The EFRAG Nominating Committee believes it is important that there is a continuous inflow of new members to EFRAG TEG, whilst respecting continuity of existing and experienced members. This means that not all current members, who are eligible for reappointment, may expect to be reappointed despite their satisfactory contribution to EFRAG TEG.

The EFRAG effectively operates through the EFRAG TEG, which makes its decisions independently of the EFRAG Supervisory Board and all other interests.  It assists the European Commission in the endorsement of International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB) by providing advice on the technical quality of IFRS.

EFRAG is looking for candidates from a wide range of backgrounds and geographical origins and welcomes all applications.  The selection process will consider technical competence, background, experience and geographical spread.

EFRAG is calling for candidates to submit their applications by 1 October 2012.  Click for more information (link to EFRAG website).

The paper outlines three major aspects of the IPSASB’s current environment that are important over the next two years:

1. Sovereign debt crisis - highlighting potential poor reporting currently and leading to increasing demands for high quality standards and adoption and implementation guidance
2. Increase in adoption - International Public Sector Accounting Standards (IPSAS) are being adopted and applied, or are in the process of being applied, by nations that are very diverse geographically, economically and culturally, requiring the IPSASB to respond to this diversity in setting its agenda and standards
3. Public interest oversight and related governance changes - acknowledging the need for an appropriate public interest oversight regime for the IPSASB, IFAC and the IPSASB are committed to instituting such a public interest oversight of the IPSASB as soon as possible.  Once a public interest oversight structure is in place for the IPSASB, and related governance changes are implemented, as noted, the IPSASB anticipates conducting a comprehensive review of its broad strategic direction including public consultation on its strategies and work program beyond 2014.

The Consultation Paper identifies a number of public sector critical projects, and other projects to which the IPSASB has already committed - including for example such topics as reporting on the long-term sustainability of public finances, financial statement discussion and analysis and public sector combinations.

In addition, the paper outlines a number of additional potential projects as a result of discussions of the IPSASB during work planning sessions, analysis of existing IPSASs and work necessary for maintenance, analysis of the current IASB work program, and analysis of existing IPSASs and their alignment with Government Finance Statistics (GFS).

Comments on the Consultation Paper close on 31 October 2012.  Click for IPSASB press release (link to IFAC website).

With the exception of agricultural and real estate entities, Malaysian Financial Reporting Standards are required to be applied on a mandatory basis by all non-private Malaysian entities with effect from 1 January 2012.  The MASB had previously deferred the application of the standards by agricultural and real estate entities to annual periods beginning on or after 1 January 2013. The deferral was implemented in light of concerns on the application of the Malaysian equivalents to IFRIC 15 Agreements for the Construction of Real Estate and IAS 41 Agriculture in the Malaysian context.

The latest deferral to 2014 is designed to permit the IASB to finalise the new revenue recognition standard to replace IAS 18 Revenue (and so supersede IFRIC 15).  Furthermore, it also appears that the IASB will take on a project to reconsider certain aspects of IAS 41 as a result of its Agenda Consultation 2012.

Click for MASB press release (link to MASB website).

The working drafts discuss the topics in each section, summarising the proposals in the original exposure draft relevant to that topic, constituent comments on those proposals, and the IASB's response in light of those comments.  The documents then show a 'mark up' of proposed changes from the wording in the exposure draft to reflect the impacts of the feedback analysis.

The documents are substantially the same as the papers posted for the 25-26 June 2012 Insurance Working Group meeting and do not reflect the input the IASB received on those papers. The IASB staff intend to update the documents to reflect all input received in due course.

The additional working drafts join a number of earlier working drafts on other topics in the insurance contracts project.  The IASB has also updated a number of complimentary documents providing an overview of the tentative decisions made in the project up to June 2012, including a detailed 'paragraph by paragraph' summary of the exposure draft and the related redeliberations.

The IASB encourages any feedback on the working drafts and information about any unintended consequences from those drafts.  The IASB intends to release either a review draft of the proposed insurance contracts standard, or a revised exposure draft, in the second half of 2012.

Access to the working drafts is available on the IASB website.

In the speech, given in Spanish, Mr Hoogervorst noted the strong support for global accounting standards in South America and noted the number of large South American economies that have adopted IFRS.

Convergence

Mr Hoogervorst gave an update on the leases, financial instruments, revenue recognition, and insurance projects.  He indicated that the IASB and FASB have made 'real progress' in these projects, that there is 'light at the end of the convergence tunnel', whilst providing explanations for remaining differences.  He commented that exposure drafts for leases, financial instruments, and revenue recognition are expected in the second half of 2012 and expect to have finalised standards in 2013.

IASB future agenda

In noting constituent calls for a 'period of calm', Mr Hoogervorst commented that going forward, the IASB will generally focus on only the most important areas that will require change and have constituent support.  These included finalising the revised conceptual framework, developing a disclosure framework to address excessive disclosures, and the need for a conceptual analysis of other comprehensive income.

In addition, it is expected that smaller projects on agriculture, business combinations under common control and equity accounting may be considered.  Other topics that are not on the current IASB work program will be placed in a ‘research phase’ where other standard-setters will work with the IASB to gather preliminary information on a project. This phase will speed up the discussions on a project when it does make it to the IASB work program.

IASB relationship with regulators and standard setters

With the increasing use of IFRS globally, Mr Hoogervorst commented that it becomes important to take into consideration the views from different parts of the world. The IASB is in the process of developing a formal structure of working with national and regional standard-setters, including the Group of Latin American Accounting Standard Setters (GLASS).  In addition,  Mr Hoogervorst saw mutual benefits from a more structured and deeper cooperation between the IASB and securities regulators.

Please click for the full text of the speech (in Spanish) on the IASB's website.

It is a year since Hans Hoogervorst took over as Chairman of the IASB. It has not, through no fault of his own, been an easy time. The difficult story of economic disruption continues to be told by financial reporting around the world. Last year, in our coverage on IAS Plus of his arrival and first actions, we suggested that they showed where the accounting high ground of the future would be situated. ‘It was not going to be in the field of arcane technical matters, which only the technocrats would comprehend and then argue over them for months and years’. Instead, we said: ‘The Hoogervorst future is at the heart of the widest economic and business issues. The global stature of the IASB will be reinforced further and take its place at the table where it will become even more obvious that financial reporting is at the heart of economic progress’.

And across the last few weeks we have had discussions amongst the IASB’s Advisory Council, a speech from the Chairman of the Trustees, Michel Prada, and one from Hoogervorst himself, taking a wider view of what he termed: ‘the imprecise world of accounting’.

The first decade of the IASB was an enormous achievement, as Prada pointed out, but, inevitably, it was a time of building the structure fast and relying often on what could be achieved in the short-term, rather than what might in the long term be more useful. And it was also a time when the global economy woke up to the implications of quite what a universally applied financial reporting regime might mean. Many people in the policy-making world found themselves wrong-footed. They had taken the traditional attitude. Hoogervorst explained this in his Amsterdam speech the other day. ‘Accounting should be the most straightforward of topics for policy-makers to deal with. Accounting is mainly about describing the past – to reflect faithfully what has already happened’, he said. ‘This should be dull business, best left to “bean-counters”. Surely counting beans cannot cause too many problems?’

That has been the traditional attitude for years amongst policy-makers. ‘Yet, over the years’, said Hoogervorst, ‘many securities regulators have told me of their surprise upon finding out that accounting policy is one of the most difficult and controversial topics to deal with. It is the same around the world. Just ask the Japanese FSA, the US SEC, or the European Commission’.

Part of this surprise is the under-estimation of the implications of good financial reporting. Hoogervorst quoted his predecessor, Sir David Tweedie, that it was the job of accounting to keep capitalism honest. And the second issue was ‘the inescapable judgement and subjectivity of accounting methods’. ‘Put simply’, he said, ‘there is a lot to disagree about’.

And there are. He ran through examples involving measurement techniques; the rise in importance of OCI, the place where the ill-defined but very important jumble of ‘other comprehensive income’ is put; intangible assets, and more. This is the technical detail which can be, and is argued about incessantly. But as the IASB has matured it has become the underpinning of a grander and more global purpose. ‘We should concentrate on further improving the quality of our standards’, said Hoogervorst. Principles, pragmatism and persistence were his watchwords. In Prada’s speech he said that Hoogervorst’s words in Amsterdam ‘remind us of the fundamental objective and of the intrinsic complexity of accounting and financial reporting: to provide those market participants who do not have direct access to basic data with a true and fair representation of the situation and performance of companies that they invest in or deal with’.

The last year has also seen much effort and work put in by the Trustees and the Monitoring Board to safeguard and ensure the independence of the standard-setting process and to place it within a clearly defined framework that should deliver public accountability and robust governance structures. ‘Accounting standard-setting’, Hoogervorst emphasised, ‘should be sensitive to legitimate business concerns, but should also be firm and independent in the face of special interests’. Testing the ground and understanding the impacts of the accounting proposals is an important part of delivering robust standard-setting and achieving global buy-in for IFRS.

The year has also seen great efforts at encouraging the creation of regional bodies around the world to expand discussion and act as a conduit for views. As Prada put it: ‘The benefit will be better integration of the global perspective into the standard-setting process and perhaps a reduction in the risk of non-endorsement of a new standard’.

Put all of these measures together and you are left with little doubt that the IFRS process is starting to come of age.

The tentative agenda is available on our meeting page for the meeting.

The 13-page paper, built upon discussions by BAC members on IFRS since 2011, provides the following general summary of discussions, as well as broad direction on seven specific topics:

General summary:

The paper admits that 1) there are divergent views on a few issues, 2) no final conclusion has been made, both of which would require further deliberation to deepen discussions. In addition, key message in this section of the report is:

• The effort toward international harmonisation of accounting standards should be continued, building upon already high-quality and internationally recognised state of Japanese GAAP.
• In doing the above, the best approach of using IFRS is to be developed, based upon the following, by sufficiently considering its objective and impact on the economy and systems in Japan:
  • It should be permitted that accounting standards used for consolidated financial statements could be different from Japanese GAAP used in separate financial statements
  • IFRSs should not impact accounting by non-public small-medium sized entities.
• Meanwhile, 1) continued measures are to be taken for convergence if appropriate in light of Japanese accounting standards, and 2) voluntary early adopters of IFRS are to be accumulated further
• It is important to contribute to the development of IFRSs and to communicate Japan's view as appropriate.

Topic-specific summary:

The report reflects the diverse views expressed by BAC members at past BAC meetings and includes the following broad directions formed on each of seven topics:

1. International harmonisation of accounting standards: Positive measures are to be taken for convergence to ensure that Japanese GAAP is of high quality and internationally recognised. In doing this, importance should be placed on matters identified in responding to the Agenda Consultation 2011 by Japanese constituents (the “response to AC”), including the concept of net income and the scope of fair valuation.
2. Use of IFRS in Japan: The most appropriate approach of incorporating IFRS should be explored, reflecting the institutions and economy of Japan, also taking into account the international environment. In addition, it is necessary to identify acceptable and unacceptable requirements in IFRSs, using comments shown in the response to AC, which is to be further considered at practical level. It is important that the BAC refer to such in its future deliberations. There are also requests asking stock exchanges to segregate markets into one where IFRS is used and another with Japanese GAAP.
3. Communicating views from Japan: It is important to continue contributing to IFRS Foundation/IASB in terms of human resources and funding. It is also appropriate for constituents in Japan to continue concerted efforts toward communicating views, with international coordination. It is  imperative for the satellite office of the IASB to be opened in Tokyo to be fully utilised in this regard. A coordinated effort through a forum such as the one formed on the response to AC should continue to be effective.
4. Separate financial statements: It is realistic to permit that accounting standards for consolidated financial statements be different from Japanese GAAP used for separate financial statements that are more closely tied to Company Laws, tax laws and other regulations. In addition, it is appropriate to consider measures to ease the burden of disclosure in separate financial statements, by utilising requirements under the Company Laws.
5. Non-public small-medium sized entities: IFRS should not impact accounting by non-public small-medium sized entities, consistent with existing policy.
6. Voluntary application of IFRS: Although deliberation of the use of IFRS continues, voluntary use of IFRS are to be accumulated further. Such voluntary use would highlight practical merits and issues of using IFRS and initiatives to deal with them should be considered and implemented. It is also important to actively publicise internationally that the use of full IFRS is already permitted in Japan.
7. Approach toward principle-based IFRS: Practical measures by prepares, auditors, and regulators need to be further considered, with an appropriate coordination among them.

The full report is available at the website of the Financial Service Agency of Japan today (in Japanese only).

Click for our previous news article.