February

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Deloitte UK study on half-yearly reporting

21 Feb 2008

A Deloitte & Touche (United Kingdom) study has found that many companies are failing to comply fully with new reporting requirements for half-yearly financial reports following the UK's introduction of the EU's Transparency Obligations Directive (TOD).

Deloitte's report, titled Half a story, considers the impact of the TOD, which introduced more detailed and extensive requirements for half-yearly financial reports, including compliance with IAS 34 and shorter reporting deadlines. The report also includes some comparisons with the findings of previous Deloitte studies of half-yearly reporting in 2002, 2004, and 2006.

The key findings of the report include:

  • Of 289 companies surveyed, 72 (25%) failed to provide a responsibility statement in their half-yearly reports. This is now a requirement for all listed companies;
  • The average length of the half yearly financial report has increased by 27%;
  • The risks and uncertainties disclosures, which focus on the second six months of the year, were handled well by 19 of 30 companies reviewed in detail. Only four companies referred to credit crunch issues, three in relatively general terms and only one in respect of indebtedness following a refinancing not apparently caused by credit market tightening;
  • Nine of these 30 companies (30%), did not comply with the requirements of IAS 34. This was mainly due to missing disclosures on segments, accounting policies and earnings per share; and
  • Only one of the 30 companies clearly followed all of the requirements in the DTR and IAS 34.
Click for:

 

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Notes from day 1 of the February 2008 IASB meeting

20 Feb 2008

The International Accounting Standards Board held its February 2008 meeting in London on Tuesday to Thursday 19-21 February 2008. The meeting is open to public observation and is being webcast.

Click to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting.

 

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CFA Institute urges better executive comp disclosures

20 Feb 2008

The CFA Institute Centre for Financial Market Integrity has published a study 'It Pays to Disclose: Bridging the Information Gap in Executive Compensation Disclosures in Asia' that finds that prevailing disclosure regulations and practices in Hong Kong, Singapore, and Japan "leave room for questionable pay arrangements to continue or escalate in the future, and potentially harm corporate value and investor confidence".

The study found that five factors "conspire to render Asian markets vulnerable to pay abuses":
  • lack of regulatory push,
  • inadequate information in financial reports,
  • little use of long-term incentive plans,
  • poor board oversight, and
  • lack of investor influence on companies' executive compensation.
The study (PDF 358k) calls for both voluntary corporate disclosures and stronger disclosure requirements. Press Release (PDF 47k).

 

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New ISA on audits of accounting estimates

19 Feb 2008

The International Auditing and Assurance Standards Board (IAASB) has issued International Standard on Auditing (ISA) 540 (Revised and Redrafted) Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures.

ISA 540 requires the auditor to focus attention on areas of higher risk, accounting judgement, and possible bias, thereby assisting the auditor to form appropriate conclusions about the reasonableness of estimates in the context of an entity's financial reporting framework. The ISA provides expanded guidance on auditing fair value accounting estimates, including audit considerations relating to the proper application of the requirements of the financial reporting framework relevant to such estimates and the use of models in valuations. ISA 540 is effective for audits of financial periods commencing on or after 15 December 2009. The IAASB has also decided to establish a Task Force to consider how best to approach the development of possible further fair value auditing guidance. Click for Press Release (PDF 65k).

 

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2007 IFRS compliance questionnaire in Spanish

19 Feb 2008

Deloitte & Touche Ltda (Colombia) has published Cuestionario cumplimiento NIIF 2007 — 2007 IFRS Compliance Questionnaire in Spanish.

It is a direct Spanish translation of the English version. The questionnaire summarises the recognition and measurement requirements in IFRSs issued on or before 31 August 2007. The items in this questionnaire are referenced to the applicable sections of the IFRSs. Please bear in mind that IAS 8.30 requires disclosures regarding Standards and Interpretations issued but not yet effective when the financial statements are issued. Therefore, in addition to the contents of the questionnaire, preparers will need to consider any Standards and Interpretations issued between 1 September 2007 and the date of issue of their 2007 financial statements.
Click to view Cuestionario cumplimiento NIIF 2007 (PDF 2,322k). You will find a link to this and related publications on our Model IFRS Financial Statements Page.

 

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Classification of expenditures in the cash flow statement

19 Feb 2008

We have written to express some disagreement with the basis for IFRIC's tentative decision not to interpet IAS 7 Statement of Cash Flows regarding the classification of certain expenditures as operating or investing.

We disagree with IFRIC's conclusion that the issue could be resolved by referring it to the Board with the recommendation that IAS 7 should be amended to state that only expenditures resulting in the recognition of an asset qualify for classification as 'cash flows from investing activities'. An excerpt from our letter:

We acknowledge that in many instances recognition of an asset is a good indicator for classifying the expenditure as investing cash flows. However, we believe requiring classification of all cash flows that do not result in asset recognition as operating cash flows has the potential to mislead users and possibly misrepresent the statement of cash flows. Furthermore, as a result of changes in IFRSs, if certain expenditures are recognised as an asset or no longer qualify for recognition, this will lead to changes in the allocation within the statement of cash flows without changing the economic substance of the underlying transactions.

Examples of expenditures generally made for investing purposes that, under the IFRIC's proposal, we believe would be classified as part of 'cash flows from operating activities' include:

  • Exploration expenditures where an entity has an accounting policy of non-capitalisation of such expenditures
  • Initial expenditures on development cost that do not qualify for recognition as an asset
  • Acquisition-related expenditures in a business combination that are expensed immediately under the revised version of IFRS 3 Business Combinations
Therefore, we propose amending the recommendation to the Board to clarify the wording in IAS 7 to explain that, in determining the classification of expenditures that do not qualify for asset recognition, judgement needs to be applied.

Click to Download the Deloitte Letter to IFRIC (PDF 104k).

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SEC launches 'Financial Explorer' data analysis tool

18 Feb 2008

The US Securities and Exchange Commission has launched software called Financial Explorer on the SEC website to help investors analyse the financial results of public companies.

Financial Explorer lets investors automatically generate financial ratios, graphs, and charts depicting important information from financial statements. Information including earnings, expenses, cash flows, assets, and liabilities can be analysed and compared across competing public companies. Financial Explorer uses financial information provided to the SEC as interactive data in eXtensible Business Reporting Language (XBRL). Click to Launch Financial Explorer. Here's the SEC Press Release (PDF 52k).

 

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Hyperinflationary countries for 31 December 2007 reporting

18 Feb 2008

The International Practices Task Force (IPTF) of the AICPA's Centre for Audit Quality monitors the status of 'highly inflationary' countries.

The Task Force's criteria for identifying such countries are similar to those for identifying 'hyperinflationary economies' under IAS 29 Financial Reporting in Hyperinflationary Economies. The IPTF has issued a report of discusisons with SEC staff on the IPTF's recommendations of which countries should be considered highly inflationary through 31 December 2007. Those countries are Angola, Myanmar, and Zimbabwe. The Task Force agreed that Angola would come off highly inflationary status as of the first period beginning after 31 December 2007. The following countries are on the Task Force's inflation 'watch list': Eritrea, Guinea, Haiti, Venezuela, Iran, and Zambia. Click to Download the Report (PDF 31k).

 

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US Senator writes to IASB and FASB about subprime crisis

17 Feb 2008

Senator Jack Reed, Chairman of the Banking Subcommittee on Securities, Insurance, and Investments of the United States Senate, has written to both FASB Chairman Robert H Herz and IASB Chairman Sir David Tweedie asking about steps their respective boards are considering with respect to improved standards about companies' off-balance sheet transactions and activities.

In his letter to Sir David Tweedie, Senator Reed wrote:

In testimony before the Senate Subcommittee Securities, Insurance, and Investment subcommittee of the Senate Banking, Housing and Urban Affairs Committee in October 2007, you stated the IASB is working on those '...items identified as part of SEC report on off balance sheet items and as part of a recent study by the Committee of European Securities Regulators, such as consolidations…financial instruments, including derecognition'. In the interest of improving transparency for investors, thereby enhancing the efficiency of the US capital markets, it would be helpful for the subcommittee if the IASB would provide it with a written description of steps the IASB is currently taking to adopt improved standards that would result in:

  1. Investors and the capital markets receiving in the near future, timely information regarding the effect off balance sheer financings can have on (a) the liquidity, cash flows and income of a company, (b) the key terms, conditions and events that can trigger such an effect, and (c) predictive information that will allow investors to make an assessment as to whether a material impact will likely occur in the reasonably foreseeable future, and the magnitude of such an impact.
  2. Structured transactions such as those using SIV's or SPE's that are economically a financing for a company, but are structured in such as way as to hide them off balance sheet, to be reported on balance sheet in a transparent fashion that will provide investors with necessary information regarding the related assets, liabilities and related cash flows.
It would also be of assistance to the subcommittee, if the IASB would provide it with a written description of the key differences, as well as similarities, between the FASB and IASB accounting and disclosure standards for off balance sheet financing transactions such as those involving securitisations, SIVs and SPEs. It would be useful if the description would include a discussion of how the FASB's accounting model and principle of control would apply when judging whether or not to consolidate an SIV, or an SPE. Please include a discussion of how consolidation would be affected by implicit or explicit arrangements between the sponsor and SPE, liquidity puts to the sponsor, sponsor guarantees or other forms of support for debt of an SIV or SPE, or reconsideration events.

The IASB's continuing efforts to improve the financial reporting and disclosure for off balance sheet transactions is very important to investors and the capital markets. After the decline in investor confidence brought on by first Enron and then other corporate scandals, and now the subprime related issues, further disruption of the markets caused by a lack of transparency and failure to address some of these issues is unacceptable. I appreciate your attention to this matter and look forward to your response.
The Senator's letter to Mr Herz asked similar questions. Click to download:

 

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Judgements made by financial statement preparers and auditors

17 Feb 2008

At the upcoming meeting of the PCAOB's Standing Advisory Council on 27 February 2008, a panel will discuss one of the recommendations in the recent progress report of the SEC's Advisory Committee on Improvements to Financial Reporting (CIFiR) – see our News Story of 16 February 2008.

The panel will focus on Recommendation 3.4 relating to accounting and auditing judgements. That recommendation states:

The SEC should adopt a judgement framework for accounting judgements. The PCAOB should also adopt a similar framework with respect to auditing judgements.
Click to download the Briefing Paper (PDF 73k) on this topic prepared for the meeting.

 

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