September

International accounting regulators meet

15 Sep 2009

Regulators of the accounting profession in over 20 jurisdictions met in San Francisco on 10-11 September 2009 for the Second Annual Forum of International Accountancy Regulators.

The Forum is sponsored by the National Association of State Boards of Accountancy (NASBA) and is devoted to the exchange of issues and ideas related to the global impact of international accounting and auditing regulation. During the two-day event, speakers addressed the complexities of international mobility, the legal liability challenges faced by auditors of public companies, and the adoption of IFRSs in the US and throughout the world. Fermin del Valle, partner in Deloitte Argentina and former IFAC chair and member of the Financial Crisis Advisory Group (FCAG), discussed the challenges and benefits of globally reporting high quality financial information that reflects economic reality. Click for:

 

9 IFRSs await EU endorsement

14 Sep 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 14 September 2009 (PDF 131k). 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

 

Nearly 90% view IFRS adoption in USA as 'likely'

14 Sep 2009

89% of 245 financial executives who responded to a July 2009 Deloitte survey said that their companies viewed mandatory IFRS conversion in the United States to be highly likely or somewhat likely.

And 80% of the companies are already taking action – with 40% having already performed a high-level IFRS assessment and another 40% planning to do so in the next one to two years. These results, compared to trends reported by Deloitte in April 2009, are a strong indication that attitudes and dynamics around IFRSs are changing in the US. In addition, 67% of the companies have designated a person or team to focus on IFRSs or monitor IFRS developments. Only 20% of the respondents indicated they have no plans to perform IFRS assessment activities. Click to download:

 

New guide to IFRSs from a US perspective

13 Sep 2009

The Center for Audit Quality of the American Institute of CPAs has published a Guide to International Financial Reporting Standards.

The purpose of the Guide is 'to provide interested parties with useful information and to help facilitate an informed public discussion among all those who have a stake in our capital markets system'. You can Download the Guide (PDF 7,865k) from the CAQ website.

 

Notes from the London financial instruments roundtable

12 Sep 2009

The IASB conducted a Roundtable on Financial Instruments – Classification and Measurement at the Board's offices in London on Thursday 10 September 2009. Board member Robert Garnett chaired the sessions, and Board members Stephen Cooper, Amaro Gomes, Jim Leisenring, John Smith, and Wei-Guo Zhang, and FASB Chairman Robert Herz, were at the table.

Presented below are the preliminary and unofficial notes taken by Deloitte observers at the Roundtable. Our project summary is Here.

Notes from the Financial Instruments Roundtable - 10 September 2009, London

Overall comments

There was broad agreement with the mixed measurement model proposed by the IASB, and with the 'business model' overlay. The FASB approach (all financial instruments at fair value on the balance sheet; with some changes recognised in profit and loss, others in other comprehensive income) did not receive much support. The political realities facing the IASB were acknowledged, and participants were largely supportive of the IASB's efforts to address financial instrument accounting on a timely basis-although this did potentially compromise short-term convergence with the FASB.

Items that must be measured at fair value through profit and loss

There was a genuine consensus that the IASB's choice of a mixed measurement model was the appropriate one, at least at this stage. Participants also agreed that both the terms of the instrument and the entity's business model were important considerations in determining the appropriate accounting. However, there were divergent views about whether one should have primacy over the other.

Many participants supported the IASB's proposals, at least for financial assets, but some expressed concerns about the consequences for liabilities. Many supported fair value as the default measurement attribute, with the onus on the entity to prove that the criteria for amortised cost measurement were met; although some were less enthusiastic and wanted a wider role for amortised cost.

Many participants were concerned about how the IASB had defined the amortised cost category, in particular about how operational the 'basic loan features' and 'managed on a contractual yield basis' attributes were (more guidance was requested); but views were mixed about whether the proposed cut would lead to more or fewer instruments being measured at fair value.

The proposed elimination of the concept of embedded derivatives was criticised and some participants would support a simplified approach to bifurcating embedded derivatives. However, there was also significant support for eliminating embedded derivatives altogether.

Some participants challenged the IASB's conclusions that distressed debt could not have basic loan features, noting that the distressed debt example illustrated the need for the IASB to identify the principles underlying 'basic loan features', rather than trying to illustrate their intentions through examples. However there was general agreement that leverage in an instrument was not a basic loan feature.

The 'other' measurement category

The roundtables discussed how an instrument should be measured if it is not measured at fair value through profit and loss. The IASB has proposed that the other category should be amortised cost; the FASB has proposed fair value through other comprehensive income.

Bob Herz introduced the FASB's proposed alternative, noting that the FASB had opted for a fair value approach because, in their opinion, amortised cost was not as relevant as a current measure. In addition, by requiring fair value on the balance sheet, the FASB sought to ensure that quarterly and annual earnings releases reported the fair value of financial instruments, rather than waiting for the financial statement footnote disclosure.

Participants did support achieving a converged answer on this issue, although not all agreed what this should be. There was a concern that neither the IASB nor the FASB had a clear understanding of what should be recognised in OCI and why; and whether items recognised in OCI could or should be reclassified to profit and loss. Participants from certain industries (for example, fund management and some insurers), wanted the ability to use OCI to reflect their long-term management of a portfolio of items while retaining the ability to reclassify realised gains and losses to profit or loss.

Some participants were supportive of the FASB's 'balance sheet at fair value' approach, but others did not support this – especially measuring liabilities at fair value. In addition, there was concern about the extent to which the fair value adjustment was recognised in profit or loss, although others were equally concerned that interest and impairment might not always be recognised in profit and loss (this applies particularly to the IASB's proposals on equity instruments).

Exceptions to the general principles

Equity instruments

There was significant criticism for the IASB's proposal that some equity instruments not held for trading should be measured at fair value with subsequent changes in fair value recognised in other comprehensive income. A significant number of participants supported an alternative approach that would retain the current 'available for sale' category for equity instruments only, with a simplified impairment test (lower of cost and current market value) with the requirement that subsequent reversals up to original cost should be recognised.

A few participants suggested retaining the 'cost' exception for unquoted equities. In response, other participants noted that considerable progress had been made in recent years in measuring private equity instruments, especially given the growth in private equity financing. There are reasonably robust models available.

Some participants, notably from Europe, were concerned many of the instruments in the fair value through profit and loss category also had a significant level of measurement uncertainty attached to them, and encouraged the IASB to explore whether it would be possible to reflect the measurement uncertainty in other comprehensive income (although they did not suggest how this might be achieved).

Securitisation transactions

Participants in both sessions discussed securitisation transactions in the context of multiple tranche or 'waterfall' transactions. The proposed application guidance states that 'any tranche that provides credit protection to other tranches in any situation does not have basic loan features.' Many participants suggested that it was preferable to have a two-step approach to determining whether a tranche had basic loan features. This involved 'looking through' the securitisation vehicle to the underlying assets and cash flows. 'Looking through' was difficult, but it was possible in many situations. If it was not possible to look through, fair value should be required.

IASB members around the table challenged participants, especially those from the investment banks, about whether it was possible to look through a securitisation transaction: the IASB had previously been told by some that it was not operational, now it seemed it was.

Reclassification

A significant number of participants stated that, should the business model 'overlay' be retained, reclassification should be mandatory if the business model changed. Participants noted that 'business model' was not a euphemism for 'management intent', but went to the core of the business; its fundamental purpose; how it was run; etc. Consequently, changes in the business model would likely be very infrequent.

This summary is based on notes taken by observers at the roundtable and should not be regarded as an official or final summary.

 

EITF Snapshot for Sept 2009

12 Sep 2009

We have posted the September 2009 edition of EITF Snapshot summarising the September 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. Past issues can be downloaded Here. This EITF Snapshot covers the following issue discussed by the EITF at the meeting:
  • Issue 08-1 Revenue Arrangements With Multiple Deliverables – Final consensus
  • Issue 08-9 Milestone Method of Revenue Recognition – No consensus reached. Further deliberations are expected at a future EITF meeting
  • Issue 09-2 Research and Development Assets Acquired in an Asset Acquisition – Consensus-for-exposure
  • Issue 09-3 Certain Arrangements That Include Software Elements – Final consensus
  • Issue 09-4 Seller Accounting for Contingent Consideration – No consensus reached. No further discussion expected
  • Issue 09-B Consideration of an Insurer's Accounting for Majority Owned Investments When the Ownership Is Through a Separate Account – Consensus-for-exposure
  • Issue 09-E Accounting for Distributions to Shareholders With Components of Stock and Cash in the Calculations and Presentation of Earnings per Share – Consensus-for-exposure
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.

 

We comment on 'rights issues' ED

11 Sep 2009

Deloitte Touche Tohmatsu has submitted comments on the IASB Exposure Draft Classification of Rights Issues. The ED proposes to amend IAS 32 so that a rights issue that is (a) denominated in a currency other than the functional currency of the issuer and (b) issued pro rata to an entity's existing shareholders for a fixed amount of cash should be classified as equity.

Our letter acknowledges that the requirement in IAS 32 that a derivative is an equity instrument only if it will be settled by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments (the 'fixed for fixed' criterion) is a 'bright line rule that lacks a clear conceptual basis' and creates practice problems.

Nonetheless, we do not think the IASB should deal with rights issues in isolation, because it would create inconsistencies with the accounting for other derivatives. Instead, we recommend that the IASB should take this opportunity to address the 'fixed for fixed' criterion in its entirety on an accelerated basis. Specifically, the IASB should develop a model that has a clear principle for when a derivative contract that will or may be settled through the delivery of the issuer's own equity instruments can qualify for equity classification.

 

Click to download Our Letter of Comment (PDF 25k). All past letters comment are Here.

 

Notes from IASCF constitution roundtable

10 Sep 2009

The IASC Foundation held the first of the Roundtables on Part 2 of its Review of the Foundation's Constitution in London on 9 September.

Gerrit Zalm, IASCF Chairman, chaired the sessions, accompanied by IASCF staff and Sir Bryan Nicholson, IASCF Trustee. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the roundtable. Upcoming constitution roundtables are New York on 6 October 2009 and Tokyo on 21 October 2009.

Notes from IASC Foundation Constitution Roundtable - London, 9 September 2009

Consistent themes

Several participants noted the great strides made by the IASCF and the IASB to improve its governance, structures, consultations, and other operational aspects of its activities, but noted that perceptions of the organisation were still often negative. The Trustees and the IASB needed to do all things necessary to reverse these perceptions. The amendments proposed by the Trustees could lay the foundations of such a shift in perception.

The participants expressed broad agreement with the majority of the proposals. Five areas were consistently highlighted.

Agenda setting

Participants want the Trustees to be bolder and require a formal public consultation, not necessarily annually but regularly, on the IASB's agenda and priorities. The SAC, even in its latest incarnation, is not able to represent all constituents. Consequently, to ensure that the IASB's agenda and the priority it assigns to the projects on it have the support of as many constituents as possible, public consultation is necessary. In the words of one participant, the IASB should make as much effort over setting the agenda as over the standards themselves.

The importance of establishing 'feedback mechanisms' on the IASB's agenda-setting activities that were, and were seen to be, an effective engagement with constituents, was mentioned by almost all participants.

Participants and Trustees expressed the hope that such a process could be developed without becoming overly bureaucratic.

IASB's Due Process

Many participants suggested that the IASB should be required to provide feedback to constituents, especially the SAC, about how it used the comments it received on agenda proposals and formal consultation documents, not only where the Board accepted arguments, but as importantly why it did not accept those who disagreed with the proposal or offered an alternative approach. This feedback was seen by many as essential to maintaining the IASB's legitimacy as a responsible and responsive independent standard-setter.

Participants recommended that the IASB be required to undertake a substantive redeliberation of an issue in the face of a substantial, unorchestrated level of opposition to a principle. In addition, the IASB should be encouraged to conduct field tests of proposals that are controversial or change existing practice in an untested manner.

Fast-track Due Process

This was the topic that received the most comment. While some, including the European Commission representative, supported constitutional language to facilitate it, many were opposed. Those who were opposed noted that the current 30-day due process was the bare minimum that constituents, especially representative organisations, could reasonably be expected to consult and formulate a thoughtful response to a proposal. Others saw it simply as unnecessary and likely to be open to abuse.

IASCF Oversight

Most participants thought that the constitutional provisions for IASCF oversight of the IASB were sound, but that the operational aspects of those provisions (benchmarks, etc) should be documented properly so that constituents could make their own judgements about whether the Trustees (and Monitoring Board) were actually providing appropriate robust oversight of the IASB.

Funding

Many participants, while acknowledging that the IASCF had a difficult task negotiating with so many different jurisdictions and regions, noted that the IASCF needed to establish a sustainable funding regime as quickly as possible. Adequate funding helped to insure independence, while a lack of independence brought with it the danger of retreating from due process. While noting the European Commission's proposal for EU-level finding, participants noted that such funding might not be as desirable (or sustainable) as funding from preparer companies and users of the financial statements.

Other issues

  • Some participants commented on the proposals for IASB members' terms: while most accepted the '5 years + 3' proposal, some urged that flexibility was more important subject to an overall maximum term (as now). There was a worry that experience could be lost and that there could be disruption to the standard-setting activities as a result.
  • Some participants thought that the IASCF's relationship with the Monitoring Board was still unclear and should be clarified. The Trustees had stated that it was separate from or outside the IASCF 'envelope' and yet the operations of the IASCF and the Monitoring Board seemed to contradict that statement.
  • Many participants supported the possibility to appoint up to two vice-chairmen for each of the IASCF and IASB, seeing that this would help with the outreach activities of both parts of the organisation.
  • Some participants wanted a stronger statement in the Constitution about the role and interest of prudential regulators in the activities of and standards issued by the IASB. However, other participants were equally strongly of the view that the investor community should be recognised as the primary user group. Prudential regulators have extra powers that enable them to obtain additional information from entities – a power not available to investors. However, participants agreed that there should be dialogue between the IASB and prudential regulators and others with legitimate interests in financial reporting standards.
  • There were varying degrees of enthusiasm for the change of name, with some seeing it as vital and others mostly irrelevant.

Click for IASCF Constitution Review 2008-2010.

Deloitte IFRS newsletter in Spanish

10 Sep 2009

Deloitte (Colombia) has published the Spanish translation of the following IFRS publication: Boletín de Actualización IAS Plus – IASB emite borrador para discusión pública sobre mejoramientos anuales.

New jurisdiction pages for Guam and Guyana

09 Sep 2009

We have added new jurisdiction pages for Guam and Guyana.

Our jurisdiction pages describe, among other things, each jurisdiction's financial reporting framework:
  • Guam. Companies in Guam follow the US GAAP issued by the Financial Accounting Standards Board (FASB) as the primary source of authoritative literature for financial reporting. As of now, there are still various differences between IFRSs and US GAAP, although convergence efforts are underway ongoing.
  • Guyana. The Companies Act empowers the Institute of Chartered Accountants of Guyana (ICAG) to adopt accounting standards for Guyana that are mandatory for all companies. Until 2000, the ICAG had been considering International Accounting Standards (IASs) individually and adopting them, though at a later date than the effective date specified in the IAS. Effective 1 July 2000, the ICAG Council adopted a policy by which IFRSs automatically become effective in Guyana at the same time as they are effective internationally. Thus all companies are required to follow IFRSs. The Council is currently considering the adoption of the IFRS for SMEs.
Links to all of our jurisdiction pages are Here.

 

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.