2007

The October 2007 Edition of EFRAG Update, published by the European Financial Reporting Advisory Group, reports that EFRAG is likely to extend the work that it normally carries out in making IFRS endorsement recommendations to the European Commission to include 'some form of cost-benefit study' for individual IFRSs, including Interpretations.

Here is an excerpt from the EFRAG Update:

At the October meeting of the European Financial Reporting Advisory Group (EFRAG), the European Commission explained that it has been decided that more extensive work on the costs and benefits of Standards and Interpretations needs to be carried out in future. The IASB has apparently agreed to carry out such work when developing proposals for new Standards and Interpretations, but that commitment will not cover projects already well-advanced and material issued but not yet endorsed. The European Commission is therefore as a result discussing with EFRAG the need for some form of cost-benefit study to be carried out as part of the endorsement process. Those discussions are ongoing but it is likely that EFRAG will be encouraged to extend the work it carries out in formulating its endorsement advice. This would be the case not only for Standards and Interpretations not yet issued, but also for those Standards and Interpretations on which EFRAG has not yet issued its final endorsement advice; in other words, IFRIC 13 Customer Loyalty Programmes, IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, and IAS 1 (Revised) Presentation of Financial Statements. It was noted that some further work would also need to be carried out, probably largely by the Commission, on the material on which EFRAG has already issued its endorsement advice: IFRIC 12 Service Concession Arrangements and IAS 23 (Revised) Borrowing Costs.

As a result, it was now unlikely that IFRICs 12-14, IAS 23 (Revised), and IAS 1 (Revised) will be endorsed before the end of 2007. EFRAG will continue to issue regular updates on the endorsement process on its website ( in the form of Endorsement Status Reports [these are available on IAS Plus's EFRAG Page].

Click for October 2007 Edition of EFRAG Update.


Updated EFRAG endorsement status report

29 Oct 2007

The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments.

Click to download the Endorsement Status Report as of 16 October 2007 (PDF 99k). Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:
  • IFRS 8 Operating Segments
  • IAS 1 Presentation of Financial Statements (revised September 2007)
  • IAS 23 Borrowing Costs (revised March 2007)
  • IFRIC 12 Service Concession Arrangements
  • IFRIC 13 Customer Loyalty Programmes
  • IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements, and their Interaction


AICPA testifies in support of IFRSs

27 Oct 2007

In our news story of 26 October, we reported on testimony by IASB Chairman Sir David Tweedie and FASB Chairman Robert Herz at a US Senate Subcommittee hearing on International Accounting Standards: Opportunities, Challenges, and Global Convergence Issues.

Charles E. Landes, Vice President for Professional Standards and Services of the American Institute of Certified Public Accountants (AICPA) also addressed the subcommittee. His testimony expressed the AICPA's strong support for eliminating the SEC's IFRS-US GAAP reconciliation and for allowing US issuers to use IFRSs.

Excerpts from AICPA testimony:

I want to state as directly as possible that the AICPA supports the goal of a single set of high-quality, comprehensive accounting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world. The debate or question should no longer be whether we move to convergence of high quality accounting standards, but how soon we can accomplish convergence....

The AICPA supports the elimination of the US GAAP reconciliation for foreign private issuers using International Financial Reporting Standards....

The AICPA supports giving US issuers an option to prepare financial statements in accordance with IFRSs as published by the IASB for purposes of complying with the rules and regulations of the SEC. Giving US issuers such an IFRS option will be yet another important step towards achieving the larger goal of a single set of high quality, comprehensive accounting standards to be used by public companies in the preparation of transparent and comparable financial reports throughout the world.

Click for:


Swiss Exchange guidance on IFRS implementation

27 Oct 2007

The Swiss Stock Exchange (SWX) has released its Annual Communique identifying the areas on which they expect to focus in their regulatory reviews of annual financial reports for 2007 and semi-annual financial reports for 2008 of Swiss Exchange (SWX) listed companies.

The areas of focus will be:
  • Disclosures of financial instruments (IFRS 7)
  • Accounting policies (IAS 1)
  • Income taxes (IAS 12)
  • Related party disclosures (IAS 24)
  • Intangible assets from business combinations (IAS 38/IFRS 3)
Further, the SWX has updated its Admission Board Circular No. 6 (PDF 136k), which identifies 24 IFRS issues that have led to discussions with or actions against issuers in the past. Permanent links are on our Switzerland Page.
Click for: Annual Communique (PDF 26k)


US Senate committee hearing on IFRSs

26 Oct 2007

On 24 October 2007, the US Senate Committee on Securities, Insurance, and Investment conducted a hearing on International Accounting Standards: Opportunities, Challenges, and Global Convergence Issues.

Among those who testified were:

An excerpt from Sir David's statement: The movement towards IFRSs is truly global and extends well beyond Europe's borders. More than 100 countries throughout the world – 108 according to the latest Deloitte IASPlus survey – require or permit the use of IFRSs. From our discussions with regulators and standardsetters, we expect this number to rise substantially within a relatively short time. As I said, the EU's adoption served as a catalyst. Australia, Hong Kong, New Zealand, and South Africa all joined Europe as early adopters. The major emerging and transition economies of the world – Brazil, China, India, and Russia – are adopting or considering the adoption of IFRSs, not US GAAP, in an effort to become integrated in the world's capital markets and attract the investment necessary to finance their development. Similarly, Canada, Chile, Israel and Korea, economies with significant ties with the United States, have all recently announced their planned abandonment of national standards for IFRSs.


SEC OKs use of a surrogate to value employee share options

25 Oct 2007

In a letter to Zions Bancorporation, SEC Chief Accountant Conrad Hewitt indicated that ESOARS ('employee stock option appreciation rights securities') are sufficiently designed to meet the measurement objective of FASB Statement No. 123(R) Share-Based Payment.

This means that companies issuing employee share options may be able to use ESOARS (or an acceptably designed alternative) in lieu of existing valuation techniques (such as the Black-Scholes-Merton formula or a binomial model) to determine the grant-date fair value of an employee share option, a value that is used, in turn, to determine compensation cost. IFRS 2 Share-based Payment has the same measurement objective as FAS 123(R), though the Chief Accountant's letter does not address IFRS 2.

ESOARS are derivative securities that are sold to investors. ESOARS are designed to (1) track the value of a referenced pool of employee share options (that is, there is no one-to-one correlation between the issuance of an employee share option and ESOARS), (2) pay investors as employee share options are exercised, (3) make payments to their investors on the basis of a pro rata share of the intrinsic value realized by employees upon exercise of their share options in the referenced pool, and (4) be priced, upon issuance, through a modified Dutch auction.

Click to download Heads Up Newsletter published by Deloitte & Touche LLP (USA) (PDF 117k) explaining the Chief Accountant's Letter (PDF 151k).


Auditing internal control in small public companies

24 Oct 2007

The United States Public Company Accounting Oversight Board has invited comment on proposed staff guidance on auditing internal control over financial reporting in smaller public companies.

The release is titled Preliminary Staff Views - An Audit of Internal Control That Is Integrated with An Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies. The guidance explains how auditors can apply the PCAOB's internal control auditing standard Auditing Standard No. 5 An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements to audits of smaller, less complex public companies. Comments are requested by 17 December 2007. Click for:


European study on ownership rules for auditing firms

24 Oct 2007

The Internal Market Directorate of the European Commission has published an independent study on the ownership rules that apply to audit firms and the consequences of those rules on audit market concentration.

The study analyses whether changes to the ownership rules of audit firms might help increase the number of international players in the audit market. At present, the European Statutory Audit Directive requires that auditors hold a majority of the voting rights in an audit firm and control the management board. Click to download the EC Press Release (PDF 88k). Click here for Links to Download the Report and an annex of relevant legislative requirements in 18 EU member states.

Key conclusions of the study:

  • The audit market for major listed companies is dominated by the Big Four audit firms. For the smaller audit firms, important investments might be necessary over years to expand and to enter the international audit market.
  • Analysis of an investment model developed to assess such potential expansion plans indicates that an audit firm owned by external investors, instead of auditors, might take more easily the decision to expand into the market of large audits. One of the reasons is that existing ownership structures may be estimated to increase audit firms' cost of raising capital by perhaps as much as 10%.
  • Nevertheless, restrictions on access to capital appear to represent only one of several potential barriers to entry. There are other barriers which also play an important role: reputation, the need for international coverage, international management structures, and liability risk. The impact of liability risk on the cost of capital can be significant and may lead to capital rationing.
  • There may also be good reasons for audit firms to stick to their current structures: for example, to retain their human capital. From the regulatory point of view, existing ownership structures have been justified by the necessity to protect independence of audit firms. However, the analysis of the decision-making processes in large audit firms indicates that alternative ownership structures are unlikely to impair auditor independence in practice. Specific conflicts of interest could be dealt with through the establishment of appropriate safeguards.



Agenda for upcoming Analyst Representative Group meeting

24 Oct 2007

The IASB will meet with the Analyst Representative Group on Wednesday, 7 November 2007, at the IASB offices, 30 Cannon Street, London, 09:00-17:00h.

The meeting is open to the public. Topics on the agenda are:
  • Update – IASB Work Plan
  • Consolidation
  • Revenue recognition
  • Financial statement presentation
  • Emission rights
  • Joint arrangements

IAS Plus Newsletter on 2007 Improvements ED

23 Oct 2007

Deloitte's IFRS Global Office has published a special edition IAS Plus Newsletter on Omnibus Exposure Draft (ED) of Annual Improvements.

The ED proposes miscellaneous amendments to 25 IFRSs as part of the IASB's first annual improvements project. The proposals range from a restructuring of IFRS 1, mainly to remove redundant transitional provisions, to minor changes of wording to clarify the meaning and remove unintended inconsistencies between IFRSs. The IASB discussed the individual proposals during the past year. The IASB requests comments by 11 January 2008. The proposed effective date for the proposed amendments would be 1 January 2009.
Click for: IAS Plus Newsletter


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