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October

AICPA disappointed about FAF decision not to create an independent standard setter for private companies

07 Oct 2011

As reported earlier, the Financial Accounting Foundation's Board of Trustees has discarded the Blue-Ribbon Panel's recommendation to create of a new, independent board, to be overseen by the FAF, that would focus on making exceptions and modifications to U.S. GAAP for private companies.

The creation of the Blue-Ribbon Panel in December 2009 had been a joint effort of the FAF and the American Institute of Certified Public Accountants (AICPA). The AICPA is now disappointed that the main recommendation of the report resulting from this joint effort and published in January 2011 was disregarded by the FAF Trustees. In a statement from Barry Melancon, AICPA President and CEO, and Paul Stahlin, AICPA Chair, this disappointment is voiced:

"We are profoundly disappointed that the Financial Accounting Foundation (FAF) is not proposing to create a new independent board to set differences in U.S. GAAP standards, where appropriate, for privately held companies. This was the cornerstone of the Blue Ribbon Panel on Standard Setting for Private Companies' report.

[...]

Unfortunately, FAF's proposal has failed to accept the views of the many voices of the private company constituency asking for a separate board. We don't think the concerns of smaller private companies can be fully appreciated until there is an independent board dedicated and focused solely on the needs of private companies."

Please click for the full text of the statement on the AICPA website.

Private sector task force final report to G20

07 Oct 2011

The Private Sector Task Force of Regulated Professions and Industries has published a final report, Regulatory Convergence in Financial Professions and Industries, to the deputies of the G20. The report focuses on the private sector's point of view in regards to global regulatory convergence.

The report, at the request of the G20 presidency, provides assistance to the G20 in its goal of providing comparability and consistency for investors, regulators, and market participants. It also identifies some of the current gaps in global convergence and provides a method of minimising the systemic risk these gaps may cause.

The Taskforce's report recommends that the G20 maintain its momentum and ambition for global regulatory reform and convergence, in addition to discouraging unilateral national regulatory reforms that are inconsistent with international standards. It also calls for the G20 to encourage and support the development, adoption, and implementation of one set of globally accepted high-quality international standards for each of financial reporting, auditing, valuations, and actuarial services.

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Agenda for the regular October IASB meeting

06 Oct 2011

The IASB's regular monthly meeting is scheduled for 19-20 October 2011 in Norwalk, CT, USA, part of it a joint meeting with the FASB.

You can access the agenda on our October 2011 IASB meeting page.  We will also post Deloitte observer notes on this page as they are available.

European Outreach Meetings on the IASB Agenda Consultation – locations and dates

06 Oct 2011

As reported earlier, the European Financial Reporting Advisory Group (EFRAG) will organise outreach events on the IASB consultation on its future work programme published in July 2011.

Locations and dates for these events have now been communicated:

  • Frankfurt airport (together with the German DRSC): Friday 7 October 13.00 hrs
  • Copenhagen (together with the Danish FSR): Monday 31 October (to be confirmed)
  • Amsterdam (together with the Dutch DASB): Wednesday 2 November 12.30 hrs
  • Brussels (together with the European Commission): Friday 25 November (to be confirmed)

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The Bruce Column – Allaying the fears

05 Oct 2011

Paul Revere may have blazed a trail into Boston warning the good citizens of America that they were under threat.

This week saw Hans Hoogervorst, the Chairman of the IASB, ably abetted by his IFRS Foundation Trustee colleague and onetime SEC Commissioner, Harvey Goldschmid, sounding the clearest of warnings about the impending SEC decision on the future of financial reporting in the US.

Goldschmid described need for the SEC to 'make a firm, affirmative IFRS incorporation decision' in the next few months as a 'National Imperative'. 'The future path of financial reporting, and of investor protection and effective financial markets on a global scale, may well be determined in the next few months', he said. 'It is difficult to imagine that, after a decade of investment in convergence a negative decision could be a possible outcome', said Hoogervorst, 'or that the US would intentionally choose to discard international leadership in something as fundamental as financial reporting'.

Pretty unequivocal stuff. But the underlying arguments which both men employed during their speeches to the AICPA conference in Boston sought to allay any fears. Hoogervorst in particular addressed the argument, prevalent in the US, that somehow IFRS is not much used in full, particularly in Europe. 'Some even say that Europe does not use IFRSs due to the optionality of nine paragraphs of IAS39 Financial Instruments', said Hoogervorst. 'Yet this option is used by less than 30 companies. That is less than 1% of listed companies in Europe. The other 99%, some 8000 listed European companies, all use full IFRS'.

Another frequently expressed worry in the US is that somehow enforcement would move offshore and that the US would lose its sovereignty. Again Hoogervorst was patient and placatory. 'A major comfort to the United States should be that if you adopt IFRSs the SEC will remain in full control of enforcement', he said. 'So there is absolutely no danger of importing different enforcement standards from abroad into the United States. Indeed', he continued, 'it is much more likely that international standards of IFRS enforcement will benefit from the SEC's rich experience and active participation'. And Goldschmid echoed this view. 'Would there be effective enforcement if the US adopted IFRS?' he asked his audience. 'The short answer', he said, 'is "yes". Put bluntly the rigor of US enforcement fundamentally pivots on the leadership at the SEC'.

Goldschmid also took regulatory arbitrage as one of his themes. 'Too often during the financial crisis', he warned the conference, 'we have witnessed the danger of arbitrage and unhealthy political interference when the two systems, IFRS and US GAAP, can be played off against each other. Cries of "level playing field" and "unfair competition", for example with respect to financial instruments and fair value reporting, have been used to try and weaken both systems. The lesson to be learned', he said, 'is that incorporation of IFRS into US GAAP, so that we have only one set of high quality global standards, will, as the G20 implicitly recognised, largely eliminate the arbitrage problem'.

Both men cited the advantages already seen in US companies. 'There are good commercial advantages to everyone speaking the same high quality financial reporting language', said Hoogervorst. And he used the Ford Motor Company as an example. 'Standardising on IFRSs has the potential to allow Ford to use the same financial reporting language for both internal management reporting and external financial reporting on a worldwide consolidated basis. One language will eliminate duplication and translation risks across all Ford international subsidiaries. The long-term savings could be substantial'.

And both men suggested the downside, if the US turned its back on IFRS or took them up half-heartedly, would be great. Hoogervorst made the point that 'the US's current share of global market capitalisation now stands at just over 30%, compared to an average of 45% between 1996 and 2006. US financial markets have not shrunk', he said, 'it's just that other parts of the world, in particular the Asian financial centres, have become global players'.

The lesson which he drew from this was simple. 'These developments call for the United States to play a key role in developing global standards'. And he cited investor pressure, quoting CalPERS, the largest public pension fund in the United States, when it said in its submission to the SEC that "the SEC has the opportunity to effectively improve accounting standards, and to regain and increase investors' trust in financial reporting". 'To me', said Hoogervorst, 'that says it all'. And Goldschmid delivered the same message. 'I believe the best way to protect US stakeholders, including investors who are increasingly investing globally, is for the SEC to make an affirmative incorporation decision'.

These two speeches showed the advantages of making IFRS the truly global financial reporting language. But their real importance is that they also addressed a few of the most common objections which have come from within the US.

Robert Bruce October 2011

Related links

 

Hans Hoogervorst addresses AICPA/IFRS Foundation conference

05 Oct 2011

In a recent address at the American Institute of CPAs (AICPA) / IFRS Foundation conference, the IASB chairman, Hans Hoogervorst, discussed the importance of a single set of global accounting standards and the US SEC's impending decision on using IFRSs in the United States.

Mr Hoogervorst focused on the possible SEC decision on incorporation of IFRSs. He addressed the concerns of Americans and other nations that haven't formally committed to IFRSs yet:

A decade of joint work to improve and align IFRSs and US GAAP means that both sets of standards have improved and are moving closer together. Each is used within major capital markets. Each has its relative strengths and weaknesses. While I am not dismissing these differences, I am not convinced by the arguments that one set of standards is clearly superior to the other.

A more compelling criticism of IFRSs is that inconsistent application of the standards makes international comparison more difficult. . . . If you do not have a single language, international consistency in financial reporting will always remain an illusion. A major comfort to the United States should be that if you adopt IFRSs the SEC will remain in full control of enforcement.

[I]t would be reasonable that a relatively long transitional period is provided, particularly for smaller publicly traded companies. An option to allow early adoption of IFRSs also seems sensible for those companies that can already see substantial net benefits of IFRSs.

Please click for:

 

New issue of the IASB's Investor Perspectives

05 Oct 2011

In April 2010, the Trustees of the IFRS Foundation and the IASB launched a programme to enhance investors' participation in the development of International Financial Reporting Standards (IFRSs).

One of the enhancements is a newsletter for investors entitled Investor Perspectives. A new edition is now available. Paul Pacter, IASB Board member and former webmaster of IAS Plus, explains the IASB's outreach activities:

All Investor Perspectives are archived on the IASB's website.

Click for our earlier story on programme to enhance investors' participation in the development of IFRS.

Australian standard setter warns about far-reaching impacts of the IASB's Investment Entities ED

05 Oct 2011

The Chairman of the Australian Accounting Standards Board (AASB), Kevin Stevenson, has addressed the public in a media release expressing a number of concerns about the proposals in the IASB's Exposure Draft: Investment Entities.

Stevenson admits that this media release is an unusual step, but he feels it is warranted as this draft raises fundamental questions about existing requirements and may have far-reaching impacts.

"In my view it could lead to increased use of off-balance-sheet accounting, see us depart from the concept of control and lead to unjustified changes in requirements accounting for associates and joint ventures. The exposure draft seeks to include in IFRS accounting practices previously used in North America and would be a step back from the universal consolidation model that we have followed. In this regard, I note that three IASB members have expressed alternative views on ED/2011/4."

The AASB has released the IASB's ED as AASB ED 220 in September. Stevenson urges constituents to carefully review the proposals and make their views known to the AASB and the IASB – to answer the question whether this proposed standard is in the interest of Australian reporting and of international reporting.

Comments are due to the AASB by the 30 November 2011 and to the IASB by 5 January 2012.

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FAF discards suggestion to create independent standard setter for private companies

04 Oct 2011

The Financial Accounting Foundation's Board of Trustees has issued for comment a Plan to Establish the Private Company Standards Improvement Council.

In January 2011, the 'Blue-Ribbon Panel' addressing how U.S. accounting standards can best meet the needs of users of private company financial statements issued a report of its recommendations to the Financial Accounting Foundation (FAF) Board of Trustees. The recommendations included the creation of a new board, to be overseen by the FAF, that would focus on making exceptions and modifications to U.S. GAAP for private companies. However, the Trustees concluded that creating a separate standard-setting board for private companies would likely lead to the establishment of two separate sets of US accounting standards, a result that seemed not desirable.

The "Private Company Standards Improvement Council" (PCSIC) now called for in the plan would have the authority to identify, propose and vote on specific improvements to US accounting standards for private companies. However, changes would be subject to ratification by the Financial Accounting Standards Board (FASB). Also, the PCSIC chairman, who would be selected and appointed by the Trustees, would be a FASB member. The FASB believes that it is well prepared for this move of the Trustees by having recently appointed a likely candidate for this position as a board member.

In publishing the new plan, the FAF has concluded, as the Blue-Ribbon Panel has done before, that mandating the use of the IFRS for SMEs in the United States is not appropriate at the current time.

Comments on the plan are requested by 14 January 2012.

Please click for (all links to FAF website):

 

EFRAG draft comment letter on the SMEIG Q&As

04 Oct 2011

The European Financial Reporting Advisory Group (EFRAG) has issued its draft comment letter on the SME Implementation Group's five questions and answer documents (Q&A) on draft guidance related to the implementation of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) published last week.

EFRAG recommends not issuing any of the Q&As since EFRAG is concerned that the SMEIG is not focusing on a limited number of pervasive issues when issuing Q&As, as specified in its terms of reference and operating procedures, but is creating rules in a principle-oriented environment.

The draft comment letter notes that four of the Q&As consider issues on which the requirements of the IFRS for SMEs seem clear, and the answer to the question raised in the last draft Q&A always seems to depend on the SME's specific circumstances and management's professional judgement.

Comments on the letter are invited by 18 November 2011. The draft comment letter can be downloaded via the press release on EFRAG's website.

Click for our earlier story on SME Implementation Group five questions and answer documents.

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