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IASB outlines recent responses to credit crisis

21 Dec 2008

The IASB has issued a press release detailing the steps it has taken recently to address financial reporting issues arising from the global credit crisis, in response to recommendations made by the G20 leaders last month.

Those steps include:

  • Improved accounting for off balance sheet items — Issued an ED on consolidation. Also, further proposals on off balance sheet items, covering the derecognition of assets and liabilities, are due to be published towards the end of the first quarter of 2009.
  • New disclosure requirements related to impairment — The IASB and the US Financial Accounting Standards Board (FASB) are both proposing changes to converge their disclosure requirements for impairments. FASB has already released its ED, and the IASB will do so next week.
  • Acceleration of efforts to address broader issues of impairment on a globally consistent basis — Joint study by the two boards' staff is under way, with a report due in January.
  • Ensuring consistent treatment of accounting for particular credit-linked investments between US GAAP and IFRSs — FASB will issue mandatory guidance.
  • Ensuring embedded derivatives are assessed and separated if financial assets are reclassified — IASB will publish a fast-track ED next week.
  • Considering fully other issues related to financial instruments, including the fair value option, raised at the recent series of roundtables in London, New York, and Tokyo.

Click to view:

Notes from day 5 of the IASB December meeting

20 Dec 2008

The International Accounting Standards Board held its December 2008 meeting at its offices in London on Monday to Friday, 15-19 December 2008.

Click to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the meeting. Among other things, the Board added to its agenda a project on Rate-regulated Activities.

Year-end Newsletter – Closing Out 2008

20 Dec 2008

Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter – Closing Out 2008.

The newsletter (PDF 163k) provides a high level overview of new and revised Standards and Interpretations that are effective for December 2008 and later accounting periods. Where applicable, the newsletter includes hyperlinks to past Deloitte newsletters dealing with the specific Standard or Interpretation in more detail. Those past newsletters are all available on here on IAS Plus. As always, entities should refer to the Standards and Interpretations themselves to identify all of the changes that may affect their particular circumstances.

Mandatory for 2008

Of the long list of pronouncements recently issued, only three Interpretations are required to be adopted for December 2008 year ends:

  • IFRIC 11 IFRS 2 – Group and Treasury Share Transactions
  • IFRIC 12 Service Concession Arrangements
  • IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Optional for 2008

Entities are generally permitted to adopt new and revised Standards and Interpretations in advance of their effective dates. Therefore, the following are available for early adoption in 2008 (refer to the newsletter for details):

New Standard:

  • IFRS 8 Operating Segments Amendments to Standards
  • IAS 23 Borrowing Costs
  • IAS 1 Presentation of Financial Statements
  • IFRS 3 Business Combinations
  • IAS 27 Consolidated and Separate Financial Statements
  • IFRS 2 Vesting Conditions and Cancellations
  • IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation
  • IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
  • Improvements to IFRSs (various standards)
  • IAS 39 Eligible Hedged Items 1 July 2009 July 2008
  • IAS 39 and IFRS 7 Reclassification of Financial Assets
  • IFRS 1 First-time Adoption of Financial Reporting Standards (restructured) New interpretations
  • IFRIC 13 Customer Loyalty Programmes
  • IFRIC 15 Agreements for the Construction of Real Estate
  • IFRIC 16 Hedges of a Net Investment in a Foreign Operation
  • IFRIC 17 Distributions of Non-cash Assets to Owners

Joint IASB-FASB discussion paper on revenue recognition

19 Dec 2008

The International Accounting Standards Board and the US Financial Accounting Standards Board have published for public comment a discussion paper (DP) on recognition of revenue.

The DP proposes a single, contract-based revenue recognition model. The model would apply broadly to contracts with customers, although contracts in the areas of financial instruments, insurance, and leasing may be excluded. Under the proposed model, revenue would be recognised on the basis of increases in an entity's net position in a contract with a customer.

With regard to recognition of revenue, the DP states:

In the proposed model, revenue is recognised when a contract asset increases or a contract liability decreases (or some combination of the two). That occurs when an entity performs by satisfying an obligation in the contract.

With regard to measurement of revenue, the DP states:

The boards propose that performance obligations initially should be measured at the transaction price – the customer's promised consideration. If a contract comprises more than one performance obligation, an entity would allocate the transaction price to the performance obligations on the basis of the relative stand-alone selling prices of the goods and services underlying those performance obligations.

Subsequent measurement of the performance obligations should depict the decrease in the entity's obligation to transfer goods and services to the customer. When a performance obligation is satisfied, the amount of revenue recognised is the amount of the transaction price that was allocated to the satisfied performance obligation at contract inception. Consequently, the total amount of revenue that an entity recognises over the life of the contract is equal to the transaction price.

The DP may be downloaded from the IASB's website. Respondents should submit one comment letter to either the IASB or the FASB. The boards will share and consider jointly all comment letters that are received by 19 June 2009. Click for the joint IASB-FASB press release (PDF 56k).

SEC mandates XBRL for all registrants and mutual funds

19 Dec 2008

The Securities and Exchange Commission has voted to require public companies and mutual funds to use interactive data for financial information in XBRL format.

The interactive data will be provided in a new exhibit containing their financial statements and any applicable financial statement schedules in interactive data format:

Public Companies: Interactive data financial reporting will be required on a phased-in schedule beginning next year so that all US public companies will be filing XBRL data by December 2011. Companies will be able to adopt interactive data earlier than their required start date:

  • The largest companies who file using US GAAP with a public float above $5 billion (approximately 500 companies): First quarterly report for fiscal periods ending on or after 15 June 2009
  • Remaining companies who file using US GAAP: Phased-in schedule over 2010 to 2011
  • Companies reporting in IFRS issued by the International Accounting Standards Board: Fiscal years ending on or after 15 June 2011

Mutual Funds: Interactive data financial reporting will be required starting in 2011.

Click for SEC Press Release (PDF 37k).

Heads Up on recent AICPA SEC-PCAOB conference

19 Dec 2008

The National Office Accounting Standards and Communications Group of Deloitte (United States) has published a 53-page newsletter 'Heads Up on AICPA SEC-PCAOB Conference'.

This issue of Heads Up (PDF 345k) extracts key insights from nearly 26 hours of material at the 2008 AICPA National Conference on Current SEC and PCAOB Developments. It focuses on experts' views on topics including accounting and disclosure issues related to the troubled credit markets, use of fair value, goodwill impairments, and the release of the Division of Corporation Finance Financial Reporting Manual on the SEC's website.

See also:

Notes from day 4 of the IASB December meeting

19 Dec 2008

The International Accounting Standards Board is holding its December 2008 meeting at its offices in London on Monday to Friday, 15-19 December 2008.

Click to go to the preliminary and unofficial Notes Taken by Deloitte Observers at the meeting. Among other things, the Board added to its agenda a project on Rate-regulated Activities.

We comment on earnings per share proposals

19 Dec 2008

Deloitte has submitted a Letter of Comment on the IASB's exposure draft (ED) of Proposed Amendments to IAS 33 'Earnings per share'.

Below is an excerpt from our letter.

We believe the proposals in the ED are an improvement to existing standards, and we support the issuance of the proposed Statement as a final standard. However, we do have concerns related to some of the proposed changes to EPS which we believe need to be addressed. In particular:

  1. Although we support the proposal to make the EPS treatment consistent with the statement of financial position with respect to forward purchases and written puts over own equity we believe the EPS result highlights a wider flaw in the underlying treatment of these arrangements which we commented on in our responses to Reducing Complexity in Reporting Financial Instruments and Financial Instruments with the Characteristics of Equity.
  2. We support the proposed simplification in which EPS for instruments that are measured at FVTPL is not adjusted. However, we believe due consideration should be given to the disclosure needs of users as to whether the lack of disclosure of these instruments will prove problematic. We note that IFRS does not currently require separate disclosure of the fair value of these instruments, nor the fair value changes of such instruments.
  3. We recommend the inclusion of an explicit statement in the final standard that arrangements that result in the issue or acquisition of shares at fair value should not result in any dilutive effect. The current drafting of the ED infers that such arrangements, for example, issuing shares to the value of a fixed amount, are potentially dilutive.

Click for:

Top challenges for financial executives in 2009

19 Dec 2008

FEI CEO and President James J Abel has compiled a list of the Top Challenges for 2009.

They are published in an article the January-February 2009 issue of Financial Executive magazine. We have posted the article (PDF 54k), which is copyright by Financial Executives International, with FEI's kind permission. A summary is presented below. Five of the challenges relate to financial reporting (six if you count XBRL).

FEI CEO's Top Challenges for Financial Executives for 2009
  1. Implications of the economic crisis
  2. Fair value measurements
  3. Business taxation
  4. XBRL and other technology considerations
  5. Global convergence of US GAAP and IFRS
  6. New joint IASB-FASB standard on business combinations
  7. Financial statement presentation
  8. Complexity in financial reporting
  9. Controls and risk management
  10. Employee benefits issues
  11. Climate change legislation and regulation

IASB ED on consolidation

19 Dec 2008

The IASB has issued an exposure draft (ED) of proposed amendments to IAS 27 'Consolidated and Separate Financial Statements'.

The objective is to strengthen and improve the requirements for identifying which entities a company controls and, therefore, must include in its consolidated financial statements.

The proposals form part of the IASB's comprehensive review of off balance sheet activities and address an area cited in a Declaration of the G20 Leaders at their 15 November meeting. The proposals also respond to the recommendations contained in a Report by the Financial Stability Forum published in April 2008.

Further proposals on off balance sheet items, covering the derecognition of assets and liabilities, are due to be published in the first quarter of 2009, consistent with the G20 target date of 31 March 2009. The new standard would replace IAS 27 Consolidated and Separate Financial Statements and Interpretation SIC-12 Consolidation - Special Purpose Entities. The proposal ED 10 Consolidated Financial Statements, may be downloaded without charge from the IASB's website.

The comment letter deadline is 20 March 2009. The proposed effective date is 1 July 2009. Click for press release (PDF 48k).

Proposed definition of control of an entity

The consolidation ED proposes a new, principle-based, definition of control of an entity that would apply to a wide range of situations and be more difficult to evade by special structuring. The proposals also include enhanced disclosure requirements that would enable an investor to assess the extent to which a reporting entity has been involved in setting up special structures and the risks to which these special structures expose the entity. The proposed definition:

A reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity to generate returns for the reporting entity.

Under IAS 27, the definition is 'power to govern the financial and operating policies'. 'Power to direct the activities' is broader than 'power to govern the financial and operating policies' and, therefore, would broaden the scope of consolidation. The ED also clarifies that a reporting entity can have power even if it has not exercised its voting rights or options to acquire voting rights, or is not actively directing the activities of another entity. The ED proposes guidance on how to assess power and returns when:
  • a reporting entity has less than a majority of the voting rights
  • assessing control of a structured entity (called special purpose entity in SIC 12)

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.