October

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SEC guidance on fair value of perpetual preferred

15 Oct 2008

The Office of the Chief Accountant (OCA) of the US SEC has written to FASB Chairman Robert H Herz about how to assess declines in fair value for perpetual preferred securities (PPS).

US GAAP measures impairment differently for debt and equity instruments – some would say more rigorously for equity than for debt. The OCA notes that although PPS have 'debt-like characteristics', they are classified as equity because they are not redeemable. The letter states that:

OCA, after consultation with and concurrence of the FASB staff', has concluded that it would not object to an issuer, in assessing impairment of PPS, applying an impairment model (including an anticipated recovery period) similar to a debt security provided there has been no evidence of a deterioration in credit of the issuer (for example, a decline in the cash flows from holding the investment or a downgrade of the rating of the security below investment grade) until this matter can be addressed further by the FASB.
Concurrent with sending the letter, the SEC has asked the FASB to address this and related issues. Click to Download the SEC Letter (PDF 99k).

 

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Implications of US Economic Stabilization Act

15 Oct 2008

Deloitte & Touche LLP (United States) has published an edition of the Heads Up newsletter that summarises the key provisions of the US Emergency Economic Stabilization Act of 2008 and discusses the accounting, tax, and business issues raised by the Act that may require consideration in the upcoming weeks.

Click to Download this Issue of Heads Up (PDF 210k).

Among the accounting considerations discussed in the newsletter are:

  • Assessment of 'other-than-temporary impairment (OTTI)'
  • Classification of financial assets and liabilities as HTM or OTTI
  • Recognition of interest income and impairment of beneficial interests
  • Accounting by creditors for impairment of loans
  • Accounting by mortgage banking institutions
  • Measurement of fair value
  • Warrants and liability/equity classification
  • Guarantee accounting
  • Modifications of loans held in QSPEs
  • Compensation 'clawback' considerations
  • Income tax accounting
  • Disclosure adequacy

 

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EU is developing an 'accounting proposal'

15 Oct 2008

On 14 October 2008, José Manuel Durão Barroso, President of the European Commission, spoke at a press conference in advance of the two-day meeting of the European Council (heads of state of the 27 EU member states) that will be held on 15-16 October 2008. His remarks focused on the EU's response to the global financial crisis.

He noted, among other things, that today the Accounting Regulatory Committee will be considering a procedure for 'modifying accounting rules'. Click to Download Mr Barroso's Remarks (PDF 74k). The nature of the procedure or modifications is not indicated, but several press reports refer to possible relaxation of the fair value measurement rules for financial instruments. An excerpt:

We have now reached a comprehensive agreement and a detailed programme for the Euro area and the EU as a whole. A programme to restore liquidity. A programme to recapitalise banks and to protect savers and taxpayers. A programme to lay the foundations of recovery and future sustainability....

We have accelerated the procedure for modifying accounting rules. This will prevent healthy assets being undervalued. It will ensure EU companies are not at a competitive disadvantage with companies based in other jurisdictions. The Accounting Regulatory Committee will approve our proposal tomorrow, on Wednesday.
Also on 14 October 2008 (yesterday), the European Commission published FAQs on Europe's Response to the Financial Crisis (PDF 98k). The FAQ states:

The Commission has already launched fast-track procedures to adjust accounting rules in order to be sure that assets are not undervalued, confidence is not unnecessarily undermined and EU financial institutions not disadvantaged vis-à-vis their international competitors. Provided Member States and the European Parliament approve these changes quickly, this will allow the rules to be applied for the third quarter, from 1 July 2008.
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IASB ED on financial instruments disclosures

15 Oct 2008

The IASB has issued an exposure draft of proposed amendments to IFRS 7 'Financial Instruments: Disclosures'.

The proposals form part of the IASB's response to the credit crisis and follow recommendations of the Financial Stability Forum, which had the support of the Group of Seven (G-7) Finance Ministers.

The proposals also reflect discussions by the IASB's Expert Advisory Panel on measuring and disclosing fair values of financial instruments when markets are no longer active. The ED, titled Improving Disclosures about Financial Instruments, may be downloaded without charge from the IASB's Website. The comment letter deadline is 15 December 2008 with a proposed effective date of 1 July 2009. Click for Press Release (PDF 93k).

Changes to IFRS 7 proposed in the exposure draft

Fair value disclosures

  • Introduction of a three level hierarchy when disclosing fair values (comparable to the US SFAS 157 hierarchy)
  • Reconciliations of balances for fair values measured without using observable market inputs
  • Reconciliations of movements between the levels (including reasons)
Liquidity risk disclosures
  • Clarification of scope of which instruments are to be included
  • Disclosure of liquidity risk for derivative financial liabilities based on risk management of the entity
  • Disclosure of expected remaining maturities of non-derivative financial liabilities if the entity manages risk in that way
  • Enhance relationship between quantitative and qualitative disclosures of liquidity risk

 

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Deloitte Alert on other-than-temporary impairments

14 Oct 2008

Deloitte (United States) has published a Financial Reporting Alert on The Impact of the Emergency Economic Stabilization Act on the Assessment of Other-Than-Temporary Impairments.

The Act became law on 3 October 2008. Deloitte Financial Reporting Alert 08-15 (PDF 27k) points out that impairment assessments are made as of the financial reporting date. The Alert states that 'the enactment of the Act on 3 October 2008 may not affect an entity's assessment, as of a prior reporting date, of its intent to hold an impaired security until forecasted recovery'.

 

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Heads Up on fair value measurement in inactive markets

14 Oct 2008

The latest edition of the Heads Up newsletter from Deloitte & Touche LLP (United States) discusses the FASB's recently released Staff Position (FSP) No. FAS 157-3 Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.

The FSP addresses concerns raised by preparers of financial statements regarding measuring fair value in the current turbulent financial markets. Click to Download this Issue of Heads Up (PDF 146k).

 

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Change to tomorrow's IASB meeting agenda

14 Oct 2008

Fair value measurement has been moved from Friday 17 October 2008 to Wednesday 15 October 2008.

The revised meeting agenda is Here.

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EFRAG supports IAS 39 reclassification changes

14 Oct 2008

The European Financial Reporting Advisory Group has recommended that the European Commission adopt the amendments to IAS 39 and IFRS 7, approved by the IASB yesterday, that permit Reclassification of some financial instruments out of the fair-value-through-profit-or-loss category and out of the available-for-sale category.

Click for EFRAG Endorsement Advice (PDF 61k).

 

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Notes from day 1 of the October 2008 IASB

14 Oct 2008

The International Accounting Standards Board is holding its regular October 2008 meeting at the IASB's offices, 30 Cannon Street, London on Monday to Friday 13-17 October 2008. The meeting is open to public observation and is being webcast.

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

 

European Union (old) Image

Barroso says EU will 'adjust EU accounting rules'

14 Oct 2008

On 13 October 2008, José Manuel Durão Barroso, President of the European Commission, spoke at a summit of national parliamentary leaders in Brussels.

In his remarks, he reported on a 'historic summit of the Eurogroup at the highest political level in Paris' held on the previous day. "Our unanimous message yesterday was one of commitment to act together in a decisive and coordinated way in order to restore confidence and proper functioning of the financial system...." Mr Barroso indicated that "we will this week adjust EU accounting rules in order to be sure that EU financial institutions are not disadvantaged vis-à-vis their competitors in the United States". Click to Download Mr Barroso's Remarks.

 

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