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IAASB sets go-forward priorities

06 Jun 2012

The International Auditing and Assurance Standards Board (IAASB) has released its finalised strategies and work plan for the next three years. The plan reveals an emphasis on supporting global stability, adapting audit and assurance to current global conditions, and the global adoption of standards.

In responding to the three key priorities, the IAASB intends to:

  • Supporting global financial stability — the main priority will be the audit report, including considering innovative ways to enhance the relevance and usefulness of auditors’ reports and auditor communications more broadly. It will also include exploring new ways in which auditor reporting could accommodate evolving national reporting regimes and facilitate enhanced approaches in corporate reporting
  • Enhancing the role, relevance and quality of assurance and related services in an evolving world — in particular the revision of the standard on review engagements, to enable practitioners to better service the needs of small- and medium-sized entities (SMEs), a new standard on assurance engagements on greenhouse gas statements, and to provide a strengthened framework under which both reasonable and limited assurance engagements can be conducted
  • Facilitating adoption and implementation of the standards — responding to the global financial crisis and the strong momentum for global adoption and implementation efforts in all parts of the world through sustained outreach efforts in various jurisdictions that have not yet adopted the clarified International Statements on Auditing (ISAs).


Click for IAASB press release (link to IFAC website).

EU formally adopts amendments to IAS 1 and IAS 19

06 Jun 2012

The European Union has published a Commission Regulation endorsing the amendments to IAS 1 'Presentation of Financial Statements' and IAS 19 'Employee Benefits' published by the IASB on 16 June 2011.

The European Union has published the Commission Regulation (EC) No 475/2012 of 5 June 2012 amending Regulation (EC) No 1226/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 6 June 2012. This means that the amendments to IAS 1 Presentation of Financial Statements and IAS 19 Employee Benefits published by the IASB on 16 June 2011 have now been incorporated into European law.

The amendments to IAS 1 must be applied, at latest, to annual periods beginning on or after 1 July 2012. The amendments to IAS 19 must be applied, at latest, to annual periods beginning on or after 1 January 2013.


Summary of the amendments

Amendments to IAS 1 Presentation of Financial Statements

  • Preserve the amendments made to IAS 1 in 2007 to require profit or loss and OCI to be presented together, i.e. either as a single 'statement of profit or loss and comprehensive income', or a separate 'statement of profit or loss' and a 'statement of comprehensive income' – rather than requiring a single continuous statement as was proposed in the exposure draft
  • Require entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently. i.e. those that might be reclassified and those that will not be reclassified
  • Require tax associated with items presented before tax to be shown separately for each of the two groups of OCI items (without changing the option to present items of OCI either before tax or net of tax).

Amended IAS 19 Employee Benefits

  • Require recognition of changes in the net defined benefit liability (asset) including immediate recognition of defined benefit cost, disaggregation of defined benefit cost into components, recognition of remeasurements in other comprehensive income, plan amendments, curtailments and settlements
  • Introduce enhanced disclosures about defined benefit plans
  • Modify accounting for termination benefits, including distinguishing benefits provided in exchange for service and benefits provided in exchange for the termination of employment and affect the recognition and measurement of termination benefits
  • Clarification of miscellaneous issues, including the classification of employee benefits, current estimates of mortality rates, tax and administration costs and risk-sharing and conditional indexation features
  • Incorporate other matters submitted to the IFRS Interpretations Committee.

UN Global Compact publishes 2011 implementation survey

05 Jun 2012

The United Nations Global Compact has published the 2011 results of its annual online survey of Global Compact participants worldwide. The survey is designed to take stock of environmental and social performance and identify trends and developments related to corporate sustainability issues, including reporting.

Launched in 2000, the United Nations Global Compact is a call to companies around the world to align their strategies and operations with ten universal principles in the areas of human rights, labour, environment and anti-corruption, and to take action in support of broader UN goals.

The 2011 Global Compact Implementation Survey received 1,325 responses from over 100 countries, representing a response rate of roughly 20 percent of Global Compact participants.    1,861 companies joined the initiative during 2011.

The survey report notes that a deeper understanding of sustainability issues is gaining momentum around the world, and companies of all sectors are stepping up efforts to build environmental and social considerations into management strategies and policies.

Under the Global Compact programme, participants are required to submit an annual Communication of Progress (COP) outlining their progress on each of the principles.

With respect to public disclosure of policies and actions per issue area, a minority of companies indicate doing so, except in the realm of environment where company size has a significant impact on action (30% of small and medium sized entities versus 89% of the largest companies).  In terms of sustainability/environmental reporting in particular, the survey found that company size and ownership type have an impact, with publicly traded and the largest companies implementing policies at dramatically higher rates in the areas of performance indicators, 'triple bottom-line' and voluntary charters.

Click for press release (link to Global Compact website).

FASB Chair discusses disclosure overload and cost-benefit analysis of standards

05 Jun 2012

Leslie F. Seidman, Chair of the Financial Accounting Standards Board (FASB), has given a speech to the Compliance Week Annual Conference held on 4 June 2012. In the speech, Ms Seidman discusses the FASB's disclosure framework project and responds to calls for the FASB to extend the analysis of the costs and benefits in standard setting to include the 'economic effects' of standards.

Disclosure framework

The FASB is expected to issue a Discussion Paper from its disclosure framework project in the coming weeks.

In discussing the project, Ms Seidman noted many themes under US GAAP that are consistent with those expressed under International Financial Reporting Standards (IFRS).  (The FASB has been working together with the European Financial Reporting Advisory Group (EFRAG) on their respective projects to develop a disclosure framework, with a view to creating a consistent framework for both United States and international GAAP.  The IASB Chairman has also signalled the IASB may consider a project in this area.)

In Ms. Seidman's speech, she points out that "some people would like to start slashing disclosures right now", but she notes "the purpose of this project is to improve disclosure effectiveness, not to single-mindedly reduce disclosure volume".  She goes on to state FASB believes it should be "establishing a framework for disclosure first, so that there is a rationale for deleting or modifying existing disclosures and potentially adding new disclosures in the future".

Ms Seidman outlined the expected benefits of the Disclosure Framework, including:

  • help the FASB establish consistent disclosure requirements that focus on what is most important to most users
  • explain how the reporting entity should evaluate which disclosures are needed under different circumstances at different times
  • exploring ways to emphasise the more “newsworthy” information and ways to make it easier for users to find the information that they are most interested in.

The Discussion Paper also will invite comments on the approach to interim disclosures and how to evaluate materiality in the context of disclosures.  On the concept of materiality in disclosures, Ms Seidman noted:

... many people struggle with how to apply the concept of materiality to disclosure items. If an item is material in a financial statement, must every prescribed disclosure about it be provided, even if some of that information is immaterial? On the other hand, can a preparer afford to omit immaterial information when they are likely to spend more time explaining to an auditor, investor, or regulator why it was omitted? I call this phenomenon “defensive disclosure.” While I understand why companies do it, I think it contributes greatly to disclosure overload and ineffectiveness.

Costs and benefits of standard setting

In moving onto the analysis of costs and benefits in standard setting, Ms Seidman responded to calls for the FASB to extend that analysis into the 'economic effects' of standards, by studying the broader impact of proposed accounting standards on the economy.

Ms Seidman stated the FASB will issue a standard "if the improvements in the quality of the reporting are expected to justify the costs of preparing and using the information".  She noted calls for the FASB to move beyond that paradigm and study the broader impact where particular companies or an industry will be especially harmed, and discussed her concerns with that approach.

Focusing on the role of financial reporting in the economy, Ms Seidman noted "[w]hile new accounting standards may change the way companies report their financial condition, the standards do not create or change the underlying condition itself".  She then went on to discuss the benefits from past controversial projects, such as FASB's other post-employment benefits project in the 1980s, which she acknowledged had raised a number of constituent concerns.  She continued noting "it is clear that the benefits of better information provided by the standard caused management and investors to think about this form of compensation in a different way" and that the project did have consequences such as "some decided to adjust the forms of benefits being promised to retirees".

In wrapping up her thoughts on this topic, Ms Seidman noted:

Some have suggested that we undertake studies of the adverse consequences that our proposals might have for certain employees, or companies, or sectors of the economy. Some think that the potential for adverse consequences is a reason to not improve reporting. We don’t share that view. We think investors, creditors, donors, and other users, including policy makers, need relevant and unbiased information on which to base their decisions... To do otherwise would be to put the special interests of a few ahead of the broader public interest in unbiased financial information.

Click for the full text of Ms Seidman's speech (link to SEC website).

Updated EFRAG 'endorsement status report'

04 Jun 2012

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.

Since the last report, the ARC voted on a regulation that requires IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28 to be applied by the beginning of a company's first financial year starting on or after 1 January 2014. Early adoption would be permitted once the standards have been endorsed.

Click to download the Endorsement Status Report as of 4 June 2012.

You can always find the endorsement status report here.

EFRAG report on supplementary study findings — consolidation of SPEs under IFRS 10

04 Jun 2012

EFRAG has issued a supplementary study on the impact of IFRS 10 on the consolidation of special purpose entities (SPEs). The EFRAG secretariat undertook this study to provide input for the impact assessment of IFRS 10 for the European Commission, in cooperation with the staff of certain European National Standards Setters.

This supplementary study was developed to describe the impact of IFRS 10 on the scope of consolidation in relation to SPEs, compared to IAS 27/SIC‑12. The study was prepared with EFRAG’s endorsement advice on IFRS 10, which was issued on 30 March 2012.

Fourteen companies participated in the study, and findings include:

  • New guidance will result in more informative financial statements in relation to SPEs.
  • The overall quantitative impact from adopting IFRS 10 on the scope of consolidation, compared to current requirements for SPEs, is likely to be relatively limited for total assets and total consolidated SPEs.
  • Participants reported that alothough IFRS 10 did not necessarily result in consolidation of considerably more or less of SPEs, the standard should not be considered in isolation, but should be assessed in conjunction with the disclosure requirements of IFRS 12. Some of these participants specifically noted that the new disclosure requirements in IFRS 12 would require them to provide significantly more narrative information about their interests in unconsolidated SPEs.
  • Some participants also pointed out that even if certain SPEs were deconsolidated, they would still be required to continue to recognise the assets of those SPEs because of the risks and rewards model underlying criteria in IAS 39 Financial Instruments: Recognition and Measurement.

Click to view the supplementary study on the EFRAG website.

IASB Chairman speaks about financial stability and what accounting rules can contribute and cannot contribute

04 Jun 2012

On 4 June 2012 Hans Hoogervorst, Chairman of the IASB, addressed the 3rd ECB Conference on Accounting, Financial Reporting and Corporate Governance for Central Banks in Frankfurt. In his speech, he focussed on financial stability and the question of what accounting rules can contribute to this objective - especially transparency about impairment.

Hoogervorst began his speech by pointing out that in the discussions about what the primary goal of standard setting should be, transparency and financial stability were often seen as juxtaposed. This, Hoogervorst commented, is an essentially false and counterproductive assumption, as transparency is exactly what accounting rules can contribute to financial stability.

The IASB Chairman was very clear about what standard setters cannot do: They cannot ensure stability by themselves, and they cannot (and will not) make items appear to be stable when they are not. They can however contribute to increased transparency which in turn gives prudential regulators and central banks the possibility to react with the instruments available to them.

Hoogervorst noted three aspects of transparency that were and are especially important in connection with the financial crisis and the current Euro crisis:

Tightening of consolidation requirements to prevent undesirable off-balance‑sheet financing - this was a problem especially in the United States, but improved consolidation and disclosure requirements under US GAAP were introduced during the financial crisis. Hoogervorst quoted this as valuable contribution standard setters made to increased transparency and concluded: "[W]e can reasonably hope that this problem will now be a matter of the past."

Judicious use of fair value accounting to show inherent volatility in business models and markets - during the financial crisis there were often calls to abandon fair value accounting as it was believed to lead to artificial volatility. Hoogervorst pointed out, however, that the financial sector is an industry with a lot of inherent volatility, not showing it would diminish transparency not increase it. At the same time the standard setters are well aware that for some instruments, amortised cost is deemed to provide more relevant information than short‑term market fluctuations. Therefore, the IASB has decided to continue with a mixed measurement model in IFRS 9. Hoogervorst also briefly touched on the recent developments in the limited reconsideration of IFRS 9 and the decision to re-establish a fair value through OCI category for certain debt instruments.

Providing a well-functioning impairment model for reliable and credible amortised cost measurements - the current impairment model based on incurred losses came also under criticism during the financial crisis and the Euro crisis. Hoogervorst admitted that this was probably partially justified, even though the model also suffered from a less than vigorous application as triggers to start writing off were abundant yet for various reasons ignored. Still, IASB and FASB are developing a model that is based on expected losses, not on incurred losses, and that Hoogervorst believes will be a major improvement and a great contribution to increased transparency. (A re-exposure of the exposure draft on impairment is expected in the fourth quarter of 2012.) However, Hoogervorst also pointed out the limitations of the new model:


[As] I said before, the expected loss model relies to some extent on judgement. Before the present crisis, many banks and their supervisors obviously were not able to perfectly anticipate risk [... and] there is no guarantee that future bankers will do a much better job of anticipating risk than current bankers. So it is not likely that all the risks that are building up during an economic boom will be recognised in time. Even with an expected loss model, many losses will only become apparent when the economic downturn sets in.

Please click for access to the full speech on the IASB website.

Report from recent IFASS meeting released

04 Jun 2012

The International Forum of Accounting Standards Setters (IFASS) met in Kuala Lumpur on 29-30 March 2012. A detailed report of proceedings at the meeting has now been released, outlining discussions on numerous topics such as the relationship between standard setters and the IASB, the IASB's work programme and processes, and a report on the possible adoption of IFRS in the United States noting a possible "step back".

The public meeting was attended by representatives of standard setters from Australia, Austria, Belgium, Brazil, Canada, France, Germany, Hong Kong, India, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peoples Republic of China, Republic of Korea, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Syria, Taiwan, the United Kingdom, and the United States. Representatives of the European Financial Reporting Advisory Group (EFRAG), the International Accounting Standards Board (IASB), International Public Sector Accounting Standards Board (IPSASB) and the IFRS Advisory Council also attended.

A full summary of the topics covered is available in our earlier story where the agenda of the meeting was posted.  Some highlights from the various discussions are outlined below.

International standard setting and interpretation

The IFASS participants discussed a number of related topics on how international standard setting should be undertaken, and the role of national standard setters in that process.  In addition, the interaction with regional standard setters (such as EFRAG, AOSSG and GLASS, which also gave reports) was considered.

The participants discussed a paper A Model for National Standard Setters and noted the following.  A lot of the discussion focused on the role of national standard setters in the standard-setting process and the resolution of jurisdiction-specific issues.  Delegates noted that national standard setters should wherever possible "not deviate from or provide jurisdiction-specific interpretations of IFRSs" and should consult throughout the IFASS network to ensure there is no misinterpretation and that the interpretation is not "causing problems for others".

The meeting also discussed a draft Statement of Best Practice Between the IASB and IFASS.  Mr Mackintosh (IASB Vice Chairman) commented that the "IASB wants to formalise its relationship with national standard setters and work productively with them".  Participants commented that the relationship should be seen as a 'partnership' and "standard setters wanted to be listened to, and heard by, the IASB".  A number of suggestions to improve the drafting of the document were discussed and will be actioned before the next meeting.

The group also discussed the role and selection of an IFASS Chairman, which will be provided by a standard setter of a jurisdiction and will also have a Chairman's Advisory Committee.

Comments on the possible adoption of IFRS in the United States

Tom Linsmeier, a FASB member, spoke in a personal capacity on the possibility of the United States.

In a candid analysis, Mr Linsmeier noted that no decisions have been made and that a "the report of staff's recommendations will be made public if and when the [SEC] Commissioners make a decision about the direction forward in the U.S. but likely not before June or July".  He went on to note that the ability of the SEC to make a decision may be constrained by the presidential election in which policy activity generally ceases from July or August, which although the SEC is "not bound by such restrictions, but often voluntarily chooses to comply".  He added that there will be a need to directly engage the United States Congress on the decision and so "the timing of the final decision is not known".

In another comment, Mr Linsmeier noted that:

The SEC staff acknowledges that its current thinking generally reflects a step back from potential full adoption of IFRSs and from its original "condorsement" proposal

The other participants noted the comments.  The IASB Chairman (Hoogervorst) "expressed disappointment" with the observations and "was discouraged by the delay" and called for "the SEC to make a decision one way or the other" to eliminate uncertainty.  Various other representatives commented in similar tones and made other consequences of the United States potentially not adopting IFRSs.

Topical issues

The representatives discussed the following issues:

  • Improving the financial reporting of income tax - discussion on the discussion paper on this topic published by the UK Accounting Standards Board and EFRAG
  • Business combinations under common control - discussion on the paper on this topic published by the Italian standard setter and EFRAG
  • Research and development costs under IFRSs - consideration of a paper prepared by the Accounting Standards Board of Japan (ASBJ) outlining issues with IAS 38 Intangible Assets
  • Foreign currency convertible bonds - consideration of paper prepared by the Indian standard setter on the difficulties in applying IAS 32 Financial Instruments: Presentation to bonds issued in India
  • Accounting for small (or micro)-sized entities in different jurisdictions - a report of a survey on the financial reporting framework for these entities prepared by the Korean Standard setter
  • Goodwill amortisation and impairment - query from the Italian standard setter on whether representatives would support a potential project to investigate whether the current requirements for goodwill measurement are still valid
  • Going concern and liquidity risks: developments in the UK
  • Operating profit or loss - issues experienced by Korea in relation to 'operating profit or loss' following its adoption of IFRSs

Other matters discussed

The other items discussed at the meeting included:

  • Reports from regional groups (AOSSG, EFRAG, GLASS, PAFA) and support for developing jurisdictions
  • IASB post-implementation reviews
  • Effects analysis
  • Public Sector Conceptual Framework
  • Unit of account
  • IASB work programme
  • Other matters

The next meeting of the IFASS is scheduled to be held in Zurich on 22-23 October 2012.

Click for access to the full summary of the meeting (link to the AASB website).

Agenda for the June 2012 IASB meeting

04 Jun 2012

The International Accounting Standards Board (IASB) will be meeting in London on 12-15 June 2012 for its regular monthly meeting, much of it a joint meeting with the Financial Accounting Standards Board (FASB). The meeting will cover a broad range of topics, including insurance contracts, leases, investment entities and financial instruments.

The full agenda for the meeting, dated 1 June 2012, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

Updated EFRAG 'endorsement status report'

01 Jun 2012

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.

Since the last report, the European Commission's Accounting Regulatory Committee (ARC) voted in favour of the adoption of IFRS 10, IFRS 11, IFRS 12, IFRS 13, IAS 27 (2011), and IAS 28 (2011). The ARC also voted in favour of adopting the amendments to IFRS 1, IFRS 7, IAS 12, IAS 32 and IFRIC Interpretation 20.

Click to download the Endorsement Status Report as of 1 June 2012.

You can always find the endorsement status report here.

ACCA calls for meaningful sustainability commitment at the Rio+20 conference

01 Jun 2012

The Association of Chartered Certified Accountants (ACCA) has published a paper which looks at possible changes to a key aspect of the outcome document from the United Nations Conference on Sustainable Development (UNCSD) to take place in Rio de Janeiro, Brazil, in June 2012 ('Rio+20'). According to ACCA, the paragraph on sustainability reporting included in the "zero draft" of this document needs to be "toughened and expanded".

The "zero draft" of the outcome document (available on the Rio+20 website) contains the following paragraph (paragraph 24) as part of its 'framework for action':

We call for a global policy framework requiring all listed and large private companies to consider sustainability issues and to integrate sustainability information within the reporting cycle.

ACCA believes that these words express a clear goal, however, "the paragraph needs to have greater reference to the role of the private sector and accountability, and it could certainly be more action-orientated". As the implementation of resolutions has often proved to be the crux with international agreements, ACCA suggests that the paragraph should be rephrased so that it will lead to a commitment by UN member states to develop mechanisms for sustainability reporting at a national level that meet global standards at the same time.

ACCA also believes that paragraph 24 should obligate companies to report on a ‘comply-or-explain’ basis. This would force companies to consider and discuss risks and opportunities arising from sustainable development and to embed sustainability into their business strategy and key processes.

While ACCA presses for these changes there are also worries that the zero draft’s paragraph 24 will not make it intact to the final Rio+20 agreement. ACCA warns of any watering down of the paragraph (for example by replacing the Word "require" with the word "encourage") and stresses: "An effective paragraph 24 would increase the relevance of sustainability to investors and businesses and spread good practice worldwide."

Please click for the following documents on the ACCA website:

  • Press release Integrating material sustainability information into corporate reports should be a key and critical outcome of Rio +20, urges ACCA
  • Report Making a difference at Rio+20

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