Heads Up on FASB's proposed guidance on fair value measurement and disclosure

30 Jun 2010

On 29 June 2010, the FASB issued a proposed Accounting Standards Update (ASU), Fair Value Measurements and Disclosures (Topic 820): Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

The proposed ASU is the result of a joint project between the FASB and IASB (the boards) to develop a single, converged fair value framework. Deloitte (United States) has issued a Heads Up Newsletter (PDF 122k) that provides an analysis of the key provisions of FASB's proposals on fair value and measurement that includes:
  • Summary of notable provisions.
  • Highest-and-Best-Use and Valuation-Premise concepts.
  • Measuring the fair value of financial instruments that are managed within a portfolio.
  • Other key proposals.
  • Disclosures.
  • Convergence with IFRSs.


Newsletter on IASB-FASB convergence

30 Jun 2010

Deloitte's IFRS Global Office has published an IFRS in Focus Newsletter – IASB and FASB modify convergence strategy.

This newsletter describes the modified convergence strategy and updated work plan of the IASB and FASB. The IASB and FASB have modified their convergence strategy in response to concerns about constituents' ability to provide comments on the large number of proposals that were expected to be published during the second quarter 2010. All of our past IFRS in Focus newsletters are Here.


Australia clarifies compliance with IFRS

30 Jun 2010

The Australian Parliament has passed financial reporting reform legislation which require an explicit statement of compliance with IFRS in the directors declaration accompanying the financial statements.

The change is designed to counter a lack of awareness that the financial statements of Australian companies and other reporting entities are compliant with IFRS (Australia has a series of Accounting Standards that are equivalent to IFRS for for-profit entities). The change will apply to financial statements from 30 June 2010. The reforms also remove the previous requirement to include both parent and consolidated financial statements in annual reports and make various other amendments. Deloitte (Australia) has produced an Accounting Alert explaining the changes. Click for:


Agenda for 8-9 July 2010 Interpretations Committee meeting

30 Jun 2010

The IFRS Interpretations Committee will meet at the IASB's offices in London on Thursday and Friday 8 and 9 July 2010 (morning only on 9 July).

You can access the agenda on our 8-9 July 2011 Interpretations Committee meeting page. We will also post Deloitte observer notes on this page as they are available.

EFRAG consultation on its proactive work in Europe

30 Jun 2010

Following the publication of its new Strategy for European Proactive Financial Reporting Activities earlier this month, the European Financial Reporting Advisory Group (EFRAG) has now launched a public Consultation on Proactive Work.

EFRAG's proactive work is intended to influence future standard-setting developments by engaging with European constituents and providing timely and effective input to the early phases of the IASB's work. Currently, EFRAG is working among others on projects concerning corporate income tax, business combinations under common control and a disclosure framework. Possible future projects include:
  • European perspective on development of post implementation reviews (Post-implementation review policy)
  • European input to the IASB's post- implementation review of IFRS 3 Business Combinations
  • European Input to the IASB's post-implementation review of IFRS 8 Operating Segments
  • Post-implementation review of IFRIC 12 Service Concession Arrangements
  • Government grants
  • Understanding the decision environments of users of the financial report
  • Application of IFRS to individual financial statements
  • Performance reporting — Phase 3
  • Share-based payments
The public consultation closes on 30 September 2010.
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Limited-scope ED on fair value measurement

30 Jun 2010

The IASB has issued an exposure draft (ED) 'Measurement Uncertainty Analysis Disclosure for Fair Value Measurements' proposing relatively minor amendments to the proposals in its May 2009 ED on fair value measurement.

The May 2009 ED proposed a three-level fair value hierarchy that categorises observable and non-observable market data used as inputs for fair value measurements. Under that hierarchy, Level 3 inputs are 'unobservable inputs' used for the fair value measurement of assets or liabilities for which market data are not available. Required disclosures would include a 'measurement uncertainty analysis' (sometimes called a 'sensitivity analysis'). The newly proposed amendments would enhance the original proposal by requiring the measurement uncertainty analysis disclosure to reflect the interdependencies between unobservable inputs used to measure fair value in Level 3. Comment Deadline is 7 September 2010. Click for IASB Press Release (PDF 101k). The US FASB has also issued a similar exposure draft, Fair Value Measurements and Disclosures (Topic 820): Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, relating to the measurement uncertainty analysis disclosure. Presented below are the IASB's key conclusions to date on fair value measurement, based on the May 2009 ED and subsequent redeliberations and decisions.

Goal of the IASB's fair value measurement project:

The goal of the project is to define fair value, establish a framework for measuring fair value, and require disclosures about fair value measurements. However, it would not change the circumstances in which assets, liabilities, equity, and disclosure items must be measured at fair value under IFRSs.

IASB conclusions to date on fair value measurement:

  • Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
  • In the absence of an actual transaction at the measurement date, a fair value measurement assumes that a transaction takes place at that date in the principal (or most advantageous) market for the asset or liability.
  • Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, a fair value measurement does not consider an entity's intention to hold an asset or to settle or otherwise fulfil a liability.
  • For a non-financial asset, fair valuation presumes the asset is used at its highest and best use.
  • To increase consistency and comparability in fair value measurements and related disclosures, the IASB would establish a fair value hierarchy that prioritises into three levels the inputs to valuation techniques used to measure fair value, giving the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs):
    • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
    • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
    • Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs would be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same – an exit price from the perspective of a market participant who holds the asset or owes the liability at the measurement date. Therefore, unobservable inputs should reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.


CEBS publishes two follow-up reports on its assessment of banks' disclosures

30 Jun 2010

The Committee of European Banking Supervisors (CEBS) has published Assessment of banks' transparencyin their 2009 audited annual reports and Follow-up review of banks' transparency in their 2009 Pillar 3 reports. In its press release, CEBS states that "This work reflects CEBS's ongoing interest in the banks' disclosure of the impact of the crisis on their activities and financial situation."

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Study of China's adoption of IFRS-based standards

30 Jun 2010

The Institute of Chartered Accountants of Scotland has published Chinese Accounting Reform: Towards a Principles-based Global Regime.

This is the report of a study of China's adoption of IFRS-based accounting standards. The study:
  • Describes China's new accounting regime
  • Offers perspectives on a principles-based approach in China
  • Describes the accounting profession in China
  • Explains how standards are enforced in China
  • Examines the future of Chinese accounting standards and IFRSs

Our most striking finding is the strength of official support and commitment to principles-based accounting, led by the Ministry of Finance. It is unlikely that China will give up all accounting sovereignty in the near future. But China's efforts in implementing an IFRS-based regime give cause to hope that the goal of a single accounting language is truly within reach.

The study is copyright Institute of Chartered Accountants of Scotland, and we are grateful to the ICAS for giving us permission to post it on IAS Plus. Click here to download Chinese Accounting Reform: Towards a Principles-based Global Regime (PDF 649k).

Newsletter on revenue recognition ED

29 Jun 2010

Deloitte's IFRS Global Office has published an IFRS in Focus Newsletter — IASB Issues Revenue Recognition Exposure Draft.

[Prior to June 2010, these newsletters were titled IAS Plus Update.] The newsletter explains the IASB's 24 June 2010 proposed new standard (jointly with FASB) that would supersede IAS 11 Construction Contracts and IAS 18 Revenue and related interpretations. The core principle proposed in the ED would require an entity to recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. Click for IFRS in Focus - IASB Issues Revenue Recognition Exposure Draft. All of our past IFRS in Focus and IAS Plus Update newsletters are Here.


US Supreme Court ruling on PCAOB

29 Jun 2010

The United States Supreme Court has issued its Decision in the Constitutional challenge to legitimacy of the US Public Company Accounting Oversight Board (PCAOB).

For background on the challenge, see the IAS Plus News Story of 4 Dec 2009. The PCAOB was created by the Sarbanes-Oxley Act of 2002. The Supreme Court held that an aspect of the PCAOB structure under the Act – the 'dual for-cause limitations on the removal of Board members' – 'contravene the Constitution's separation of powers'. The Court also held that 'the unconstitutional tenure provisions are severable from the remainder of the statute'.
Click for Supreme Court decision documentation (PDF 714k).


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