October

IFRS insurance accounting newsletter

13 Oct 2009

Deloitte (United Kingdom) has published the October 2009 issue of Insurance Accounting Newsletter.

This issue is titled The New Accounting Model Takes Shape and focuses on the key decision made by the IASB in September 2009 to adopt (by a bare majority vote of 8 out of 15) the 'Updated IAS 37 Model' rather than the 'Current Fulfilment Value Model'. The latter received unanimous support from the US FASB earlier in the year. The newsletter describes important features of the Updated IAS 37 Model and notes that IASB intends to publish an exposure draft before the end of the year 2009, with a five-month comment period ending in May 2010. An appendix to the newsletter includes a tabular summary of the tentative decisions to date, showing the issues on which the views of the IASB and the FASB agree, issues on which the views of the two Boards diverge, and IASB decisions not yet discussed by the FASB. Click to download Issue 8 of the Insurance Accounting Newsletter (PDF 141k). There are permanent links all issues of the newsletter on IAS Plus Insurance Project Page.

 

Agenda for joint IASB-FASB meeting

13 Oct 2009

The IASB and the US Financial Accounting Standards Board will hold a joint meeting at the FASB's offices in Norwalk, Connecticut USA on Monday to Wednesday 26-28 October 2009. The meeting will be open to public observation and will be webcast.

You can access the agenda on our October 2009 IASB meeting page.  We will also post Deloitte observer notes on this page as they are available.

Regulators' report on special purpose entities

12 Oct 2009

The Joint Forum has released its Report on Special Purpose Entities.

This paper serves two broad objectives. First, it provides background on the variety of special purpose entities (SPEs) found across the financial sectors, the motivations of market participants to make use of these structures, and risk management issues that arise from their use. Second, it suggests policy implications and issues for consideration by market participants and the supervisory community. Regarding accounting, here are three comments made in the report:

The ability to achieve off-balance sheet accounting treatment is affected by the accounting regime to which the originating or sponsoring entity is subject. Generally speaking, off-balance sheet treatment is easier to achieve under US GAAP than under IFRS. However, the US FASB new accounting rules related to SPEs that are effective in 2010 will significantly reduce the ability of institutions to use SPEs to achieve off-balance sheet treatment. As a result, US accounting changes will significantly alter the motivations for originators in using SPEs. These accounting changes will also affect leverage and risk-based capital ratios, and could have an important effect on the management of regulatory capital adequacy requirements by firms.

European financial firms generally have less ability to remove assets from their balance sheets by using SPEs. However, this is offset by the fact that risk-based capital requirements are not as closely tied to accounting in Europe. In contrast, while US firms currently can more easily remove assets from their balance sheets, the US implementation of Basel I required more capital for certain exposures than in Europe.

Some examples (but not an exclusive list) of the ways SPEs can potentially confuse or obfuscate the financial position of a company are:

  • Return on equity and return on assets can be exaggerated if revenue flows are received from SPEs but the assets in those vehicles are not recognised on the balance sheet;
  • Sector exposure may be obscured, either deliberately or not, by recognising some SPEs on balance sheet and not others;
  • Leverage ratios may be obscured.
An appendix to the report examines, in detail, the current accounting treatment of SPEs under IFRSs and under US GAAP. Click to download: The Joint Forum is a consortium of the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors that addresses issues common to the banking, securities, and insurance sectors, including the supervision of financial conglomerates.

CEBS consults on bank disclosures

11 Oct 2009

The Committee of European Banking Supervisors (CEBS) has published a consultation paper proposing disclosure guidelines intended to help financial institutions improve their risk disclosures in the wake of the financial crisis.

The disclosure guidelines are divided into three different parts, discussing respectively:
  • general principles to be applied to high quality disclosures
  • principles dealing with the content of disclosures on areas or activities under stress, in particular business models, impacts on results and risk exposures, impacts on financial positions, risk management, and sensitive accounting issues
  • guidance on presentational aspects of disclosures
Regarding sensitive accounting issues, the proposed disclosure guidelines state:

11. Financial institutions should be as specific as possible with regard to sensitive accounting issues. Disclosures should cover:

  • an adequate description of the accounting policies that are of particular relevance for the activities in question;
  • details of relevant changes, if any; and
  • detailed information where significant judgement has been applied.
Financial institutions are encouraged to highlight accounting policies that are of particular relevance for the areas or activities under stress. Such descriptions are most valuable when they focus on the specificities of the situation faced by the institution, rather than recycling generic descriptions.

 

Especially in a period of turbulence, when market confidence may be faltering, clear information on the management judgements affecting accounting figures is of the utmost importance since these can significantly affect the amounts recognised in the financial statements. For instance, judgement is called upon for fair values for financial instruments (especially when marking to model), impairment of financial and intangible assets and defined benefit pension schemes.

Comments are requested by 15 January 2010. CEBS intends to hold a public hearing in January 2010 in London, inviting supervised institutions and other market participants to present their views. Click to download:

Special Board meetings 15 and 16 October

11 Oct 2009

The IASB has begun posting the agenda papers for the special meetings it will hold on Thursday 15 October 2009 (11:00 to 13:00h London time) and Friday 15 October 2009 (11:00 to 15:00h London time).

Both meetings will deal with projects relating to the replacement of IAS 39. The papers posted so far indicate that the following projects will be discussed on each of the two days:

SEC remains committed to global standards

10 Oct 2009

US Securities and Exchange Commission Chairman Mary L Schapiro spoke about reforming the global financial system and the regulatory framework that governs it at a conference sponsored by the IOSCO Technical Committee in Basel, Switzerland on 8 October 2009. She noted that during the current global financial crisis, 'investor confidence in the transparency of the markets, sufficiency and even the reliability of the information they were getting was shaken to the core'.

She said that financial reports prepared in accordance with high-quality, consistent accounting standards are one of the most effective tools for providing transparency to the markets and instilling confidence in investors. Yet the financial crisis has demonstrated that some standards must be improved. She reiterated the Commission's commitment to a global set of accounting standards. Click for Chairman Schapiro's Remarks (PDF 40k). Here is an excerpt:

The crisis has highlighted importance of implementing and enforcing high quality and consistent accounting standards around the world. The SEC has of course played a leadership role in fostering this ideal and I remain committed to the goal of a global set of high-quality accounting standards. I also believe that there are issues that will be critical to address as we at the SEC consider the input we have received on last year's proposed roadmap on the role of international standards in the US. It is with the principles and ideas I just outlined in mind that I am committed to focusing our efforts this fall to following up with a work plan that expands upon the concepts proposed in the roadmap.

 

Proposal to adopt IFRSs in Argentina

10 Oct 2009

Argentina's Comisión Nacional de Valores (CNV, the National Securities Commission, an agency of the Argentine Ministry of Economics and Public Finance) has proposed to require IFRSs for all companies that publicly offer equity or debt securities, beginning with financial statements for the year ended 31 December 2011. The proposal is titled Adopción de Normas Contables Internacionales para la Preparación de Estados Contables.

There are approximately 130 publicly traded companies in Argentina, and they have approximately 500 subsidiaries and associates that will also prepare their financial statements using IFRSs. The CNV's proposed IFRS regulation would not apply to the following companies:
  • Financial institutions (their financial reporting is regulated by the Argentine Central Bank, which has recently announced its intention to require IFRSs probably starting in 2014)
  • Insurance companies (under the Argentine Insurance Oversight regulation)
  • Civil associations
  • Cooperatives
  • Other entities under the control of the CNV (trusts, mutual funds, and small entities that discount checks).
Prior to 2011, the companies that will be moving to IFRSs will be required to disclose the coming change in a note to their 2009 financial statements and to include in their 2010 financial statements a reconciliation of income and shareholders' equity from current Argentine GAAP to IFRSs. By requiring IFRSs for companies whose securities are publicly traded, the CNV would be acting to adopt a resolution approved in March 2009 by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE), which is the national accounting standard setter in Argentina. The FACPCE's Resolution – Resolución Técnica No 26: Adopción de las NIIF del IASB (PDF 64k) – states that the IFRSs issued by the International Accounting Standards Board (IASB), in the official Spanish translation issued by the IASB, must be applied – no local adaptations. Resolution No 26 also permits, but does not require, all other non-public companies to apply IFRS.
Click to view the proposal Adopción de Normas Contables Internacionales para la Preparación de Estados Contables (PDF 503k, Spanish).
There's more background information on our Argentina Country Page.

Guide through IFRSs 2009

10 Oct 2009

The IASC Foundation has published A Guide through International Financial Reporting Standards IFRSs July 2009.

This guide is the complete IFRS bound volume of standards, updated through 1 July 2009, with cross-references and other annotations added. The cross-references link the text in an IFRS to relevant IFRIC and SIC Interpretations and to illustrative examples and implementation guidance published in appendices to the IFRSs. The 3,008-page guide may be purchased for £90 plus shipping on the IASB's Website. Discounts are available for students, academicians, multiple orders, and developing countries.

9 IFRSs await EU endorsement

09 Oct 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 9 October 2009 (PDF 132k). The following 9 IASB pronouncements are awaiting European Commission endorsement for use in Europe:

Standards

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

Interpretations

  • IFRIC 17 Distributions of Non-cash Assets to Owners
  • IFRIC 18 Transfers of Assets from Customers

Amendments

  • IFRS 7 Amendment – Improving Disclosures About Financial Instruments
  • IFRIC 9 and IAS 39 Amendment – Embedded Derivatives
  • Improvements to IFRSs (Issued 16 April 2009)
  • Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions
  • Amendments to IFRS 1 Additional Exemptions for First-time Adopters
  • IAS 32 Classification of Rights Issues
You can always find the endorsement status report here.

 

Two publications from Deloitte Portugal

09 Oct 2009

We have posted two recent publications from Deloitte Portugal.

Both publications (which are in Portuguese) are related to the new financial reporting framework in Portugal that will be effective on 1 January 2010, known as Sistema de Normalização Contabilística, or SNC:

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.