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PCAOB staff issues audit practice alert on fair value

11 Dec 2007

The US Public Company Accounting Oversight Board (PCAOB) has published a Staff Audit Practice Alert on the audit of fair value measurements in financial statements.

The alert provides auditors with additional information related to auditing fair value measurements and disclosures, as well as the use of specialists in this area.

The PCAOB's release Matters Related to Auditing Fair Value Measurements of Financial Instruments and the Use of Specialists highlights certain matters in four areas:

  • Auditing fair value measurements;
  • Classification of fair value measurements within the fair value hierarchy established by SFAS 157;
  • The use of specialists in fair value measurements; and
  • The use of pricing services in fair value measurements
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IASB will consider four possible new agenda projects

11 Dec 2007

The International Accounting Standards Board will meet on Tuesday to Friday, 11-14 December 2007. At the session on Wednesday 12 December 2007, the Board will consider staff proposals for adding the following four projects to the Board's active agenda:

  • Intangible assets excluding goodwill. The project proposal notes that, ideally, the scope of the project should be the initial accounting for identifiable intangible assets other than those acquired in a business combination (with a focus on, but not limited to, internally generated intangible assets) and the subsequent accounting for all identifiable intangible assets. Because of resource constraints, the initial step would be a disclosure-only project beginning with a Discussion Paper.
  • Accounting for emissions trading schemes. The Board added this project to its agenda in September 2005 following withdrawal of IFRIC 3 Emission Rights. But the project has been deferred pending progress on the Board's project on Liabilities.
  • Common control transactions. Scope of the project would be accounting for combinations between entities or businesses under common control in the acquirer's consolidated and separate financial statements. The project would include clarifying the description of a combination between entities or businesses under common control currently in IFRS 3.
  • Management commentary. The objective would be to develop a model for a narrative report, that would accompany the financial statements, setting out management's commentary on the financial statements. The project would build on the Discussion Paper that the Board published for comment in October 2005.

The recommendation of the IASB staff directors is to add all but the intangible assets project to the agenda. The agenda proposals are available on the IASB's Website.

IFAC survey – Convergence important to economic growth

11 Dec 2007

The International Federation of Accountants (IFAC) has released the results of its first annual Global Leadership Survey, which highlights issues the profession will be addressing in the coming year, national and regional perspectives on economic growth, and the profession's role in contributing to that growth.

Click for a Summary of Survey Findings (PDF 93k). Key findings of the survey include the following:
  • Convergence to a single set of both international accounting and international auditing standards is very important to a country's economic growth and development. Respondents ranked convergence to International Standards on Auditing (ISAs) at the same high level of importance as convergence to IFRSs. Respondents viewed convergence to a single set of IFRSs for SMEs as important but less important than convergence to IFRSs or ISAs. Approximately 50 per cent of respondents said convergence to a single set of international standards for SMEs is important to economic growth in their countries.
  • The limited supply of qualified accounting professionals is having a negative effect on the growth of some national economies.
  • Applying new accounting standards is the most important issue faced by professional accountants working in business, followed by adopting good practice in internal control and risk management.
  • Auditor liability remains a significant national issue.
  • Effectively supporting small and medium entities (SMEs) is an important issue for the global profession and will have an impact on economic development.


'An Accounting Revolution is Brewing in China'

10 Dec 2007

Paul Pacter, webmaster of IAS Plus, has written an article titled 'An Accounting Revolution Is Brewing in China', published in the December 2007 issue of Financial Executive, the journal of Financial Executives International.

Paul discusses the capital markets in China today, the recent history of financial reporting in China, changes caused by the new Chinese Accounting Standards (CASs) that went into effect in 2007, and remaining differences between CASs and IFRSs.

Click to download An Accounting Revolution is Brewing in China (PDF 268k), which is copyright 2007 Financial Executives International, and is posted here with FEI's kind permission.

Major changes in German accounting law are under discussion

10 Dec 2007

On 8 November 2007, the German Ministry of Justice (MOJ) issued for public comment a staff draft of the German Accounting Law Modernisation Act (BilMoG).

The overall goals of the reform are to (1) modernise the German Accounting Law (Handelsgesetzbuch, or HGB) and (2) reduce regulatory burden on companies. The proposed changes are generally in the direction of closer conformity of the HGB with IFRSs. The bill would also make changes in the areas of auditing, supervisory boards, and audit committees. Important accounting changes include:
  • greater recognition of intangible assets (although the related increase in equity would not be available for distribution as dividends)
  • special purpose entities controlled by a parent would have to be consolidated
  • recognition of deferred tax assets (previously prohibited)
  • measurement of financial assets held for trading at fair values in excess of initially recognised costs
  • measurement of provisions at discounted amounts
  • inclusion of actuarial assumptions in the measurement of pension liabilities
  • exemption of small non-listed entities from the requirement to publish HGB-GAAP financial statements
The staff draft is currently out for comment by key interested parties until 8 January 2008. Thereafter, the draft law will be revised based on the comments received by MOJ and then submitted to both chambers of Parliament (the Deutsche Bundestag and Bundesrat) where it will be deliberated for at least several months. Many observers anticipate a heated debate. The original time frame indicated by the MOJ was for publication of the final law in the second half of 2008, with applicability as of 1 January 2009. However, observers suggest that due to significant election dates in 2008 and 2009, that date may not be feasible to uphold.
Click to view German Accounting Law Modernisation Act (BilMoG) (PDF 651k, German language).


'Tone at the top' can influence audit quality

10 Dec 2007

A study by the Transnational Auditors Committee (TAC) of the Forum of Firms, a body within the International Federation of Accountants, examines how setting the right tone can positively influence audit quality.

The Forum of Firms is an association of networks of international accounting firms that perform transnational audits. The study, titled Tone at the Top and Audit Quality, explores current practices among members of the Forum of Firms. This good practice guidance paper has been prepared based on the input of ten TAC members, who represent some of the largest international networks. TAC members granted interviews and supplied background materials that have been summarised in this paper on a non-attributed basis. Click for:


IFAC policy paper on regulation of the accounting profession

10 Dec 2007

International Federation of Accountants (IFAC) has released a Policy Position on professional regulation of the accountancy profession in which it states that professional accountancy bodies, acting in the public interest, must play an active role in the regulation of the profession to ensure that regulation is effective and efficient.

The paper, Regulation of the Accountancy Profession, outlines various types of regulatory models and how they can be implemented and discusses the roles of professional accountancy bodies and governments. In discussing the need for regulation, the paper points out: 'Like other professions, the sustainability of the accountancy profession depends upon the quality of services provided by its members and the profession's capacity to respond effectively and efficiently to the demands of the economy and society.' Click for:


Fiji exempts some smaller entities from IFRS requirement

09 Dec 2007

In November 2007, the Council of the Fiji Institute of Accountants approved the introduction of a F$5 million (US$3.25 million) turnover threshold for three categories of entity that would otherwise be required to follow IFRSs, thereby allowing an option for smaller entities within those three categories to apply either IFRSs or the current Fiji Accounting Standards.

The Institute had introduced a requirement starting 1 January 2007 for eight categories of entity to follow IFRSs. For details please see our Fiji Page.


Status of IASB's revised IFRS 3 on business combinations

08 Dec 2007

The IASB has completed the second phase of the Business Combinations Project, the main outputs of which are a revised version of IFRS 3 Business Combinations and an amended version of IAS 27 Consolidated and Separate Financial Statements.

The effective date for application of the new requirements is 1 July 2009. The Board expects to publish the documents on 10 January 2008. At that time the Board will also publish a project feedback statement, which summarises the main comments received on the related exposure drafts and explains how those comments affected the Board's thinking and the final documents.


HK-PRC joint declarations on accounting and auditing standards

07 Dec 2007

The mainland Chinese and Hong Kong accounting and auditing standard setters have signed joint declarations regarding mutual recognition of their accounting and auditing standards.

Under the Joint Declaration on Accounting Standards (PDF 48k), the two parties agree:

  • That there are only two substantive differences between Hong Kong Financial Reporting Standards (HKFRSs, which are virtually identical to IFRSs) and the new Chinese Accounting Standards (CASs*) that went into effect in 2007. The differences involve related party disclosures and reversal of impairment losses.
  • That financial statements prepared using CASs, after adjustments for those two differences, 'should achieve substantially the same effect'.
  • To work to eliminate the two differences and to maintain ongoing convergence of their accounting standards.
  • To work to obtain mutual exemption from the relevant papers on the Hong Kong and Chinese CPA examinations.
  • To work obtain mutual acceptance of each other's accounting standards for purposes of securities listings. [Currently, mainland Chinese companies listed in Hong Kong must use either HKFRSs or IFRSs].

*CASs are also sometimes referred to as Accounting Standards for Business Enterprises or ASBEs
Under the Joint Declaration on Auditing Standards (PDF 44k), the two parties agree:

  • That a CPA applying either Chinese or Hong Kong auditing standards will be complying with the same requirements and, therefore, should reach the same conclusions for assurance or other related services engagements, including audits of financial statements.
  • To maintain ongoing convergence of their auditing standards.
  • To work to obtain mutual exemption from the accounting papers on the Hong Kong and Chinese CPA examinations.
  • To work obtain mutual acceptance of each other's auditing standards for purposes of securities listings.

Correction list for hyphenation

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