2011

SEC releases reports on IFRS in practice and US GAAP-IFRS differences

17 Nov 2011

The staff of the United States Securities and Exchange Commission (SEC) have released two additional Staff Papers as part of the SEC's work plan for the consideration of incorporating IFRSs into the Financial Reporting System for U.S. Issuers.

Analysis of IFRS in Practice

The first paper, An analysis of IFRS in Practice, presents the Staff's observations regarding the application of IFRS in practice, based on an analysis of the most recent annual consolidated financial statements of 183 companies across 36 industries which prepare financial statements in accordance with IFRSs. The companies were selected from the Fortune Global 500 (the top 500 companies by revenue) and represented all those which prepared financial statements in accordance with IFRS in English. The 183 companies were domiciled in 22 countries, with the majority (approx 80%) being domiciled in the European Union, but with China and Australia also being represented with more than five companies.

The Staff Paper summarises the research as follows:

The Staff found that company financial statements generally appeared to comply with IFRS requirements. This observation, however, should be considered in light of the following two themes that emerged from the Staff’s analysis:
  • First, across topical areas, the transparency and clarity of the financial statements in the sample could be enhanced. For example, some companies did not provide accounting policy disclosures in certain areas that appeared to be relevant to them. Also, many companies did not appear to provide sufficient detail or clarity in their accounting policy disclosures to support an investor’s understanding of the financial statements, including in areas they determined as having the most significant impact on the amounts recognized in the financial statements... In some cases, the disclosures (or lack thereof) also raised questions as to whether the company’s accounting complied with IFRS....
  • Second, diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries. This diversity can be attributed to a variety of factors. In some cases, diversity appeared to be driven by the standards themselves, either due to explicit options permitted by IFRS or the absence of IFRS guidance in certain areas. In other cases, diversity resulted from what appeared to be noncompliance with IFRS... While country guidance and carryover tendencies may promote comparability within a country, they may diminish comparability on a global level.

IFRS - U.S. GAAP comparison

A second paper, A Comparison of U.S. GAAP and IFRS, to provide an assessment of whether there is "sufficient development and application of IFRS for the U.S. domestic reporting system" by inventorying areas in which IFRS does not provide guidance or where it provides less guidance than U.S. GAAP. The Staff reviewed U.S. GAAP accounting requirements and compared those requirements to equivalent or corresponding IFRS requirements, as applicable. The Staff omitted from its review any U.S. GAAP requirements and the IFRS equivalents that are subject to the ongoing joint standard-setting efforts either through the Memorandum of Understanding (MoU) joint standard-setting projects of the FASB and the IASB, or other areas where the FASB and IASB had agreed to work together.

The second Staff Paper notes the staff "generally noted that U.S. GAAP contains more detailed, specific requirements than IFRS" and notes the following fundamental differences between U.S. GAAP and IFRS:

  • IFRS contains broad principles to account for transactions across industries, with limited specific guidance and stated exceptions to the general guidance
  • Fundamental differences exist between the FASB and IASB conceptual frameworks, including their level of authority and the definition and recognition of assets and liabilities

The Staff Paper then provides a broad comparison of the requirements of U.S. GAAP and IFRS, highlighting notable differences. The report notes it does "not include an analysis of the impact that those differences, individually or collectively, may have on the quality of IFRS."

Click for:

Deloitte comment letter on agenda consultation

17 Nov 2011

Deloitte's IFRS Global Office has submitted a letter of comment to the International Accounting Standards Board (IASB) on its Request for Views on its Agenda Consultation 2011.

In the comment letter, we agree with the agenda and highlight several key points in the Board's strategic direction:

We agree with the Board that, as an immediate priority, it must dedicate all necessary resources to completion of the projects on revenue from contracts with customers, leases, insurance contracts and financial instruments. Given the scale of these four projects, a realistic allocation of significant resources to other projects can be made only once these priority projects have been substantially completed.

The continued development and refinement of the Conceptual Framework for Financial Reporting (2010) is critical to provide a clear set of principles to underpin individual standards. The Framework should, however, remain a ‘living document’ to be assessed as new standards are developed. In this way, the Framework can evolve as the global financial reporting environment changes.

The development of a clear framework for disclosures in financial statements is critical and urgent. This should be undertaken separately from, and with more urgency than, any project on presentation.

Click for our Comment Letter on Request for Views on its Agenda Consultation 2011.

Additional notes from the November IASB meeting

16 Nov 2011

The IASB's regular monthly meeting was held on 15-16 November 2011 in London, part of it a joint meeting with the FASB. We have posted Deloitte observer notes from the insurance session held on the first day of the meeting, along with most of the sessions from the second day.

Click through for direct access to the notes:

Tuesday, 15 November 2011 (other sessions)

Wednesday, 16 November 2011

Notes from Wednesday's joint session on Insurance Contracts will be posted soon.

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

FAF comments on SEC 'condorsement' paper

16 Nov 2011

The Board of Trustees of the United States Financial Accounting Foundation (FAF), the oversight body for the Financial Accounting Standards Board (FASB), has written to the United States Securities and Exchange Commission (SEC) in relation to the SEC's May 2011 paper on the possible incorporation of International Financial Reporting Standards (IFRS) into U.S. GAAP (the 'condorsement' approach).

The FAF Board of Trustees recommend an IFRS incorporation approach that embraces the concepts of the 'condorsement' framework whilst also addressing concerns raised by various U.S. stakeholders. The submission notes:

The recommended approach is premised on the belief that although the pursuit of a single set of global accounting standards is a worthy objective, a more practical goal for the foreseeable future is to achieve highly comparable (but not necessarily identical) financial reporting standards among the most developed capital markets that are based on a common set of international standards.

The FAF Trustees offer many recommendations to 'refine' the condorsement approach, including:

  • Active U.S. involvement in and support of international standard setting. This would include FASB (and other standard setters) having 'nonvoting observer rights' on the IASB, regular meetings between the IASB and FASB, and the FASB being responsible for IASB due process, outreach and other activities in the United States
  • Evaluation criteria. The FASB would develop criteria for the possible endorsement of IASB standards into U.S. GAAP, including such aspects as investor primacy, independent standard setting, due process and benefits exceeding costs
  • Role of FASB. The FASB would agree not to undertake separate projects on topics on the IASB's technical agenda, but would retain authority to set its own technical agenda. After completion of the existing convergence projects, the FASB would consider remaining major differences between US GAAP and IFRS and conduct thorough due process for potential incorporation of the IFRS requirements into U.S. GAAP.

The letter also discusses other topics such as funding of the IASB and further periodic reviews of the approach.

Click for full text of the FAF Trustees letter to the SEC (link to FAF website).

Also see our previous story for more information on 'condorsement'.

Notes from the November IASB meeting

15 Nov 2011

The IASB's regular monthly meeting was held on 15-16 November 2011 in in London, part of it a joint meeting with the FASB. We have posted Deloitte observer notes from most of the sessions held on on the first day of the meeting, covering the following topics: annual improvements, operating segments, IFRS 10 — transitional requirements, IFRS 9 — targeted improvements, offsetting — effective dates, and leases.

Click through for direct access to the notes:

Tuesday, 15 November 2011 (other sessions)

Notes from the session on Insurance contracts will be posted soon.

Click here to go to the preliminary and unofficial Notes Taken by Deloitte Observers for the entire meeting.

IIRC restructures

15 Nov 2011

The International Integrated Reporting Committee (IIRC) has announced a number of changes to its organisational structure.

The changes include:

  • The IIRC will now be known as the International Integrated Reporting Council, rather than the International Integrated Reporting Committee
  • The IIRC will be supported by a strengthened secretariat operating through a not-for-profit company established for the purpose under the same name. The company's board will comprise Mervyn King as Chairman, Leslie Ferrar (Treasurer, Household of the Prince of Wales and the Duchess of Cornwall) and Christy Wood (Chairman of the Board of Governors, International Corporate Governance Network) as Deputy Chairs, together with Ian Ball (Chief Executive, International Federation of Accountants), Ernst Ligteringen (Chief Executive, Global Reporting Initiative), Jessica Fries (Director, The Prince's Accounting for Sustainability Project) and the IIRC's Chief Executive, Paul Druckman
  • An IIRC Governance Committee will also be established, with responsibilities relating to audit, nominations and executive remuneration for the company.

Click for press release (link to IIRC website).

The Bruce Column – The Brazilian benefits of IFRS in full

15 Nov 2011

IASB Chairman, Hans Hoogervorst, has been praising the Brazilian IFRS effort. Robert Bruce, our regular resident columnist, looks at how the enthusiastic use of IFRS is transforming and boosting a whole region.

'Gone are the days when Brazil seemed destined to always remain “the country of the future”', said Hans Hoogervorst. Speaking at the recent IFRS conference in Sao Paulo he continued: 'For Brazil, the future is now'. And international financial reporting standards, IFRS, have been a significant factor in this change. Brazil has enthusiastically embraced IFRS and has reaped the benefits.

As Hoogervorst continued: 'In many ways Brazil has offered a textbook example of how to adopt IFRSs. When Brazil adopted IFRSs it did so in full, with no carve-outs. It eliminated some options and required additional disclosure requirements', he said, 'but it resisted the temptation to tweak the standards to meet local desires. If Brazil had made such adjustments', he continued, 'Brazilian companies would have had the pain of transition to new standards without the gain of full international acceptance of those standards. Instead, by adopting IFRSs in full Brazilian companies are able to raise capital on markets across Asia, Europe and the Americas – including the United States'.

Brazil is turning into an effective case study of how to do IFRS implementation and how to reap the benefits. A recent survey carried out by Deloitte and the Brazilian Investor Relations Institute, IBRI, of 46 of the largest public companies in Brazil, produced extraordinarily mature results. Looking at the changes brought about by IFRS implementation and its impact on the business environment an overwhelming majority saw benefits flowing through from influencing investors and changing the way in which their business was being viewed by investors. But even more impressive were the figures of 65% taking the view that it was improving the efficiency of the capital markets and 64% arguing that it was benefiting companies beyond the simple accounting.

'It is bringing positive changes in management systems and internal controls', said Bruce Mescher, Deloitte Audit Partner and Leader of the Global IFRS & Offerings Services practice in Brazil. 'Improvements are really being embedded in the systems and processes of companies. It has gone well beyond simple accounting benefits'. There are still issues to overcome, but those have more to do with time and experience. 'There are challenges', said Mescher. 'The word is still out on comparability. Some have said it is easier to compare a Brazilian retail company with a Brazilian mining company than it is to compare it with a European retailer. There clearly is much more information available but now there is a drive on for quality. It's part of the maturity curve'.

But there is more to the Brazilian story than implementation of IFRS. Brazil also adopted, with the option available from 2009, the IFRS for small and medium-sized entities, (SMEs). It is estimated that more than half a million Brazilian companies use it. In Hoogervorst's words: 'That is quite a remarkable statistic'. This revolution is not only about better information and more secure companies. 'The accounting profession has seen stock rise as well', says Mescher. 'Accountants in business have traditionally held the roles of bookkeepers and tax preparers. We are increasingly seeing them become strategic advisors to the business'. And the SME revolution is also having a remarkable effect across the whole region, not just in Brazil. 'One common theme is the interest of SMEs in IFRS and specifically IFRS for SMEs. Spreading the message about IFRS for SMEs and providing training on how to apply it is a major priority for many countries in the region', said Mescher.

And this is the other effect that IFRS is having. Across Latin America moves are afoot to bring economic organisations together across borders. Next March sees the first meeting of GLASS, the Group of Latin American Accounting Standard Setters, the latest of the regional forums springing up around the world. 'GLASS will be very important', said Rogério Mota, Deloitte Audit Partner and Regional Professional Practice Director in Brazil. 'It will be representing the region and facilitating our dialogue with the IASB. It will enable us to participate in the future agenda of the IASB'.

It will also dovetail in with other efforts in the region. 'GLASS is a natural extension of collaborative forces in the region', says Mescher. There are already plans under the MILA initiative to bring the stock exchanges of Colombia, Peru and Chile together. And the BRAiN, (Brazil Investments and Business), project aims to make Brazil a regional hub for financial business. The whole region is making an effort to get its act together. 'There are more and more regional and international partnerships', says Mescher, 'and GLASS is part of that. It will be invaluable. It is an excellent opportunity to drive consistency in the region and that means consistency in interpretation and implementation'.

And as Hoogervorst pointed out in his conference speech: 'Almost all of the major Latin American economies now speak the same financial language'.

Robert Bruce
November 2011

EFRAG Update with summaries for the late October conference call and the November EFRAG TEG meeting

14 Nov 2011

The European Financial Reporting Advisory Group (EFRAG) has released the November 2011 issue of its EFRAG Update newsletter.

On 26 October 2011, EFRAG held a meeting by public conference call. The EFRAG TEG meeting was held 7 to 8 November 2011. Highlights of the meetings were an Invitation to Comment relating to the endorsement of IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine for use in the European Union and the finalised EFRAG comment letter to the IASB on the Exposure Draft ED/2011/2 Improvements to IFRSs.

Click for the EFRAG Update (PDF 349k, link to EFRAG website). 

New IVSC appointments

14 Nov 2011

The International Valuation Standards Council (IVSC) has announced a number of new appointments, following the annual general meeting of the organisation held in Hong Kong on 5 November 2011.

The new appointments include:

  • IVSC Board of Trustees - Frank Vettese (incoming Managing Partner & Chief Executive, Deloitte Canada), Akihiro Watanabe (GCA)
  • International Valuation Standards Board - Dr. Cindy Ma (Houlihan Lokey)
  • International Valuation Professional Board - Chris Mercer (Mercer Capital Management), Professor Nick French (Oxford Brookes University), Greg Forsythe (Deloitte Financial Advisory Services, moving from Vice-Chair to Chair), Roy Farthing (Ernst & Young, new Vice-Chair).

Click for press release (link to IVSC website).

Deloitte IFRS podcast on the new revenue recognition exposure draft

14 Nov 2011

Randall Sogoloff, Leader for Communications in the Deloitte IFRS Global Office, and Phil Barden, Leader for Deloitte’s Global Revenue Recognition team, discuss the new revenue recognition exposure draft Revenue from Contracts with Customers with Robert Bruce.

They discuss the key changes that are proposed and provide insights into the likely effect they will have in practice.

The podcast is available for download here (30 mins 13 mbs) or via iTunes; it is one of a series that will be posted to IAS Plus. All podcasts of the series are available on our Deloitte IFRS podcasts page.

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