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Deloitte comment letter on five draft guidance Q&As for the IFRS for SMEs

01 Dec 2011

Deloitte's IFRS Global Office has submitted a letter of comment to the SME Implementation Group on its Third batch of SME Implementation Group questions and answer documents.

In the comment letter, we re-iterate our concern over whether the level of SME Implementation Group's due process applied to the Q&As is appropriate and consistent with other similar activities at the IFRS Foundation and IASB. As regards the Q&As included in this batch of documents we question their appropriateness for the following reasons:

  • We are not convinced that the issues are areas in which we consider that the IFRS for SMEs lacks clarity such that inconsistent implementation is likely to occur in the absence of a Q&A.
  • We do not consider publication of a high volume of draft Q&As (nine since February 2011) to be in keeping with the Board's plan for periodic updating of the IFRS for SMEs. We believe that unless issues are clearly urgent, widespread and likely to result in significant divergence in practice they should be addressed through the next omnibus exposure draft of the IFRS for SMEs rather than by producing a continuous stream of new guidance.

Click to download our Comment Letter on the SME Implementation Group draft Q&As. Also see our earlier story on the Third batch of SME Implementation Group questions and answer documents.

Outcomes from November 2011 AOSSG meeting

01 Dec 2011

The third meeting of the Asian-Oceanian Standard-Setters Group (AOSSG) was held in Melbourne, Australia, on 23 and 24 November 2011.

The meeting was hosted by the Australian Accounting Standards Board (AASB) and was attended by 21 participating standard setting bodies, which were from Australia, Brunei, Cambodia, China, Dubai, Hong Kong, India, Indonesia, Iraq, Japan, Korea, Macao, Malaysia, Nepal, New Zealand, Pakistan, the Philippines, Saudi Arabia, Singapore, Thailand and Vietnam.  Representatives of the International Accounting Standards Board (IASB) and the International Financial Reporting Standards Foundation also attended.

Topics discussed included:

  • Administrative matters. The group confirmed Kevin Stevenson (Chairman of the AASB) as Chair of the AOSSG and elected of the Chair of the Hong Kong Institute of CPAs (HKICPA) Financial Reporting Standards Committee, Clement Chan, as the Vice Chair of the AOSSG. The meeting agreed to extend the terms of the AOSSG Chair and AOSSG Vice-Chair from one year to two years to facilitate the long-term efficiency and effectiveness of the Group
  • IAS 41 Agriculture. The group members discussed a working group proposal, recently submitted to the IASB, to make a limited revision to IAS 41, specifically on bearer biological assets. The IASB members present tentatively expressed their support for considering the limited revision. The working group is also expected to begin considering a long-term research project that would involve performing a comprehensive review of IAS 41
  • Islamic finance. Members considered a working group presentation on the result of a recent survey on Islamic finance and noted some of the salient features of Islamic finance that may need to be considered when the IFRSs are being developed. In this regard, the working group suggested an Islamic Finance Advisory Group be established to provide input to the IASB and assist in the development of IFRSs
  • Emissions trading schemes. The group acknowledged the need for a global accounting standard on the emissions trading schemes (ETS) and urged the IASB to accelerate its ETS project
  • Other technical matters. The group discussed many IASB projects such as the agenda consultation, revenue recognition, leases, investment entities and financial instruments, and discussed other technical matters related to foreign currency translation and present valuing future cash flows.

Click for Communiqué from the meeting (link to AOSSG website). An informal meeting of the AOSSG is planned for March 2012 in Kuala Lumpur.


IASB meets with CIS and Baltic States for IFRS update

30 Nov 2011

On 28 and 29 November 2011, members of the IFRS Foundation and the IASB met with representatives of professional accounting and auditing bodies and ministries from the Commonwealth of Independent States (CIS) and the Baltic States.

The meetings updated these countries on current projects, and the direction and future agenda of the IASB. The meeting also provided a forum to discuss the use of IFRSs within these jurisdictions, including the adoption of IFRSs and the IFRS for SMEs, as well as the process for translating the standards.

The event was attended by representatives from the following countries: Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Latvia, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Many of these countries have already adopted or permit the use of IFRSs and/or IFRS for SMEs.

The representatives also met with the International Auditing and Assurance Standards Board (IAASB) and the International Federation of Accountants (IFAC) to discuss adoption and implementation of International Standards on Auditing (ISAs).

Click for the IASB press release (link to IASB website). An IAASB press release is also available (link to IFAC website).

Stay Tuned Online — IFRS and UK GAAP update

28 Nov 2011

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues.

Each update lasts no more than an hour, and sessions are normally held three times a year, approximately at the end of March, July, and November. We intend to make a recording of each session available on IAS Plus for a period of at least four months from the date of the presentation. The topics covered in the November 2011 webcast:

  • A review of UK corporate reporting
  • Latest IFRS developments
  • IAS 19(2011) Employee Benefits — update
  • The future of UK reporting including UK GAAP
  • The IASB’s revised revenue proposals

To access the recording click here. There's a permanent link on our UK country page.

EU formally adopts IFRS 7 amendments

28 Nov 2011

The European Union has published the Commission Regulation (EC) No 1205/2011 endorsing the amendments to IFRS 7 'Financial Instruments: Disclosures' published by the IASB on 7 October 2010.

The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitisations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

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Updated EFRAG 'endorsement status report'

28 Nov 2011

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 28 November 2011 (PDF 194k). Currently, the following twelve IASB pronouncements await endorsement action:

  • IFRS 9 Financial Instruments
  • IFRS 10 Consolidated Financial Statements
  • IFRS 11 Joint Arrangements
  • IFRS 12 Disclosures of Interests in Other Entities
  • IFRS 13 Fair Value Measurement
  • IAS 27 Separate Financial Statements (2011)
  • IAS 28 Investments in Associates and Joint Ventures (2011)
  • Amendments to IAS 12 Deferred tax: Recovery of Underlying Assets
  • Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters
  • Amendments to IAS 1 Presentation of Items of Other Comprehensive Income
  • Amendments to IAS 19 Employee Benefits
  • IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

You can always find the endorsement status report here.

ESMA statement on sovereign debt in IFRS financial statements

25 Nov 2011

The European Securities and Markets Authority (ESMA) has posted to its website a statement concerning the accounting treatment in relation with sovereign debt exposures in connection with current market developments. Special consideration is given to the accounting treatment of Greek sovereign debt.

In July 2011, ESMA published a public statement on disclosures related to sovereign debt to be included in IFRS financial statements. In the statement, ESMA pointed out the need for enhanced transparency in interim and annual financial statements for European listed issuers using IFRSs.

Since then ESMA conducted a study on the accounting treatment of Greek sovereign debt in the half-year financial statements of financial institutions listed in regulated European markets.

The statement published today is divided into two sections:

  • Section one is directed toward annual financial statments for reporting periods ending 31 December 2011. It contains elements that should be considered by issuers and their auditors in relation to sovereign debt exposures. Recommendations are intended to ensure consistent application of IFRS requirement across Europe; they are informed by findings from the study on the accounting treatment of Greek sovereign debt in the half-year financial statements for reporting periods ending 30 June 2011.
  • Section two details the findings from the study on the accounting treatment of Greek sovereign debt in the half-year financial statements and ESMA's assessment of them. It also lists elements that should have been considered by issuers and their auditors in relation to sovereign debt exposures in those statements. Depending on future economic developments, these should be considered when preparing or auditing the upcoming year-end financial statements.

Please click for the Public Statement: Sovereign Debt in IFRS Financial Statements (PDF, 3.06mb, link to ESMA website).

Remarks by IASB Chairman Hans Hoogervorst at the IFRS Foundation Conference in Melbourne

25 Nov 2011

On 24 November 2011, IASB Chairman Hans Hoogervorst addressed the IFRS Foundation Conference in Melbourne, Australia. In his speech, he discussed a wide number of topics, including the adoption of IFRSs in the Asia-Pacific region, the current status of the financial instruments project, and the prospects for global adoption of accounting standards, including an assessment of the work plan papers recently issued by the US SEC Staff.

Mr Hoogervorst noted the adoption of IFRSs across the Asia-Oceania region, starting with countries such as Australia which adopted IFRS from 2005, and the establishment of Asian-Oceanian Standards Setters Group (AOSSG).

In relation to the financial instruments project, Hoogervorst gave a candid assessment of the current status, noting it is a "difficult project", lamenting that the IASB and FASB "ended up in different places" on offsetting, but also noting the good progress in areas such as hedge accounting and impairment. He also discussed the IASB's recent decision to conduct a limited review of IFRS 9 Financial Instruments, noting the IASB "gradually came to the conclusion that we could make a lot of progress on both ... issues – insurance and convergence - by adapting IFRS 9 in a limited way".

Hoogervorst concluded his speech by providing an assessment in relation to the question of the adoption of IFRS in various countries, discussing the 'big four' of China, Japan, India, and the United States. Reflecting upon the work plan reports recently released by the United States Securities and Exchange Commission (SEC), Mr Hoogervorst made the following remarks:

The SEC staff has nearly completed its thorough and comprehensive assessment of the issues related to US adoption of IFRSs. These latest papers examine how well the standards are being applied by companies reporting using IFRSs and the remaining differences between IFRSs and US GAAP.

While this first paper concluded that the financial statements analysed generally complied with IFRSs, there were inconsistencies observed – mainly due to a lack of disclosure of accounting policies and how individual standards had been applied. Indeed, this is a common finding for regulatory reviews.

The Wall Street Journal noted the findings of this study were similar to a previous SEC study of Fortune 500 companies using US GAAP. The problem of inconsistent application exists whether companies use IFRSs or US GAAP...

The second paper, examining the differences between IFRSs and US GAAP, contains no major surprises. The paper recognises the tremendous progress that the boards have made in bringing IFRSs and US GAAP into alignment. However, the paper also shows how quite a few differences remain, particularly in the detail. Many of these differences are not very important. But getting rid of them through a process of convergence could take up many, many years.

Hoogervorst also noted the IASB-FASB convergence process has been extremely useful in improving IFRSs and US GAAP, however, he also observed that convergence "does not always result in the highest quality outcome. It has served its purpose, but now it is time to move on."

Click for the speech transcript (link to IASB website).

ESMA replies to IASB agenda consultation

24 Nov 2011

The European Securities and Markets Authority (ESMA) has posted to its website a comment letter on the IASB's Agenda Consultation 2011.

Even though ESMA believes that this concultation can provide additional input for the agenda setting process, it does not "consider the consultation to be the basis on which to determine what projects, and the scope of these, the IASB should work on for the coming years".

Apart from requesting a period of calm in changes to accounting standards (which has been asked for in many comment letters to the IASB) and pointing out that the major projects the IASB is currently working on (revenue recognition, leases, insurance contracts, financial instruments) will "go well beyond 2011", ESMA comments that the IASB has pressing business on its hands that does not need to be consulted about.

Three aspects ESMA mentions specifically:

  • A fundamental debate consisting of conceptual and practical issues on what constitutes performance is necessary and should be undertaken by the IASB as soon as possible;
  • The IASB should restart its Financial Instruments with Characteristics of Equity project identifying the characteristics that should be present in an instrument for it to be classified as either an equity or a liability instrument; and
  • We urge the Board to provide guidance in the area of Business Combinations Between Entities Under Common Control and Extractive Industries.

Please click for:

The Bruce Column – Analysing the SEC's Staff papers

23 Nov 2011

The SEC has released its staff papers comparing US GAAP and IFRS and analysing the use of IFRS in practice. Our regular resident columnist, Robert Bruce looks at what they mean for the way ahead for financial reporting.

The issue of the SEC papers signals that the end of the process is near. As the main US market regulatory body, it is due to provide an indication over the next several months of how, or if, the US system of financial reporting could join with much of the rest of the world in using International Financial Reporting Standards, (IFRS). The papers cover the work the SEC staff has been doing to compare US GAAP and IFRS and analyse the way IFRS work in practice. And both come packed with useful information and insight. But often, if you are trying to assess what may happen next, it is the tone of the documents which carries the message. And both these staff papers are emollient and neutral in tone.

To take the analysis further you find that the word 'may' crops up frequently. It is a word which is useful in such a context because it can be used, particularly when comparing two different systems, to show how fair you are being, to show how you are leaning over backwards, perhaps, to be fair to both.

Take some examples: 'The differences included in this paper may not necessarily be presumed to have a direct or consistent correlation to the quality of IFRS'. Or: 'However, while potentially noted as a difference in the text of the two sets of standards, the absence of specific IFRS guidance may not indicate a complete absence of guidance under IFRS'. Or: 'The abundance of specific guidance in US GAAP may contribute to consistency in application, for example, across entities operating in a particular industry but does not always result in comparability across industries'. Or, as a follow-up to that: 'In the absence of industry- and transaction-specific guidance, preparers of IFRS financial statements follow the general principles of IFRS, which may help to promote broader consistency across industries'.

Gradually the picture builds. There is a continuous stress on being even-handed. And this allows both papers to be neutral without providing a specific direction of travel. The staff observed that "the transparency and clarity of the financial statements in the sample could be enhanced" and "diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries". The staff did acknowledge that diversity can be attributed to a number of factors, including options in standards or the absence of guidance. The paper on IFRS in practice goes out its way to suggest that what the staff found in their analysis did not necessarily mean that there were problems. At one point the paper says that the staff found that they could not work out quite how IFRS had been applied in particular situations because the disclosures did not provide the staff with all the information they would have needed for that task. Almost immediately they make the point that this may have nothing to do with any deficiency in the system given the emphasis of financial statements on providing information to an investor, rather than SEC staff, audience.

This is how the staff paper expressed this: 'The Staff does not intend to suggest that disclosures in these instances were necessarily deficient or that the disclosures should have been prepared with the purpose of communicating to a regulator the manner in which a company complies with a set of accounting standards. The Staff recognizes that financial statements are intended to facilitate investor decision-making, and additional information that would have benefited the Staff in this analysis may be of less incremental value to an investor'.

By and large what the staff finds is that financial statements generally appeared to comply with IFRS requirements, particularly when it comes to the more serious players, companies which are SEC registrants and already submit to SEC supervision. These two papers are fact-finding missions, put together with care and scrupulous attention to being objective. It was not their job to come to specific conclusions which might point the way to future action. Now we wait until the SEC makes their decision.

Robert Bruce
November 2011

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.