Levies

The Committee considered how an entity would account for the payment of levies, other than income taxes, in its financial statements; specifically, when the liability to pay a levy should be recognised. The proposed guidance, DI/2012/1 Levies Charged by Public Authorities on Entities that Operate in a Specific Market, clarifies that "the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy as identified by the legislation".

Comments on the levies proposal are due by 5 September 2012.

Click for DI/2012/1 and the press release, both available on the IASB website.

Put options

The Committee considered how to measure the financial liability created when a parent entity is obliged to purchase the shares of its subsidiary for cash or for another financial asset, and the parent must recognise a financial liability in its consolidated financial statements for the present value of the option exercise price.

The proposed guidance, DI/2012/2 Put Options Written on Non-controlling Interests, clarifies that all changes in the measurement of that financial liability should be recognised in profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9 Financial Instruments.

Comments on the put options proposal are due by 1 October 2012.

Click for DI/2012/2 and the press release, both available on the IASB website. A french translation of DI/2012/2 is also available.

As reported earlier, the United States Financial Accounting Foundation (FAF) Board of Trustees have announced the establishment of a new body (Private Company Council, PCC) to improve the process of setting accounting standards for private companies. The final report published yesterday gives all the details concerning the role and the responsibilities of the new PCC (the summary below is based on extracts from the final report).

• Authority and Critical Responsibilities - The PCC will have two principal responsibilities: (1) determine whether exceptions or modifications to existing non-governmental U.S. Generally Accepted Accounting Principles (U.S. GAAP) are required to address the needs of users of private company financial statements; (2) serve as the primary advisory body to the Financial Accounting Standards Board (FASB) on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda.
• Membership and Terms - The PCC will comprise 9 to 12 members, including a Chair, all of whom will be selected and appointed by the Board of Trustees. The PCC Chair will not be affiliated with the FASB and will have had substantial experience with and exposure to private companies during the course of his or her career. PCC members will include users, preparers, and practitioners who have significant experience using, preparing, and auditing (and/or compiling and reviewing) private company financial statements. Members will be appointed for a three-year term and may be reappointed for an additional term of two years.
• FASB Liaison and Staff Support - A FASB board member will be assigned as a liaison to the PCC. FASB technical and administrative staff will be assigned to support and work closely with the PCC to leverage the FASB’s resources and avoid duplication of efforts.
• Meetings - During its first three years of operation, the PCC will hold at least five meetings each year, with additional meetings if determined necessary by the PCC Chair. The meetings of the PCC will be open to the
  public.
• PCC Agenda Setting and Due Process for existing U.S. GAAP - The PCC will determine its agenda in consultation with the FASB and with input from stakeholders. Based on agreed-upon decision-making criteria, the PCC will conduct a review of existing U.S. GAAP and identify standards that it will
  consider for possible exceptions or modifications. Proposed modifications or exceptions to U.S. GAAP approved by the PCC will be provided to the FASB for a decision on endorsement.
• PCC Role in Projects on FASB Agenda - For projects under active consideration on the FASB’s technical agenda, the PCC is the primary advisory body to the FASB about the implications for private companies.
  Recommendations of the PCC will be considered by the FASB in its deliberations, and the FASB will be responsible for documenting, in the basis for conclusions of its proposed and final Accounting Standards Updates, how
  it separately considered the needs of private companies and the recommendations from the PCC.
• Oversight - The FAF Board of Trustees will create a special-purpose
  committee of Trustees, the Private Company Review Committee (Review Committee), which will have primary oversight responsibilities for the PCC for its first three years of operation. The Review Committee will hold both the PCC and the FASB accountable for achieving the objective of ensuring
  adequate consideration of private company issues in the standard-setting process.
• FAF Trustees’ Three -Year Assessment - Following its first three years of operation, the FAF Trustees will conduct an overall assessment of the PCC
  to determine whether its mission is being met and whether further changes to the standard-setting process for private companies are warranted.

Please click for access to the full report on the FASB website.

The agenda, dated 30 May 2012, has been released.

The full agenda for the meeting can be found here.

The draft guidance note deals with financial information presented other than in accordance with generally accepted accounting practice (GAAP, as defined under New Zealand law and including New Zealand equivalents to IFRSs).  The guide deals with common forms of non-GAAP information such as the alternative performance measures of 'underlying profit' or 'normalised profit'.

The guidance note states FMA's view that it "is reasonable for users of financial information to expect information to be presented in accordance with GAAP".  In order to ensure that non-financial information is not misleading, FMA sets out a number of factors to consider, such as disclosure as to why the non-GAAP financial information is useful, how it is calculated, and the need for a reconciliation to financial information included in the financial statements.  The guide also notes information should be unbiased and not describe items as "one-off" or "non-recurring".

Also included is guidance on information included in transaction documents such as prospectuses, noting that financial information in such documents are required under New Zealand law to comply with GAAP in certain respects.   The guide goes on to state that other financial information, such as pro-forma information, should be presented in accordance with the recognition and measurement requirements of GAAP and provides further guidance on how this information should be presented.

The draft guidance note borrows heavily from similar guidance issued by the Australian regulator, the Australian Securities & Investments Commission (ASIC).  The ASIC Regulatory Guide (link to ASIC website), issued in December 2011, goes further than the FMA document by providing additional guidance on the disclosure of financial information within the financial statements themselves, giving ASIC's sometimes controversial views on topics such as whether additional line items and subtotals are appropriate in the statement of comprehensive income.  (More information on the ASIC guide is available in this Accounting Alert from Deloitte (Australia)).

The FMA consultation document is open for comment until 29 June 2012.  Click for more information (link to FMA website).

At a recent workshop on 14 May in London, the IASB welcomed 30 participants from 20 countries for a Framework-based IFRS teaching session. Following this session, the IASB project staff provided updates on the investment entities, financial instruments, leases, and insurance projects currently on the IASB's active agenda. Further, there was a Q&A session for IFRS teacher with the IASB Staff on the new and amended IFRSs that would become mandatory in 2013.

Please click for:

• IASB press release (link to IASB website)
• 14 May IASB staff annual event for IFRS Teachers presentation (PDF 2,146k, link to IASB website)

The French standard setter Autorité des normes comptables (ANC) has recently presented a discussion paper Accounting for Emissions Trading Schemes Reflecting Companies’ Business Models that is intended "to inspire the international debate and, as soon as possible, the development of an international accounting standard by the IASB."

The European Union Emissions Trading System (EU ETS) launched in 2005 will move into Phase III in 2013 which will lead to the gradual phasing out of free emission rights and a move towards auctioning of emission rights. Consequently, the questions of whether tradeable permits in emission trading schemes (allowances and credits) are assets and how they should be accounted for need to be addressed. The ANC proposes an accounting approach that builds on the business model of a company as "under IFRS, a uniform measurement of purchased allowances, regardless of the use they are put to, would be irrelevant".

In Australia, the newly introduced Carbon Pricing Mechanism (CPM) is split into phases as well. The fixed price phase in which a carbon tax is levied on certain entities is to run from 1 July 2012 to 30 June 2015. In the following flexible price phase, permits (carbon units) can be traded.

In an agenda paper published by the staff of the Australian Accounting Standards Board (AASB) that is predominently dealing with possible financial reporting implications of the fixed price phase, the staff announces: "The financial reporting implications of the flexible price phase will be considered when the IASB progresses its project on accounting for ETSs." However, the staff also notes: "The AASB has contingency plans in place to provide any necessary financial reporting guidance under Australian Accounting Standards in regard to the flexible price phase, should it be established that a pronouncement from the IASB will not be forthcoming in time to provide a basis for accounting treatments in the flexible price phase."

It is likely that the IASB will be taking up the project on emission trading schemes (ETS) again since during the discussion of the agenda consultation last Wednesday research on emissions trading schemes was named as one of the possible priority projects for the future agenda.

Please click for:

• ANC Discussion Paper in English or French (links to ANC website)
• AASB staff paper (link to AASB website)
• Our summary of the (currently halted) IASB project on ETS
• Notes from the 23 May discussion of the IASB agenda consultation project
• Our sustainability reporting page