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Proposal to change IFRS 1 effective date

13 Dec 2008

The IASB has added to its December 2008 meeting agenda a project to change the effective date of the restructured version of IFRS 1 'First-time Adoption of International Financial Reporting Standards' that the Board released on 25 November 2008.

This new version of IFRS 1 supersedes the previous version effective for annual periods beginning on or after 1 January 2009. Unfortunately, paragraphs 36, 37, and 39 of the new IFRS 1 make reference to IFRS 3 Business Combinations (revised 2008) and IAS 27 Consolidated and Separate Financial Statements (revised 2008), both of which are not effective until 1 July 2009. Therefore, technically the guidance on the topics covered in the three cited paragraphs is not valid from 1 January to 1 July 2009. To fix that problem, the IASB staff has proposed that the Board amend IFRS 1's effective date to 1 July 2009.

See our 25 November 2008 story on the release of the restructured version of IFRS 1.

We encourage IASB to address regulatory assets

12 Dec 2008

At its meeting in November 2008, the IFRIC considered a request to address whether regulated entities should recognise an asset or liability as a result of rate regulation by regulatory bodies or governments.

The IFRIC tentatively decided not to add the issue to its agenda, mainly because divergence in practice does not seem to be significant. That tentative decision was published for comment in the November 2008 IFRIC Update newsletter. Deloitte has submitted a Letter of Comment (PDF 122k) noting some instances where regulatory assets and liabilities have been recognised under IFRSs. The Deloitte letter also notes that in several jurisdictions that will soon be applying IFRSs (including US, Canada, and Brazil) their national GAAP has required (or permitted) the recognition of regulatory assets and liabilities. Our letter notes that some within these jurisdictions believe that recognising such assets and liabilities is supportable under the current IFRS Framework.

Therefore, we ask the IFRIC to encourage the IASB to add this project to its agenda and publish guidance to ensure that IFRS are properly interpreted in a consistent manner across all jurisdictions. In preparing the guidance, we would suggest that the IASB perform a thorough analysis of the various regulatory regimes in across jurisdictions to ensure that the guidance appropriately captures the economic results of those regimes.

The issue on the agenda of the December 2008 IASB meeting for a possible Board agenda decision.

Recent changes in financial reporting in Singapore

12 Dec 2008

'Changes in Financial Reporting in Singapore', published by Deloitte & Touche (Singapore), is an annual update of the recent changes to Singapore's financial reporting framework.

This 2008 edition includes a summary of the new and revised Singaporean FRSs (standards) and INT FRSs (interpretations) issued since the previous edition in November 2007 and up to end of October 2008. There is also an updated comparison against IFRSs and a summary of outstanding exposure drafts. Also this edition discusses several other matters including amendments to SGX listing manual, launch of Catalist rules, and an update on auditing standards.

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Speeches at AICPA's SEC/PCAOB conference

11 Dec 2008

The American Institute of CPAs held its 36th Annual National Conference on Current SEC and PCAOB Developments in Washington on 8-10 December 2008, simulcast in five other cities.

Speakers included a range of representatives from the SEC (including Chairman Christopher Cox, Chief Accountant Conrad Hewitt, and staff from the Office of Chief Accountant and Division of Corporation Finance), FASB (including Chairman Robert Herz), IASB (including Chairman Sir David Tweedie and Board Member James Leisenring), PCAOB, AICPA, and other groups. The conference is quite popular among SEC registrants and their auditors because the SEC and PCAOB representatives provide insights on important issues for calendar year-end reporting.

  • Click here for Chairman Cox's remarks (PDF 51k). Excerpts relating to IFRSs and the SEC's mark-to-market study are in the box below.
  • The remarks of FASB Chairman Herz (PDF 70k) focused on Lessons Learned, Relearned, and Relearned Again from the Global Financial Crisis – Accounting and Beyond.
  • Speeches by SEC staff can be viewed on the SEC's website. These tend to give staff views on accounting topics of current interest at the Commission.
Excerpts from Chairman Cox's Remarks at the AICPA SEC-PCAOB Conference

Comments on IFRSs:

In order for IFRS to fulfill the promise it holds to be a uniter of the world's capital markets and a powerful tool for investors everywhere, there are a handful of principles that are critical to its success. Every one of us here today needs to see to it that these principles are applied.

  1. First, the standards must be crafted in the interest of investors. That has to be their overarching purpose.
  2. The second principle for the success of IFRS is that the standard setting process must be transparent. That is essential not only to maintain investor confidence, but to ensure the integrity and quality of the standards.
  3. Third, the standard setter must be independent. It cannot be said often enough that effective standards require a dispassionate arbiter, both in this country and around the world. That means the standard-setter must be independent from special pleaders, from the political process, from favored industries or industry players, and from national or regional biases.
  4. The standard setter must also be accountable. Just as the FASB's process must make U.S. GAAP accountable to the needs of investors, issuers and the markets, so too must the IASB ensure that IFRS actually meet the needs of investors and other stakeholders, and that they are updated in a timely way.
  5. And finally, just as with U.S. GAAP, it is vitally important that all of the stakeholders themselves participate in the standard setting process in order to ensure the continued success of IFRS.

Comments on the SEC's mark-to-market study:

The work we have already done suggests that the accounting standard setters could improve upon the existing security impairment models. Investors have also clearly indicated a view that the current concept of mark-to-market accounting increases the transparency of financial information provided to investors . . . but that in inactive or illiquid markets, additional guidance would be useful to promote reasonable application of the standards. We expect to release the final results of the SEC study as mandated by Congress by January 2.

Reminder about upcoming comment deadline

11 Dec 2008

We remind you that comments are due on 15 December 2008 on an exposure draft of proposed amendments to IFRS 7: 'Improving Disclosures about Financial Instruments', which was issued on 15 October 2008. The exposure draft proposes the following changes to IFRS 7.

Fair value disclosures

  • Introduction of a three level hierarchy when disclosing fair values (comparable to the US SFAS 157 hierarchy)
    • Quoted prices in active markets for the same instrument (without modification or repackaging)
    • Quoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant inputs* are based on observable market data
    • Valuation techniques for which any significant input is not based on observable market data
  • 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 the 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
  • Enhanced relationship between quantitative and qualitative disclosures of liquidity risk

Click for more information on the project.

Final proposal to restructure EFRAG

11 Dec 2008

Following public consultation, the European Financial Reporting Advisory Group (EFRAG) has published a plan to restructure itself with the goal of 'more influence for EFRAG in international standard-setting process'.

The final plan is based on proposals published in July 2008 (see our 23 July 2008 news story). The proposals envision a new EFRAG structure as shown in the diagram below. The report states that, to increase its influence on the IASB, 'EFRAG needs to place more emphasis on developing its own research and discussion papers at an early stage of the IASB's consideration of the topics concerned or even before they figure on the IASB agenda'. Among the changes to the current structure being proposed are:

  • A new nine-member Planning and Resource Committee (PRC) including four National Standard Setters (NSS), the EFRAG Technical Expert Group (TEG) Chair, and at least two Supervisory Board (SB) members. The PRC will set the agenda for proactive work, provide guidance on the allocation of resources to proactive projects, and monitor progress. The PRC will negotiate a Memorandum of Understanding with each of the NSS as a condition for membership.
  • An informal Coordination Group, consisting of a wider range of NSS, will also be set up (not shown in the diagram below).
  • The SB will have 17 members, including four with public policy experience (see next bullet) plus observers from the EC and CESR.
  • Four members of the SB must be experienced in public policy, either at a national or European level. They will not represent particular organisations.
  • New Governance and Nominating Committee (GNC) of the General Assembly (GA) in which some National Funding Mechanisms (NFM) have a seat. The GNC will have seven members – four appointed from among GA members and three from among the National Funding Mechanisms (NFM). The GA will continue to consist of representatives of the European organisations that are members of EFRAG.
  • An informal Consultative Forum for NFM as a process to coordinate the NFM in the various countries (not shown in the diagram below).
  • A new Consultation Group, replacing the current Advisory Forum. It will meet at least annually.
  • A three-tier funding model: European organisations, NFMs and the European Commission. The report states that EFRAG has not been able to be proactive 'due to limited resources'.

The current Technical Expert Group of nine to twelve voting members, plus three non-voting NSS chairs, will continue. TEG responsibilities will be:

  • Provide input to the IASB and IFRIC
  • Develop proactive discussion papers
  • Monitor ongoing IASB activities and provide feedback to the IASB
  • Issue endorsement advice to the EC on final pronouncements issued by the IASB
  • Issue effect study reports

The plan is described as a 'proposal'. It does not include a plan for or timing of transition.


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IASB re-exposes proposed related party standard

11 Dec 2008

The IASB has published a revised exposure draft (2008 ED) proposing to amend IAS 24 'Related Party Disclosures' with respect to 'relationships with the state'. The purpose of the revised ED is to simplify the disclosure requirements that apply to state-controlled entities under the existing IAS 24.

Prior to a revision of IAS 24 in 2003, state-controlled entities were exempted from the related party disclosures. That exemption was removed in the 2003 revision, which took effect in 2005 and continues in force today. Therefore, currently, profit-oriented state-controlled entities that use IFRSs must disclose transactions with other state-controlled entities. In those jurisdictions, such as China, where state-controlled entities are a major segment of the economy, the volume of disclosures under the requirements of the current IAS 24 has become burdensome and unwieldy, impairing understandability and usefulness of the financial statements.

In February 2007 the IASB published an exposure draft (2007 ED) of proposals to simplify the 2003 requirements by providing exemptions for transactions that met specified conditions. However, many respondents to the 2007 ED said that the proposed exemptions are insufficient and the revised standard would still be too complex.

Under the 2008 ED issued today, the revised exemption would not require state-controlled entities to assess the extent of state influence. It would exempt such entities from providing full details about transactions with other state-controlled entities and the state. Instead, (unlike the 2007 ED) the 2008 ED would require general disclosures about the types and extent of significant transactions.

The 2007 ED also proposed to amend the definition of a related party to clarify the intended meaning and remove inconsistencies. Respondents were largely in agreement with the revised definition of a related party. The IASB intends to finalise the definitions of a related party and of a related party transaction without further exposure (apart from one minor matter raised in the 2008 ED) and will issue them when it issues the amendments resulting from the 2008 ED.

Comments are requested by 13 March 2009. Click for press release (PDF 47k). The ED is available on the IASB's website.

Survey of UK IFRS financial reports

10 Dec 2008

Deloitte (United Kingdom) has published 'Right to the end – Surveying financial statements in annual reports'. The publication looks at what UK listed companies are reporting in the financial sections of their annual reports published between 1 August 2007 and 31 July 2008.

The publication is based on a survey of the financial statements of 130 listed companies, split into two categories – 30 investment trusts and 100 other companies. It includes a review of:

  • how compliance with disclosure requirements and the accounting policy choices made under IFRSs varied;
  • the level of variety in the presentation of primary statements; and
  • which critical judgements and key estimations directors consider to be the most significant.

The report includes detail of some current disclosure requirements and latest developments, as well as various 'good practice' examples. Click to download  Right to the End – Surveying Financial Statements in Annual Reports (PDF 3.640mb). Here are a few findings of the study:

  • 5% of the companies had a modified audit opinion
  • 51% of the companies presented additional non-GAAP performance measures on the face of the income statement
  • 14% of the companies did not identify any key sources of estimation uncertainty or areas of critical judgements in their financial statements
  • 88% of the companies had share option schemes, and 61% had continuing exposure to defined benefit obligations

IFRS compliance questionnaire for 2008

10 Dec 2008

Deloitte's IFRS Global Office has published our IFRS Compliance Questionnaire for 2008. This questionnaire summarises the recognition and measurement requirements in IFRSs issued on or before 31 October 2008.

It may be used to assist in considering compliance with those pronouncements. It is not a substitute for your understanding of such pronouncements and the exercise of your judgment. Users of the questionnaire are presumed to have a thorough understanding of the pronouncements and should refer to the text of the pronouncements, as necessary, in considering particular items in this questionnaire. The items in this questionnaire are referenced to the applicable sections of the IFRSs. The questionnaire is 329 pages long. The questionnaire is 329 pages long. Click to download 2008 IFRS Compliance Questionnaire (Word version) (ZIP of a Microsoft Word file 706k).

This questionnaire includes all new and revised Standards and Interpretations issued through 31 October 2008. Some of those become mandatory only in 2009, but early adoption is permitted in annual periods beginning 1 January 2008. Entities that have not elected to early-adopt any of these Standards or Interpretations, and that choose to defer moving to the new terminology introduced by IAS 1(2007), may prefer to complete the 2007 Compliance Questionnaire, which includes all of the Standards and Interpretations mandatory for annual periods beginning on or after 1 January 2008. IFRICs 11, 12, and 14 that were not effective for annual periods beginning on or after 1 January 2007 were shown in shaded text in the 2007 questionnaire. However, these Interpretations are effective for annual periods beginning 1 January 2008 and the relevant sections in the questionnaire should be completed. We remind you, also, that IAS 8.30 requires disclosures regarding Standards and Interpretations issued but not yet effective at the date of issue of the financial statements.

McCreevy says IFRSs are 'commercially flawed'

10 Dec 2008

In an address before the Association of European Journalists, Charlie McCreevy, the EU Commissioner for Internal Market and Services, identified ten critical lessons from the current global economic crisis.

One of them, Mr McCreevy says, is that IFRSs are 'commercially and prudentially flawed'. Click for Commissioner McCreevy's Speech (PDF 69k). An excerpt:

The relatively new International Accounting Standards – especially in terms of the rules on provisioning for bad debts and the valuation of assets – are commercially and prudentially flawed. They have had unintended and damaging consequences for banks operating in illiquid markets and for the markets themselves.

Correction list for hyphenation

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