The newsletter discusses the FASB's and IASB's recently released Discussion Paper Preliminary Views on Revenue Recognition in Contracts With Customers, which outlines the boards' preliminary views on a single, contract-based revenue recognition model.

 

Featuring on-campus lectures and transcripts from Deloitte subject matter leaders, actual case studies and case solutions, and other materials, the course is available free to all colleges and universities. Course materials are divided into eight sessions, with each session containing a unique set of presentations, case studies, and lecture notes. The materials include a detailed introduction to IFRS and provide an overview of the differences between IFRS and US generally accepted accounting principles. Specific topics covered in the Deloitte IFRS curriculum materials include:

• financial statement presentation;
• revenue, inventory and income tax;
• business combinations, discontinued operations and foreign currency;
• intangibles and leases;
• property and asset impairment;
• provisions, pensions and share-based payments;
• financial instruments; and
• consolidation policy, joint ventures and associates.

For more information about Deloitte's IFRS University Consortium please go to the website: www.deloitte.com/us/ifrs/consortium. Links to the course materials are Here.

 

The report provides regulatory background and steps to consider moving forward, including the following sections:

• Industry Views on IFRS for Investment Funds
• Challenges and Opportunities for Investment Funds
• Your Roadmap
• Technical Accounting Issues for Investment Funds
• More Than Accounting and Financial Reporting
• Smoothing the Transition
• Time for Leadership
• Resources & Contacts

The report points out that an IFRS conversion is not primarily an exercise in reshuffling the chart of accounts, nor is it principally a technical accounting and financial reporting matter. Companies are likely to spend significant amounts of time addressing concerns around tax, valuation, legal and compliance, people, technology, and communications. And the impact of consolidation differences will likely have a significant impact on private equity funds and the companies that manage these funds.

 

Mr Kroeker replaces Conrad W Hewitt, who retired from government service earlier this week. Mr Kroeker came to the SEC from Deloitte and Touche LLP (United States), where he had been a partner in the firm's National Office Accounting Services Group. Click for SEC Press Release (PDF 29k).

 

This accounting alert highlights the accounting issues and literature most likely to be relevant when assessing the accounting implications of today's financial environment. It focuses on the following:

• determining fair values in inactive markets,
• revised projections of economic outlook indicating impairment and lack of recoverability for many assets,
• reduced availability of credit and increasing cost of finance,
• increased levels of bankruptcy,
• the impacts on hedge accounting, and
• critical enhanced disclosure requirements.

The accounting considerations described apply to all entities – they are not unique to financial institutions. The alert does not introduce new accounting guidance. Rather, it highlights the provisions of current IFRSs that are most likely to be relevant when assessing the accounting in markets characterised by volatility, a credit crunch, and recession.

The goal of the Faculty is to help members keep up-to-date and understand the implications of new standards, regulations, and practice in financial reporting. Members of the Faculty get access to:

• The Faculty website – a peer-to-peer platform encouraging the sharing of news, uncertainties, concerns, and possible solutions
• Faculty factsheets – practical assistance on UK GAAP and IFRS written by experts in the field
• All of the most up-to-date material issued by the IASB – the full IASB 'eIFRS' subscription service
• The 'Standards tracker' – an online facility for checking current standards and recent amendments
• Discounts on ASB standards and other financial reporting publications and UK courses
• Specialised training and CPD services, including e-learning and online resources

Deloitte UK partner Andy Simmonds chairs the board of the Faculty. For more information on the benefits of membership or to join the Faculty visit www.icaew.com/frf.

 

Click to download Extracting Value - December 2008 (PDF 2,051k). The publication includes the following table highlighting some financial reporting areas that resources companies should consider in responding to the global credit crisis in the upcoming reporting season. Many of these are equally applicable to companies in other industries:

Area	Example considerations
Impairment	likelihood of increased risk premiums being built in discount rates due to a lower risk appetite in current market rapid changes in short term interest rates and their effects on discount rates assumptions underlying reserve and resource amounts may need revision long-term commodity price and exchange rate assumptions need careful consideration on the cost side, inflation assumptions may be difficult to determine as growth slows and reverses simultaneously across many of the world's economies
Loans, borrowings and other financing	project financing plans may require reassessment classification of debt as current or non-current in light of potential covenant breaches and unusual embedded terms which may be triggered in the current economic climate fair value considerations where longer-term funding is not based on current margin spreads and the effects of a rapidly falling interest rate environment possibility of embedded derivatives in old or newly renegotiated contracts that may have value in the current climate, even if previously immaterial or not identified
Provisions and other long-term obligations	long-term discount rates may materially impact the carrying amount of decommissioning and similar provisions, triggering adjustments under Interpretation 1 [IFRIC 1] consideration of whether contractual obligations may have become onerous in light of current market conditions
Financial instruments	counterparty risk and fair values may require reassessment effectiveness testing of hedging arrangements may come under pressure in volatile markets consideration of terms in loan and other agreements which may contain embedded derivatives, particularly those that were previously of little value or not previously identified consider whether items classified as 'cash equivalents' still meet the definition whether contracts which previously met the 'own use' exemption under AASB 139 [IAS 39] are still able to meet the exemption requirements due to net settlement
Depreciation, amortisation and depletion	reserve and resources estimates may need revision the effect and timing of changes in estimates on current year amortisation needs to be considered
Share-based payments	accounting for cancellation or modification of share-based payment schemes can have a significant impact on reported profits valuation of share-based payment arrangements under AASB 2 [IFRS 2] can be more judgemental in a volatile environment
Deferred taxes	careful reassessment of the recognition criteria for deferred tax assets may be required, particularly in relation to capital losses recognised on the basis of anticipated capital gains and tax losses that may be subject to loss integrity measures under the tax law (same business test, continuity of ownership test, etc)
Investments	many resources companies have 'strategic' interests in other entities, these must generally be fair valued to current market prices 'available-for-sale' reserves that are in debit (losses) may need to be recycled to the income statement, directly impacting profits
Disclosures	market reaction to disclosures around impairment, particularly key assumptions and sensitivity analyses (whether impairment losses have been recognised or not) consideration should be given to enhancing disclosures around significant estimates and judgements under AASB 101 [IAS 1] – this is an area where Australian entities sometimes trail global best practice AASB 7 [IFRS 7] disclosures around risks, how they are managed, and sensitivity analyses may take on increased importance increased scrutiny of liquidity disclosures might be expected fair value disclosures will need to be carefully considered and measured

 

Both webcasts allow listeners to submit questions to the presenters. Both are free of charge:

The IASB's Exposure Draft 10 Consolidated Financial Statements

• Webcast organiser: IASB
• Date: Thursday, 8 January 2009
• Times: 10:00am London time and repeated at 3:00pm London time
• Presenters: Alan Teixeira, Patrina Buchanan, and Michael Buschhueter, all IASB staff

Discussion Paper Preliminary Views on Financial Statement Presentation issued jointly by FASB and IASB

• Webcast organiser: FASB
• Date: Tuesday, 27 January 2009
• Times: 11:00am to 12:00 noon (US EST, which is GMT-5)
• Presenters: Peter Bridgman (PepsiCo, Inc), Greg Jonas (Moody's Investors Service), Joe Joseph (Putnam Investments), and Kim Petrone (FASB staff)

The new rules also will allow companies to disclose their probable and possible reserves to investors. The Commission's current rules limit disclosure to only proved reserves. Companies will be required to:

• report the independence and qualifications of a reserves preparer or auditor;
• file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and
• report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximise the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date.

The reserve disclosures accompany the financial statements, which continue to use an historical cost-based accounting model. Click for SEC Press Release (PDF 30k). The full text of the new rules is not yet available.

 

Rather, the report recommends improvements to existing practice, including reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets. The report notes that investors generally believe fair value accounting increases financial reporting transparency and facilitates better investment decision-making. The report also observes that fair value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008. Rather, the report indicated that bank failures in the US appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence. As mandated by the Act, the report focuses principally on fair value accounting in the context of US companies reporting under US GAAP. However, it also includes numerous references to international considerations and IFRSs.

While the report does not recommend suspending existing fair value standards, it makes eight recommendations to improve their application, including:

• Development of additional guidance and other tools for determining fair value when relevant market information is not available in illiquid or inactive markets, including consideration of the need for guidance to assist companies and auditors in addressing:
  • How to determine when markets become inactive and whether a transaction or group of transactions are forced or distressed
  • How the impact of a change in credit risk on the value of an asset or liability should be estimated
  • When should observable market information be supplemented with and/or reliance placed on unobservable information in the form of management estimates
  • How to confirm that assumptions utilized are those that would be used by market participants and not just a specific entity
• Enhancement of existing disclosure and presentation requirements related to the effect of fair value in the financial statements
• Educational efforts, including those to reinforce the need for management judgment in the determination of fair value estimates
• Examination by the FASB of the impact of liquidity in the measurement of fair value, including whether additional application and/or disclosure guidance is warranted
• Assessment by the FASB of whether the incorporation of credit risk in the measurement of liabilities provides useful information to investors, including whether sufficient transparency is provided currently in practice

The report also recommends that FASB reassess current impairment accounting models for financial instruments, including consideration of narrowing the number of models under US GAAP.

Additionally, the report makes recommendations for improvements to the process used by the FASB in developing accounting standards, in particular, steps that could enhance the timeliness and transparency of the process.

Click for:

• Press Release (PDF 34k)
• SEC Report (PDF 972k)