October

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Deloitte Alert on money market funds

26 Oct 2008

As a result of recent market events, a number of 'money market funds' (mutual funds that invest primarily or exclusively in short-term debt securities designed to maintain a constant monetary value) have incurred losses on their investments.

Some of these funds have experienced declines in fair value as a result of deterioration in the creditworthiness of their assets, general illiquidity conditions, or both, and redemptions by investors have increased. Accordingly, some funds have been forced to liquidate their assets, impose limits on redemptions, or obtain support from related entities. This Financial Reporting Alert 08-17 (PDF 47k) from Deloitte (United States) addresses the investor's accounting for money market funds that were appropriately classified as cash equivalents and that have subsequently imposed restrictions on redemptions or have been frozen. Accounting considerations discussed include balance sheet classification, measurement, and classification in the statement of cash flows.

 

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FSF follow-up on recommendations

26 Oct 2008

The Financial Stability Forum (FSF) has published a report assessing the implementation, to date, of the recommendations in their 7 April 2008 Report on Enhancing Market and Institutional Resilience.

The FSF is a global organisation of regulators and central bankers. The report analysed the causes and weaknesses that have produced the recent turmoil in financial markets worldwide and made recommendations for correcting those weaknesses, including several for the IASB. Those recommendations addressed, among other things, accounting and disclosure standards and guidance for off-balance sheet vehicles and for valuations. The new implementation report, titled Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience: Follow-up on Implementation (PDF 161k) reviews the progress of the IASB and the FASB on off-balance sheet vehicles on pages 16-17 and on valuations on pages 17-19.

Regarding valuations, the FSF implementation report states: The FSF acknowledges the significant efforts of accounting standards setters, and urges them to accelerate their work to enhance and converge their guidance on the valuation of instruments in inactive markets.

 

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Canadian Alert – impact of the credit crisis

25 Oct 2008

Deloitte (Canada) has published Understanding Recent Issues under Canadian GAAP, US GAAP, and IFRS Relating to the Credit Crisis and the Potential Impact on Canadian Companies in both English and French.

The objective of these Financial Reporting Alerts is to summarise the most significant developments in Canada, the US, and at the IASB and to provide an overview of the major considerations for Canadian Corporations and the implications for senior management, audit committees, and boards.

Comprendre les faits récents dans le cadre des PCGR du Canada, des PCGR des États-Unis, et des IFRS dans le contexte de la crise du crédit et de ses retombées éventuelles sur les sociétés canadiennes.
Click to download:

 

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Deloitte research – Global economic outlook 4Q08

25 Oct 2008

This latest Deloitte Research global economic outlook report highlights the three waves of events and the subsequent policy responses that have produced the financial crisis of the past year.

The study also provides our historical perspective on what has transpired when, as with the US housing market, asset price bubbles exploded in other countries. The successes and failures of different policy responses provide a useful comparison with which to judge current events. Aside from the financial crisis, the report also focuses on a critical issue that has been shadowed by the financial crisis: the price of oil. We offer some scenarios as to what might happen next and consider the economic and business consequences of persistently high petroleum prices. We also examine the outlook for inflation in both developed and emerging countries. In addition, we look at the impact of exchange rate policy in emerging markets. Finally, our global economists provide outlooks for the economies of the United States, United Kingdom, Eurozone, Russia, India, China, Japan, and Brazil. Click to Download the Report (PDF 2,765k).
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US PCAOB priorities for 2009

24 Oct 2008

The US Public Company Accounting Oversight Board (PCAOB) held its annual meeting with its Standing Advisory Council on 22-23 October 2008. At the meeting, the PCAOB chairman presented the Board's plans and priorities for 2009.

Click to download the PCAOB Report (PDF 31k).
PCAOB priorities for 2009 include:
  • Completing proposed auditing standards:
  • Projects on new or revised standards on:
    • Fair value measurements and specialists (very high priority, concept release before the end of 2008)
    • Confirmations
    • Related parties
    • Guidance for auditors of smaller companies relating to AS No. 5 (internal control audits)
    • Action plan for review of interim standards (AICPA standards that PCAOB adopted when it was formed)
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Study of goodwill impairment disclosures under IFRS

24 Oct 2008

The United Kingdom Financial Reporting Council (FRC), under which the Accounting Standards Board operates, has published a Review of Goodwill Impairment Disclosures made by a sample of 32 UK listed companies using IFRSs.

The companies were chosen because they have large amounts of goodwill. IAS 36 requires an annual impairment assessment and disclosure of the key assumptions and the approach adopted to make those assumptions when using valuation models to check that goodwill does not need to be written down. You can Download the Report from the FRC Website (PDF 134k). Here are a few highlights:

All companies in the sample gave disclosures about their approach to impairment testing of goodwill. However, the level of supporting detail varied greatly:

  • For many companies, the disclosures were more generic than specific in nature. Only a minority of companies provided information that was directly relevant to their business. The report describes over half of the company reports as 'boiler plate – rather uninformative'.
  • Narrative information about the way in which key assumptions are identified and quantified tended to be vague. In many cases there was a generalised statement to the effect that past experience was modified based on management's expectations for the future.
  • Only a minority of the companies surveyed provided information by cash generating unit ('CGU'), even where significant amounts of goodwill were allocated to more than one CGU.

 

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IOSCO statement on accounting standards

24 Oct 2008

The Technical Committee of the International Organization of Securities Commissions (IOSCO) has issued a statement reaffirming its commitment to the development and enforcement of high quality accounting standards and to the independence of accounting standard setters.

Click to download the IOSCO Statement (PDF 39k). Here is an excerpt:

Accounting standards for public companies must provide clear, accurate and useful information to investors to allow them to make informed investment decisions. Furtherance of this goal promotes investor confidence in financial statements and capital markets. We strongly support accounting standards that afford investors transparency, maintain market integrity, facilitate capital formation and are consistent with financial stability.

The job of developing and maintaining high quality standards that provide transparency to investors relies to a critical extent on independent accounting standards setters. In this connection, we support the International Accounting Standards Board (IASB) and Financial Accounting Standards Board's (FASB) announced joint action to address issues related to the credit crisis pursuant to an accelerated due process. We welcome their willingness to seek input from all stakeholders and applaud their efforts to work together, with speed and rigor, in identifying high quality global solutions.

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14 IASB pronouncements await EU endorsement

24 Oct 2008

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 23 October 2008 (PDF 89k). Currently, there are 14 IASB pronouncements are awaiting European Commission endorsement for use in Europe (including 5 awaiting EFRAG advice and 9 awaiting an ARC recommendation), as follows:
  • IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity, or Associate
  • IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
  • IFRS 3 Business Combinations (2008)
  • IAS 1 Presentation of Financial Statements (revised September 2007)
  • IAS 23 Borrowing Costs (revised March 2007)
  • IAS 27 Consolidated and Separate Financial Statements (2008)
  • IAS 32 and IAS 1 Amendments for Puttable Instruments and Obligations Arising on Liquidation
  • IAS 39 Amendments for Eligible Hedged Items
  • 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
  • IFRIC 15 Agreements for the Construction of Real Estate
  • IFRIC 16 Hedges of a Net Investment in a Foreign Operation
  • Improvements to IFRSs – 2007 (affects various standards)
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Notes from joint IASB-FASB meeting 20-21 October

23 Oct 2008

The International Accounting Standards Board and the US Financial Accounting Standards Board held a joint meeting at the FASB's offices in Norwalk, Connecticut USA, on Monday and Tuesday 20-21 October 2008.

Click here to go to the Preliminary and Unofficial Notes taken by Deloitte observers at the meeting.

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CEBS-CESR-CEIOPS joint statement on accounting

22 Oct 2008

The Committee of European Banking Supervisors (CEBS), the Committee of European Securities Regulators (CESR) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) have published a Joint Statement on recent developments in accounting.

The statement emphasises that accounting standard-setting for European public entities is the responsibility of the IASB. The three committees praise the IASB's rapid responses to fair value measurements, financial instruments disclosures, and other credit crisis issues. Regarding fair value measurements, the joint statement notes:

EU preparers, auditors and other stakeholders should take note of the IASB staff position on this SEC-FASB clarification on fair value accounting issued on 2 October 2008 which was also confirmed by the IASB in its press release on 14 October 2008. It should be highlighted that the IASB staff has reviewed that clarification and considers it consistent with IAS 39. In particular, the three committees take note and support that the clarification addresses among other issues the following topics:

  • Management's internal assumptions. The use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums is acceptable, when an active market for a security does not exist.
  • Use of market quotes (eg, broker quotes or information from a pricing service) when assessing the mix of information available to measure fair value. Broker quotes may be an input when measuring fair value, but are not necessarily determinative if an active market does not exist for the security.
  • The results of disorderly transactions are not determinative when measuring fair value. Distressed or forced liquidation sales are not orderly transactions. Determining whether a particular transaction is forced or disorderly requires judgement.
  • Transactions in an inactive market can affect fair value measurements, they may be inputs when measuring fair value, but would likely not be determinative. The determination of whether a market is active or not requires judgement.
The three committees encourage preparers and auditors to follow this IASB staff position immediately as requested by the ECOFIN at its meeting held on 7 October 2008.

Click to view the Joint Statement (PDF 24k).

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