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Further notes from the June IASB meeting

15 Jun 2012

The IASB's June meeting was held in London on 12-14 June 2012, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the sessions on post-implementation review of IFRS 8 and IFRS for SMEs.

Click through for direct access to the notes:

Thursday, 14 June 2012

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

IASB podcast on insurance contracts

15 Jun 2012

The IASB has made available a podcast on the current state of debate in the IASB/FASB joint project on insurance contracts. The podcast, by Stephen Cooper (IASB member) and Andrea Pryde (Senior Technical Manager) report on developments in the project following the joint IASB/FASB meeting on 12-14 June.

In particular, this podcast focuses on the boards' discussion on a possible method for determining a revenue-like measure, 'earned premiums'.

To listen to the podcast, please click here (link to IASB website).

Canadian research paper on financial reporting measurement issues

15 Jun 2012

The Canadian institute of Chartered Accountants (CICA) has posted to its website a reasearch paper "Toward a Measurement Framework for Financial Reporting by Profit-oriented Entities" to stimulate study and debate, and to provide input for the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB).

The paper is reasoned from fundamental premises about economic business purposes, financial reporting objectives, and the role of markets and market prices. It demonstrates that the conceptual underpinnings of financial reporting measurement can be improved at that this improvement is definitely needed.

The paper envisages profit-oriented (business) entities as processes for transforming market input values into market output values. This leads to the conclusion that market values should be expected to play a critical role in financial reporting measurement theory.

A definition of current market value is put forward that embodies a set of properties that make it a most relevant measure of assets and liabilities for financial reporting purposes. Other measurement bases are evaluated as possible substitutes when current market value is not practicable of faithful representation.

The approach proposed in the paper would have major implications for financial reporting measurement and the paper endeavours to identify and address the most fundamental of these implications.

Ultimately, the paper is intended as input to the IASB/FASB Conceptual Framework project (Phase C – Measurement). Even though the overall Conceptual Framework project is currently paused, it is expected that the project will be re-activated as a result of the IASB's Agenda consultation 2011.

The paper is available for download through the press release on the CICA website. Comments are requested by 30 November 2012. In addition to the possibility of providing formal comments on the paper, the author has set up a blog to encourage open discussion of the paper and financial reporting measurement issues generally :

IIRC publishes feedback summary, commits to integrated reporting framework by end of 2013

15 Jun 2012

The International Integrated Reporting Council (IIRC) has released a summary of feedback received on its 2011 Discussion Paper 'Towards Integrated Reporting—Communicating Value in the 21st Century' and committed to publishing its 'Integrated Reporting Framework' by the end of 2013.

The IIRC received 214 responses to its Discussion Paper from organisations and individuals from over 30 countries.  Reporters, accounting bodies and standard setters represented well over a third of all responses, but responses were also received from a broad spectrum of other organisations and individuals.

The responses received revealed strong stakeholder support for the IIRC to begin the next phase of its framework development. This will include specific work streams on several topics including materiality, the concept of value and business models. The IIRC has stated its intention to conduct this phase in close dialogue with a full range of stakeholders to ensure the process is transparent and informed by market participants.

The IIRC’s analysis identifies four significant areas that need to be explored further to develop the framework:

  • Basic concepts underlying Integrated Reporting — including the definition of Integrated Reporting, what Integrated Reporting is (or is intended to become) and how Integrated Reporting should relate to existing reporting strands (e.g. financial, management commentary, governance and remuneration, and sustainability reporting)
  • Target audience for Integrated Reporting — While the primary audience of an Integrated Report is investors, the IIRC believes it clear that investors are not the only audience
  • From whose perspective “value” should be considered — value to the organisation, to investors, to other stakeholders, or to society at large?
  • Timing of the release of the framework — inter-relationship with the IIRC's pilot programme, the need for more conceptual work, and that time should be taken to ensure a high-quality product.

Partly in response to the points above, the IIRC has announced the deferral of its original plans to finalise an integrated reporting framework in 2012, and instead is now targeting completion of the framework by the end of 2013.

Click for more information (link to IIRC website).

Notes from the June IASB meeting

15 Jun 2012

The IASB's June meeting was held in London on 12-14 June 2012, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the sessions on investment entities, insurance contracts, leases, and various IFRS Interpretations Committee matters.

Click through for direct access to the notes:

Tuesday, 12 June 2012

  • Insurance contracts (IASB-FASB)
    • Educational session on measuring earned premiums
    • Allocation of cash flows to the unbundled component

Wednesday, 13 June 2012

  • Leases (IASB-FASB)
    • Lease expense recognition patterns (see also our earlier story)
    • Determination of a dividing line for different types of leases
  • Financial instruments - Limited reconsideration of IFRS 9 (classification and measurement) (IASB-FASB)
    • Scope of fair value through other comprehensive income for debt instruments
    • Fair value option
  • Investment entities (IASB-FASB)
    • Accounting by an investment entity parent for an investment entity subsidiary
    • Accounting by a non-investment entity parent for the investments of an investment entity subsidiary

Thursday, 14 June 2012

The meeting originally scheduled for Friday 15 June is no longer proceeding.  Meeting notes from the other sessions during the meeting will be posted soon.

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Agenda for Insurance Working Group meeting

14 Jun 2012

The Insurance Working Group is meeting in London on 25 and 26 June 2012. The agenda for this meeting is now available.

The agenda for this meeting is reproduced below:


Agenda for the meeting


Monday 25 June 2012

  • Introductions
  • Overview of papers for this meeting
  • Taking stock: Progress towards an IFRS on insurance contracts (for information)
  • Progress on the IASB's work plan (for information)
  • Progress on the IASB's financial instruments projects
  • Reporting back on previous board decisions:
    • Definition of an insurance contract and the scope of the insurance contracts standards
    • Premium-allocation approach
    • Accounting for non-insurance components in an insurance contract
    • Use of OCI to present the effects of discount rate changes
  • Presentation in the statement of comprehensive income, Presentation 'earned premiums' in the statement of comprehensive income

Tuesday 26 June 2012

  • Continuation of Presentation in the statement of comprehensive income, Presenting 'earned premiums' in the statement of comprehensive income
  • Adjusting the residual margin for changes in estimates
  • Estimating the residual margin on transition
  • Next steps

Further details of this meeting are also available on the IASB's website.

UK Sharman inquiry calls for global consistency in interpretation of "going concern"

14 Jun 2012

The United Kingdom Sharman Panel of Inquiry, established at the invitation of the UK Financial Reporting Council (FRC) to consider going concern and liquidity risks, has published its final report and recommendations ('Sharman report'). One of the recommendations is that the FRC should engage with the IASB and IAASB "to agree a common international understanding of the purposes of the going concern assessment and financial statement disclosures about going concern, and of the related thresholds and descriptions of a going concern".

In support of the recommendation, the report builds on observations in the Panel's preliminary report and notes current divergence in the consideration of going concern:

It is important that what constitutes a going concern and the relationships between the elements of information relating to the entity’s going concern status... – and their purposes and the thresholds used – should be clearly and consistently understood and applied. The Panel found that the descriptions of these matters in the various sources (UK GAAP and IFRS, auditing standards, the Code and guidance for directors and auditors) are at worst inconsistent and at best open to different interpretations, and are in fact interpreted differently, by different people. While recognising the judgmental nature of going concern, such inconsistencies may undermine the effectiveness of the assessment process and the disclosure about the entity’s going concern status and may create expectation gaps.

The report also discusses the concept of "prudence" in accounting.  The following observations are included in the section dealing with integrating the going concern assessment with business planning and risk management:

The Panel also heard evidence that IFRS had resulted in a move away from prudence towards neutrality in providing financial information. Prudence involves weighting downside risks more heavily than upside opportunities. The Panel concluded that, although financial reporting may benefit from this shift in terms of enhanced comparability, prudence remains important in making going concern assessments. Therefore, in making such judgments, directors should seek to ensure that the company is solvent and liquid on a prudent basis.

The report discusses a wide range of related topics, such as the role of auditors and the FRC, considering whether there should be a special going concern disclosure regime for banks, and even whether separate financial reporting and auditing regime for banks is warranted.  On this latter point, the report supports the view that such a system would undermine comparability of corporate reports but notes that regulatory requirements for banks permits incremental (and even separate) reporting.

The Sharman report is to be discussed at the forthcoming IFRS Advisory Council meeting, being held in London on 18-19 June 2012 (the Council meeting will also discuss the related topic of the interaction between the IASB and the IAASB).

Click for access to the Sharman report (link to FRC website).

IFAC calls for G20 to adopt global standards and support integrated reporting

14 Jun 2012

The International Federation of Accountants (IFAC) has written to the G20 outlining its recommendations for consideration at the G-20 Leaders’ Summit on June 18-19, 2012 in Los Cabos, Mexico. The recommendations include global adoption of International Financial Reporting Standards (IFRSs) and International Standards on Auditing (ISAs), increased resources for regulators and standard setters, and support for the International Integrated Reporting Council's proposed integrated reporting framework.

In relation to the global adoption and enforcement of accounting and auditing standards, IFAC supports the adoption of the auditor independence requirements set out in the Code of Ethics for Professional Accountants, issued by IESBA.

The letter goes on to note:

IFAC considers it critical that the G-20 continue its momentum and ambition for regulatory reform and convergence that has been developed over the last few years... IFAC recognizes that there are some areas where global standards may need further development and enhancement. However, the way forward is to encourage and resource improvements in those global standards, rather than have individual jurisdictions make country-specific revisions and amendments. Additionally, it is important that G-20 nations are discouraged from implementing national regulatory reforms, which involve legislative changes that have extraterritorial impacts.

In relation to the recommendation the G20 support of the IIRC's integrated reporting framework, the letter notes:

A common criticism of current financial reporting regimes is that they often fail to appropriately recognize the social, environmental, and long-term economic context within which businesses—whether they are in the public sector or private sector, or whether they are large and complex or small—operate. A thorough understanding of this context is imperative if the objectives of global sustainability and growth are to be achieved. As evidenced in the global financial crisis, a focus on short-term risks and rewards can encourage behaviors that lead to inappropriate and disastrous outcomes.

The letter covers a number of other recommendations, including the development of sustainable organisations, strengthening the accountancy profession in developing and emerging economies, and greater accountability and transparency in the management of public resources.

Click for access to the full letter (link to IFAC website).

Agreement reached by IASB and FASB on lease accounting approach

13 Jun 2012

Today, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) reached an agreement on an approach to account for lease expenses as part of their project to change the lease accounting guidance under IFRSs and U.S. GAAP. Under the agreed-upon approach, leases over one year in length would be included on the balance sheet.

At today’s joint IASB/FASB meeting, the Boards agreed on a proposed approach that will allow lease contracts to be accounted for in one of two ways: 1) using an approach similar to that proposed in the 2010 Lease exposure draft and 2) an approach that results in a straight-line lease expense.

Any conclusions reached by the Boards are preliminary. The Boards expect to issue a joint exposure draft in the fourth quarter of 2012.

Click for:

Agenda for IFRS Advisory Council meeting

13 Jun 2012

The IFRS Advisory Council is meeting in London on 18-19 June 2012. The agenda for the meeting is now available.

The agenda for the meeting can be accessed on our agenda page for the meeting.

Click for access to the full agenda and agenda papers (link to IASB website, agenda papers not currently posted).

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