PCAOB staff guidance on internal control for SMEs

31 Jan 2009

The US Public Company Accounting Oversight Board (PCAOB) has published a 62-page guidance publication Staff Views An Audit of Internal Control Over Financial Reporting That Is Integrated With An Audit of Financial Statements: Guidance For Auditors of Smaller Public Companies.

The PCAOB's objective in issuing the Guidance is to help auditors apply the provisions of PCAOB Auditing Standard 5 An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements to audits of smaller, less complex public companies. Click for:


IASB proposes amendments to IFRICs 9 and 16

31 Jan 2009

Based on decisions reached at the IASB's January 2009 meeting, the Board has issued Exposure Draft ED/2009/1 'Post-implementation Revisions to IFRIC Interpretations (Proposed amendments to IFRIC 9 and IFRIC 16)'.

The proposals would amend IFRIC 9 Reassessment of Embedded Derivatives and IFRIC 16 Hedges of a Net Investment in a Foreign Operation as follows:
  • IFRIC 9: Exclude from the scope of IFRIC 9 embedded derivatives in contracts acquired in combinations of entities or businesses under common control or in the formation of a joint venture. The proposed effective date is annual periods beginning on or after 1 July 2009 – in time for the effective date of IFRS 3 (2008).
  • IFRIC 16: Allow entities to designate as a hedging instrument in a hedge of a net investment in a foreign operation an instrument that is held by the foreign operation that is being hedged. The ED proposes to amend IFRIC 16 paragraph 14 by deleting a parenthetical comment: '(except the foreign operation that itself is being hedged)'. The proposed effective date is annual periods beginning on or after 1 October 2008.
The IASB requests comments on the ED by 2 March 2009. Click for: Note that the IASB has redesigned the covers of its pronouncements and proposals and has instituted a new numbering system for EDs (this one is ED/2009/1).


IASB Board appointments

30 Jan 2009

The Trustees of the IASC Foundation have approved a change in the status of Stephen Cooper from part-time to full-time member of the IASB.

Mr Cooper has served on the Board since August 2007. His term expires 30 June 2012. The Trustees also confirmed the reappointment of Jan Engstrom to serve a second five-year term as a member of the IASB from May 2009. Mr Engstrom joined the Board in May 2004.


IFRSs will be available without charge

30 Jan 2009

The Trustees of the IASC Foundation have announced that, in response to many public requests, the IASB's standards, but not the accompanying documents such as the basis for conclusions or implementation guidance, will be made available free of charge on the IASB's website.

Click for IASB's website.

9 IASB pronouncements await EU endorsement

30 Jan 2009

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 27 January 2009 (PDF 105k).

The report reflects the recent endorsement of the following for use in Europe:

  • IAS 32 and IAS 1 Amendments for Puttable Instruments and Obligations Arising on Liquidation
  • Improvements to IFRSs – 2007 (affects various standards)
  • IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity, or Associate
Currently, there are 9 IASB pronouncements are awaiting European Commission endorsement for use in Europe, as follows:


  • IFRS 1 First-time Adoption of IFRS – Restructured standard (2008)
  • IFRS 3 Business Combinations (2008)


  • IFRIC 12 Service Concession Arrangements
  • 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


  • IAS 27 Consolidated and Separate Financial Statements (2008)
  • IAS 39 Amendments for Eligible Hedged Items
  • IAS 39 Amendments for Reclassification of Financial Assets


IASCF forms Monitoring Board, enlarges IASB

30 Jan 2009

The IASC Foundation Trustees have announced important amendments to the IASCF Constitution effective 1 February 2009, including formation of a Monitoring Board and expansion of the IASB from 14 to 16 members.

The Trustees approved the changes at their meeting in New Delhi, India, on 15 and 16 January 2009. Among the changes:


Monitoring Board

  • A Monitoring Board (MB) of public authorities has been formed. The goal is to enhance public accountability of the IASC Foundation while not impairing the independence of the standard-setting process. (During the Trustees' deliberations and due process leading to these Constitution changes, this body has been referred to as the 'Monitoring Group' rather than 'Monitoring Board'.)
  • The MB will initially comprise the relevant leaders of the European Commission, the Japanese Financial Services Agency, the US Securities and Exchange Commission, the Emerging Markets Committee of IOSCO, and the Technical Committee of IOSCO. The chairman of the Basel Committee on Banking Supervision will be a non-voting observer.
  • The MB will participate in the Trustee nomination process and approve appointments to the Trustees.
  • The MB will have oversight responsibilities in relation to the Trustees and their oversight of the IASB's activities, in particular the agenda-setting process and the 'IASB's efforts to improve the accuracy and effectiveness of financial reporting and to protect investors'.
  • The MB 'may refer accounting issues to, and will confer regarding these issues with, the Trustees and the IASB Chair'. The MB may request a meeting with 'the Chairpersons of the Trustees and the IASB'.
  • 'If the IASB determines that consideration of the issue(s) identified by the IASCF Monitoring Board is not advisable or that the issue(s) cannot be resolved within the time frame suggested by the Monitoring Board, the Trustees should:
    • Call on the IASB to undertake all reasonable efforts to consider issue(s) in a manner that is consistent with the public interest, taking into account the protection of investors.
    • Call on the IASB to explain its position through the Trustees regarding the IASB's position on the issue(s); and
    • Promptly notify the IASCF Monitoring Board of the IASB's position.
  • The IASCF has released the Memorandum of Understanding related to the Monitoring Board. This is in process of being signed by all parties.
International Accounting Standards Board
  • The IASB will increase from 14 to 16 members (with up to 3 part-time members) by 2012. To ensure a broad international diversity, by July 2012 there will normally be:
    • four members from the Asia/Oceania region;
    • four members from Europe;
    • four members from North America;
    • one member from Africa;
    • one member from South America; and
    • two members appointed from any area, subject to maintaining overall geographical balance.


Click for:


Newsletter on IASB's revenue discussion paper

29 Jan 2009

Deloitte's IFRS Global Office has published an IAS Plus Update Newsletter Discussion Paper Proposes New Basis for Revenue Recognition.

On 19 December 2008, the IASB and FASB jointly published a discussion paper (DP) that 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.

Comment deadline is 19 June 2009.

Click for: IAS Plus Update Newsletter Discussion Paper Proposes New Basis for Revenue Recognition

Links to Past IAS Plus Newsletters.

Employee benefits working group meeting notes

29 Jan 2009

The IASB's Employee Benefits Working Group met in London on 26 January 2009. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting.

Notes from the Employee Benefits Working Group Meeting - 26 January 2009

Update on Project and Next Steps

After a short introduction from the chairman the staff gave an update of the latest outcomes from the Discussion of Post-employment Benefits at the January IASB meeting. The staff informed participants that the Board decided to follow a two step-approach for the short-term improvements to pensions accounting, with each step representing a separate exposure draft (ED), with final standards to be published by 2011:

  • Step 1: Recognition, presentation, disclosures and other minor issues
  • Step 2: Contribution-based promises

The staff explained that the ED for step 1 was expected for Q3/2009. Some participants welcomed this split compared to the three step approach originally proposed to the IASB at its January 2009 meeting. Others would have preferred the treatment of actuarial gains and losses to be dealt with as part of the long-term project that would review the measurement of defined benefit schemes. One member noted that some of the minor issues should be addressed via the IASB's annual improvements process because this might lead to an earlier effective date. A number of working group members emphasised that as disclosures were important for investors, these should be dealt with in the short term.

Issues to Be Addressed in the Exposure Draft on Step 1

Staff sought opinions on the following items that would be addressed in an ED as 'other issues':

  1. Additional guidance on the discount rate
  2. Multi-employer exemption
  3. Identification of back end loaded plans
  4. Accounting for plans with risk-sharing or conditional indexation features
  5. Short-term and long-term benefits
  6. Tax relating to pension costs

Additional guidance on the discount rate

Participants identified several issues with the current guidance for determining the discount rate used to measure the defined benefit obligation. It was acknowledged that, whilst welcomed, providing more guidance could be difficult until the broader issue of measurement of defined benefit plans was addressed. Further, participants highlighted that the current guidance issued by various sources is varies and sometimes contradicted each other. One member of the working group noted that the discount rate is only one part within a large group of estimates required for measuring the defined benefit obligation.

Multi-employer exemption

The staff asked participants whether providing a blanket exemption that would enable participants to treat defined benefit multi-employer plans like defined contribution plans on a much wider scale than under present IAS 19 would reduce information in an unacceptable way. Many participants were concerned about providing such an exemption, as this had the potential of misuse by entities structuring plans as multi-employer plans. One member supported such an exemption with restrictions (for example, where the entity plays a dominant role in the plan) if accompanied by detailed disclosures. One of the Board members present noted the danger that if those plans were not accounted for by the entities, they would not be accounted for anywhere.

Identification of back end loaded plans

It was noted that under current IAS 19 future salary increases must be included in assessing whether the benefit formula leads to materially higher benefits in later stages of a plan. One member said that this was preferred view by accountants. Another member added that this was an additional smoothing mechanism. This issue was identified by many as a source of divergence in practice. Working Group members generally felt that this should be included in the first ED.

Accounting for plans with risk-sharing or conditional indexation features

While most participants agreed this was an issue and more guidance would help, one member remarked that this could delay the deadline for the ED, especially if risk-sharing plans were addressed.

Short-term and long-term benefits

It was acknowledged the distinction between short-term and long-term benefits was an issue that should be resolved as it affects measurement of the benefit.

Tax relating to pension costs

It was suggested that this would be an issue for annual improvements.

Proposed Amendment to IFRIC 14

The staff introduced the proposed amendment to IFRIC 14 that would clarify the accounting for voluntary contributions to a plan where a minimum funding requirement existed. Participants were informed that the Board decided at the January Board meeting that this was akin to a prepayment and, hence, the full amount of voluntary contributions should be capitalised. Many members supported this decision, but highlighted that IFRIC 14 was in need for further clarification and was difficult to apply in many jurisdictions.

Possible Simplifications of Pension Accounting for Non-publicly Accountable Entities

On behalf of the staff of the IFRS for Non-publicly Accountable Entities (formerly SME or Private Entities) project team, members of the working group were asked for possible simplifications to defined benefit pension accounting for private entities. It was noted that actuarial valuations were costly and unnecessary burdensome for some small entities. Moreover, in some economies there would not be a sufficient number of actuaries to value such plans.

While some members saw room for simplification by increasing the periods between valuations or by using a unified model that was suitable, yet not perfect, for a wide range of plans, others were concerned about providing such simplification, as pension promises are both complex and risky by nature, and opting for simplistic valuation solutions would obscure that fact. Other proxy measurements mentioned comprised either using a valuation for funding purposes (where funding requirements existed) or quotes for insuring the obligation. However, it was acknowledged that insurance companies would not provide this information without being paid on a recurring basis.

One representative of the actuarial profession noted that there were already efforts to provide actuarial valuations on a not-for-profit basis via an association called 'Actuaries without Frontiers'. Another participant highlighted that involvement of an actuary is not a requirement in IAS 19 and probably this was also true for the private entities IFRS. Some believed that actuaries are sometimes not in a position to provide appropriate valuations because the population of employees would be too small to apply the usual methodologies. It was noted that while for large pension plans, potential measurement errors could be kept within reasonable limits as the 'rule of large numbers' applied, the range of possible outcomes and hence the potential for errors would be far greater for plans with only a small number of participants.

Most participants agreed that any simplification in accounting must be accompanied by appropriate disclosures.

Financial Statement Presentation – Implications for Employee Benefits

Staff from the financial statement presentation project team provided a summary of the proposals in the recently issued Discussion Paper on financial statement presentation.

The group had a lengthy discussion about the implication on presenting assets, liabilities, income, and expenses from post-employment benefits. In particular, members were interested in how the changes in a pension obligation would be allocated to the 'operating', 'investing,' and 'financing' sections, and where remeasurement gains or losses would appear.

The staff informed members that the Board had decided that all components of changes in the pension obligation would have to be presented separately on the face of the statement of comprehensive income within profit or loss. Many working group members preferred an approach under which only service cost would be presented in the operating section, but would prefer to allocate remeasurements into other comprehensive income (OCI). Those members saw this component as not being management's responsibility. This was also identified as a possibility to take away political pressure from the proposals. One of the analysts present noted that OCI only existed for political reasons.

The staff turned the discussion to possible approaches to disaggregate changes in the pension obligation. One of the crucial items was the identification of the return on plan assets. The discussion paper on pensions proposed three alternatives:

  • Expected return
  • Return based on dividends received for equity returns and market rates for debt investments
  • Implicit rate of return

Staff highlighted that there was not much support for the second alternative and some support for the implicit rate of return. However, the majority of the participants favoured an expected return approach, possibly accompanied by more guidance on how to determine it. Analysts present preferred an 'actual returns' approach, which they would support with footnote disclosure of the expected rate and explanation about the differences.


The chairman closed the session by asking participants whether there were any areas for improvement of working group meetings. Working group members were generally satisfied with the way such meetings were handled. However, they would appreciate earlier involvement in the comment letter analysis and more timely delivery of the minutes of the meeting.

The next meeting will take place end of March or early April 2009.

This summary is based on notes taken by observers at the Employee Benefits Working Group meeting and should not be regarded as an official or final summary.

IASB webcast on revenue recognition paper

29 Jan 2009

Twice on 3 February 2009, the IASB will hold live web presentations explaining the joint IASB-FASB discussion paper on revenue recognition published in December 2008. The discussion paper is open for public comment until 19 June 2009. The webcasts will allow listeners to submit questions to the presenters.

The IASB has announced that these webcasts are postponed to 10 February 2009 'due to unforeseeable circumstances'.
They are free of charge. Details:


IAESB proposes international education framework

29 Jan 2009

IFAC's International Accounting Education Standards Board (IAESB) has invited comments on proposed revisions to the Framework for International Education Standards, which sets out the concepts that underlie the IAESB's International Education Standards (IESs).

The proposed framework consists of two parts:
  • Part One explains the educational concepts of competence, initial professional development, continuing professional development, and measurement of the effectiveness of learning and development, which will be used by the IAESB when developing the IESs; and
  • Part Two describes the nature of the IESs as well as the related IAESB pronouncements and IFAC member body obligations.
The framework is targeted primarily to IFAC member bodies that have direct or indirect responsibility for the learning and development of their members and students. It is, however, also relevant to a wide range of stakeholders, including accounting faculties at universities, employers of professional accountants, professional accountants, and prospective professional accountants. Comments are due 30 April 2009. During the comment period, you can download the proposal on IFAC's Exposure Draft Page.


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