2009

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G30 recommendations on fair value accounting

20 Jan 2009

On 15 January 2009, The Group of Thirty released a report Financial Reform: A Framework for Financial Stability. The report addresses flaws in the global financial system and provides 18 specific recommendations to: improve supervisory systems; enhance the role of the central banks; improve governance practices and risk management; address pro-cyclicality; enhance accounting practices; strengthen the financial infrastructure; and increase coordination internationally.

The project was led by Paul Volcker, Chairman, and Tommaso Padoa-Schioppa and Arminio Fraga Neto, Vice Chairmen. Mr Volcker and Mr Padoa-Schioppa are both former Chairmen of the IASC Foundation, under which the IASB operates. The Group of Thirty is a private, nonprofit, international body that aims to 'deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers'. Click to download List of Recommendations (PDF 288k).

Core recommendations in the Group of Thirty report: Financial Reform: A Framework for Financial Stability

Core Recommendation I Gaps and weaknesses in the coverage of prudential regulation and supervision must be eliminated. All systemically significant financial institutions, regardless of type, must be subject to an appropriate degree of prudential oversight.

Core Recommendation II The quality and effectiveness of prudential regulation and supervision must be improved. This will require better-resourced prudential regulators and central banks operating within structures that afford much higher levels of national and international policy coordination.

Core Recommendation III Institutional policies and standards must be strengthened, with particular emphasis on standards for governance, risk management, capital, and liquidity. Regulatory policies and accounting standards must also guard against procyclical effects and be consistent with maintaining prudent business practices.

Core Recommendation IV Financial markets and products must be made more transparent, with better aligned risk and prudential incentives. The infrastructure supporting such markets must be made much more robust and resistant to potential failures of even large financial institutions.

One of the specific recommendations under Core Recommendation III relates to 'Fair Value Accounting':

Fair Value Accounting – Recommendation 12:

  1. Fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.
  2. The tension between the business purpose served by regulated financial institutions that intermediate credit and liquidity risk and the interests of investors and creditors should be resolved by development of principles-based standards that better reflect the business model of these institutions, apply appropriate rigor to valuation and evaluation of intent, and require improved disclosure and transparency. These standards should also be reviewed by, and coordinated with, prudential regulators to ensure application in a fashion consistent with safe and sound operation of such institutions.
  3. Accounting principles should also be made more flexible in regard to the prudential need for regulated institutions to maintain adequate credit loss reserves sufficient to cover expected losses across their portfolios over the life of assets in those portfolios. There should be full transparency of the manner in which reserves are determined and allocated.
  4. As emphasized in the third report of the CRMPG, under any and all standards of accounting and under any and all market conditions, individual financial institutions must ensure that wholly adequate resources, insulated by fail-safe independent decision-making authority, are at the center of the valuation and price verification process.
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Two IFRS-related IVSC exposure drafts

20 Jan 2009

The International Valuation Standards Council has issued two exposure drafts for public comment.

Comments are requested by 30 April 2009. Posted on IAS Plus with the kind permission of IVSC:
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Addition to agenda for January 2009 IASB meeting

19 Jan 2009

A new item has been added to the IASB Agenda for Tuesday 20 January 2009 relating to IFRIC Interpretation 16 Hedges of a Net Investment in a Foreign Operation.

The IFRIC staff is proposing a fast-track amendment to IFRIC 16 to remove the restriction, currently in IFRIC 16, that the hedging instrument for a net investment in a foreign operation cannot be held by the foreign operation whose net investment is being hedged. Because IFRIC 16 is effective for annual periods beginning on or after 1 October 2008 with prospective application, and because hedge accounting designations cannot be retrospective, the staff believes that the amendment should be done urgently.

 

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SEC Chairman-designate is cautious about IFRSs

19 Jan 2009

On 15 January 2009 the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the nomination of Mary L Schapiro as Chairman of the Securities and Exchange Commission. Ms Schapiro indicated some concerns about the near-term adoption of IFRSs in the United States and said she would 'not necessarily feel bound by the existing roadmap that is out there for comment'.

Click here for the Webcast of the Hearing. Below is an unofficial transcript of Senator Reed's question about IFRSs and Ms Schapiro's reply.

Senator Jack Reed (D-RI): Much of what you are going to do will have complications and consequences overseas as well as here in the United States. One of the areas is the IFRS roadmap. We have repeatedly written to Chairman Cox to try to determine and develop a very deliberate roadmap, and I think there's a rush to judgment on this issue. In fact, I met with the CEO of the Honeywell Corporation who has similar concerns over disparate treatment under international rules that can be used to change income, that can be used to treat R&D expenses differently. There's a potential for arbitrage between the two systems that I think we have to avoid. Can you give us a notion of how you wish to proceed with this international accounting movement – with recognition that eventually we'll have that in a global economy and hopefully we will converge to a set of high level standards.

Mary Schapiro: Well, I would proceed with great caution so that we don't have a race to the bottom. I think we all can agree that a single set of accounting standards used around the world would be a very beneficial thing, would allow investors to compare companies around the world. With that said, I have some concerns with the roadmap that has been published by the SEC and is out for comment now. I have some concerns about the IFRS standards generally. They are not as detailed as the US standards. There's a lot left to interpretation. Even if adopted, there will still be a lack of consistency, I believe, around the world in how they are implemented and how they are enforced. The cost to switch from US GAAP to IFRS is going to be extraordinary, and I've seen some estimates that range as high as $30 million for each US company in order to do that. This is a time when I think we have to think carefully about whether imposing those sorts of costs on US industry really make sense. Perhaps my greatest concern is the independence of the International Accounting Standards Board and the ability to have oversight of their process for setting standards and the amount of rigor that exists in that process today. So, I will tell you that I will take a big deep breath and look at this entire area again carefully, and will not necessarily feel bound by the existing roadmap that is out there for comment.

 

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IFRSs required for some companies in Eritrea

19 Jan 2009

We have added a new country page for Eritrea and we have updated our page on Use of IFRSs by Jurisdiction.

The accounting framework in Eritrea is as follows:
  • Listed companies: There is no stock exchange in Eritrea.
  • Unlisted companies: IFRSs are required for:
    • Government-owned enterprises,
    • newly privatised companies (large taxpayers, or 'LTOs'),
    • banks, and
    • insurance companies.

 

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EITF Snapshot for January 2009

18 Jan 2009

We have posted the January 2009 edition of EITF Snapshot summarising the 15 January 2009 meeting of FASB's Emerging Issues Task Force. EITF Snapshot, published by Deloitte & Touche LLP (USA), enables readers to identify relevant topics and to understand quickly the meeting's outcome.

This EITF Snapshot covers the following issue discussed by the EITF at the meeting:
  • Issue 08-10 Selected Statement 160 Implementation Questions – Tentative conclusion reached
Initial EITF consensuses (known as 'consensuses-for-exposure') are exposed for a comment period after ratification by the FASB. At its first scheduled meeting after the comment period, the EITF considers comments received and, as warranted, affirms its consensuses-for-exposure as final consensuses. Those consensuses are then provided to the Board for final ratification.
Past issues can be downloaded Here.

 

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Three upcoming comment deadlines next week

17 Jan 2009

We remind you that comments are due next week on three IASB exposure drafts, as follows:

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IASB Employee Benefits Working Group meeting

17 Jan 2009

The IASB's Employee Benefits Working Group will meet at the Crowne Plaza London City Hotel, 19 New Bridge Street, London on Monday, 26 January 2009, 10:00am to 4:00pm.

The meeting is open to public observation. The agenda is below.

Working Group Agenda - Employee Benefits Working Group Meeting - 26 January 2009, London
  • Update on the project and next steps
  • Issues to be addressed in exposure draft
  • Proposed amendments to IFRIC 14
  • Possible simplification of pensions accounting for private entities
  • Financial Statement Presentation – Overview and implications for post-employment benefits
  • Feedback from working group members

 

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We comment on debt investment disclosure proposals

16 Jan 2009

Deloitte has submitted a Letter of Comment on the IASB's exposure draft (ED) of Proposed Amendments to IFRS 7: Disclosures of Investments in Debt Instruments.

We do not support issuance of the ED as currently drafted for a number of reasons:
  • We do not consider the proposals have a clear objective and therefore cannot determine whether the objective is met. The proposals do not illustrate the profit or loss effect and carrying values of all financial assets had they been classified differently; nor do they show the effect on impairment losses of applying different impairment loss models. Without a clearly identified objective that responds to an identified demand from users for specific information we cannot support the proposals as drafted.
  • The proposals show alternative measurement bases even though the entity may have been prevented from measuring on that basis. In addition, had the entity been able to measure financial assets differently it may have made different classifications decisions for financial liabilities, eg applying the fair value option. The disclosures may as a result be confusing or be misunderstood.
  • The discussions at the roundtable on the credit crisis in November and December 2008 that led to the issue of the ED focused on determining the most appropriate impairment model for AFS debt instruments. We believe consideration of this remains a priority and that the proposed 'as if' disclosures do not fill this gap or provide information to users that is most meaningful.
  • We believe there is insufficient time for many entities, particularly those with calendar year-ends, to provide the proposed disclosures as required by the effective date. The amount of work needed to provide the disclosures is significant, particularly when determining the amortised cost for AFS debt instruments that have previously been subject to impairment losses. This applies to all entities in all sectors.

 

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Deloitte's model HKFRS financial statements for 2008

15 Jan 2009

Deloitte's Asia-Pacific IFRS Centre of Excellence in Hong Kong has published illustrative financial statements for the year ended 31 December 2008. These statements illustrate the application of Hong Kong Financial Reporting Standards (HKFRSs), as well as the requirements of the Hong Kong Companies Ordinance and the Listing Rules of the Stock Exchange of Hong Kong and the Growth Enterprise Market, issued and effective up to 31 December 2008.

The statements do not reflect early application of new and revised standards, amendments, or interpretations that were issued but are not mandatory for 2008. Because HKFRS are virtually identical to IFRSs, these statements also illustrate compliance with IFRSs for 2008.
You will always find permanent links to these model financial statements and related presentation, disclosure, and compliance checklists on our Model Financial Statements Page. Although several new Standards and Interpretations were issued during 2008, none are effective for December 2008 year ends. For this reason, Deloitte has not produced revised IFRS model financial statements for December 2008. The majority of the Standards and Interpretations issued in 2008 are effective for annual periods beginning on or after 1 January 2009, and we expect to release our 2009 model IFRS financial statements illustrating the application of those Standards and Interpretations in the first half of 2009.

 

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