IASB issues investment entities amendments

31 Oct 2012

The IASB has published 'Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)', providing an exemption from consolidation of subsidiaries under IFRS 10 'Consolidated Financial Statements' for entities which meet the definition of an 'investment entity', such as certain investment funds. Instead, such entities would measure their investment in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 'Financial Instruments' or IAS 39 'Financial Instruments: Recognition and Measurement'.

The amendments define an 'investment entity' as an entity that:

  • obtains funds from one or more investor for the purpose of providing those investor(s) with investment management services
  • commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both, and
  • measures and evaluates the performance of substantially all of its investments on a fair value basis.

An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design.  The amendments provide that an investment entity should have the following typical characteristics:

  • more than one investment
  • more than one investor
  • investors that are not related to the entity or other members of the group containing the entity
  • ownership interests, typically in the form of equity or similar interests (e.g. partnership interests), to which proportionate shares of the net assets of the investment entity are attributed.

If an entity does not meet one or more of these typical characteristics, it is required to justify and disclose how its activities continue to be consistent with that of an investment entity. Additional guidance is provided on detailed specifics in determining whether an entity is an investment entity, such as the impacts of being involved in the day-to-day management of an investee or providing investment-related services to third parties, the nature of the entity, and how the entity measures and manages its financial liabilities.

The types of entities which may meet the definition of an investment entity may include private equity organisations, venture capital organisations, pension funds, sovereign wealth funds and other investment funds.

Where an entity meets the definition of an investment entity, it is not permitted to consolidate its subsidiaries and is required to measure its investments in those subsidiaries at fair value through profit or loss.   However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides services that relate to the investment entity’s investment activities.

The amendments also:

  • introduce new disclosure requirements related to investment entities in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements
  • provide an scope exemption for investment entities from IFRS 3 Business Combinations (meaning such entities do not need to apply business combination accounting to the acquisition of subsidiaries)
  • include various consequential amendments to numerous standards.

The amendments do not introduce any new accounting requirements for investments in associates or joint ventures.  IAS 28 Investments in Associates and Joint Ventures already permits a venture capital organisation, mutual funds, unit trusts and similar entities including investment-linked insurance funds to elect to measure investments in associates and joint ventures at fair value through profit or loss in accordance with IFRS 9 or IAS 39, and the IASB expects that investment entities would apply these requirements.

The new requirements are applicable, on a modified retrospective basis, to annual periods beginning on or after 1 January 2014, a year later than IFRS 10 which is applicable to annual periods beginning on or after 1 January 2013. The amendments can be applied early, and accordingly entities can elect to apply them from when they first apply IFRS 10, avoiding the need for investment entities to consolidate subsidiaries only in the first year of applying IFRS 10.

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Live web update on Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

30 Oct 2012

On 6 November 2012 IASB staff will give a live web presentation on Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) including a question and answer session. The amendments that will form the basis for the presentation are expected to be published tomorrow.

The presentation will be delivered by Patricia McConnell, Member of the IASB, and Sarah Geisman, Technical Manager at the IASB. The presentation and the question and answer sessions will be recorded and made available on the project website.

For the convenience of participants in different time zones two slots have been scheduled:

  • 09.00 (London time),
  • 15.00 (London time).

Registration for the different slots is available through the IASB's website.

Communiqué from latest China-Japan-Korea meeting

30 Oct 2012

A Communiqué has been issued from a meeting of the standard setters from China, Japan and the Republic of Korea held in Seoul, Korea on 10 October 2012.

Representatives were present from the China Accounting Standard Committee (CASC), Accounting Standards Board of Japan (ASBJ), Korea Accounting Standards Board (KASB), and the International Accounting Standards Board (IASB), together with guests from Hong Kong and Macau and a number of other delegates.

The meeting saw discussion on the IASB Emerging Economies Group (EEG), accounting standards for small and medium sized companies, and the IFRS Foundation Asia-Oceania liaison office that was opened in Tokyo in October 2012.  An in-depth discussion on business combinations under common control was also held, and updates received on various IASB projects.

The delegates at this meeting reached consensus to cooperate with each other to:

  1. promote the advancement of International Financial Reporting Standards (IFRSs) by improving mutual understanding through sharing domestic issues relating to IFRSs and discussing ways to resolve those issues in a coordinated manner
  2. share views on the current projects of the IASB in a manner that contributes to more constructive development and amendment of IFRSs
  3. provide full support for the successful operation of the IFRS Foundation Asia-Oceania liaison office that was opened in Tokyo in October 2012.

The next meeting will be held in Japan in 2013.

Click for the full Communiqué (link to KASB website).

Enhancing the risk disclosure of banks

30 Oct 2012

The Enhanced Disclosure Task Force (EDTF) has presented a report to the Financial Stability Board (FSB) recommending key enhancements to the risk disclosures made by banks. The report identifies seven fundamental principles for enhancing risk disclosure which underpin the recommendations made and are considered to provide a framework for future work on risk disclosures and a benchmark by which banks can judge the quality of their current and future disclosures.

The EDTF was formed in May 2012 at the initiative of the FSB and had wide geographic representation with participants from asset management firms, investors and analysts, global banks, credit rating agencies and external auditors.  The task force also liaised with regulators and standard setters in undertaking its work.

The task force established six work streams reflecting banks’ primary risk areas, being: risk governance and risk management strategies/business model, capital adequacy and risk-weighted assets, liquidity and funding, market risk,  credit risk, and other risks.  Each work stream analysed current disclosures in its risk area by reviewing a sample of banks’ recent annual and interim reports, 'Pillar 3' reports (under Basel) and other publicly available information,  such as media releases and presentations to investors, and developed recommendations for enhancing disclosures for that risk area.  The recommendations from each work stream were then analysed by the task force as a whole and discussed with various international and other bodies.

The seven fundamental principles for enhanced risk disclosures identified in the report are:

  1. Disclosures should be clear, balanced and understandable
  2. Disclosures should be comprehensive and include all of the bank’s key activities and risks.
  3. Disclosures should present relevant information
  4. Disclosures should reflect how the bank manages its risks
  5. Disclosures should be consistent over time
  6. Disclosures should be comparable among banks
  7. Disclosures should be provided on a timely basis.

Each of the principles is further elucidated through the use of guidelines and examples of how it should be met.  The report then outlines 32 specific recommendations for enhancing risk disclosures based on the application of the principles, providing general recommendations and those for each of the work streams. These recommendations include both broad objectives, such as presenting all risk information in one place and providing narrative discussion about the nature of risks, and detailed specific requirements such as flow statements of each tier of regulatory capital and risk-weighted assets and a tabulated summary of credit risk in the banking book.

The report is agnostic on where the disclosures should be made, noting "banks should retain flexibility in what  they choose to disclose in their annual reports and other filings".  Reference is made to existing requirements, which in the case of IFRS, include IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement.

The report notes that the EDTF believes that many of the recommendations can be adopted in 2012 or 2013, particularly where existing disclosure simply needs to be presented differently or where information is already available.  Other recommendations may require system changes or require regulatory change and may take longer to implement.

Click for press release (link to FSB website).  Deloitte participated in the EDTF and has endorsed the recommendations in the report.

On 2 November 2012, the IASB published a press release welcoming the report saying that it "complements our own efforts to enhance transparency and the usefulness and comparability of financial statements". The IASB has also announced that it will consider the EDTF recommendations as it develops new financial reporting disclosure principles in the conceptual framework project. Click for access to the press release on the IASB website.

EFRAG endorsement status report 29 October 2012

29 Oct 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.

The updated report reflects that the Accounting Regulatory Committee (ARC) has voted in favour of the adoption of the Annual Improvements to IFRSs 2009–2011 Cycle.

Click to download the Endorsement Status Report as of 29 October 2012.

You can find all past endorsement status reports here.

IASB and SOCPA discuss IFRS adoption in Saudi Arabia

29 Oct 2012

Representatives of the International Accounting Standards Board (IASB) and the Saudi Organization of Certified Public Accountants (SOCPA) met on 24 October in London to discuss progress towards the adoption of International Financial Reporting Standards (IFRSs) in the Kingdom of Saudi Arabia. The meeting took place adjacent to the IASB’s World Standard-Setters conference held on 25 and 26 October in London.

Currently, all banks and insurance companies listed on the Saudi Stock Exchange must use IFRSs. All other listed companies in the Kingdom of Saudi Arabia, as well as unlisted companies, must follow accounting standards generally accepted in the Kingdom of Saudi Arabia as issued by the SOCPA.

Both parties expressed satisfaction with the discussion. The IASB was "extremely pleased to note the progress Saudi Arabia is making towards the adoption of IFRS" and the SOCPA called the support expressed by the IASB members "very encouraging".

Please click for IASB press release (link to IASB website).

India moves towards new 'tax accounting standards' on way to IFRS

29 Oct 2012

The Central Board of Direct Taxes (CBDT), a body within the Indian Ministry of Finance, has publicly called for comments on a report submitted by its Accounting Standards Committee (Committee) on which standards should be used for tax purposes in India in light of India's possible transition to IFRS. The report recommends the creation of 'Tax Accounting Standards' for computing taxable income, a development which may partially address some of the concerns around adopting IFRS in the Indian context.

The Committee which produced the report was constituted in December 2010 to provide advice on the appropriate accounting standards for tax purposes in India, and had issued an interim report in August 2011.  Previously, an earlier Committee report issued in 2003 in light of existing Indian accounting standards recommended  the use of those standards on an unmodified basis, along with consequential legislative amendments to the Act with an aim of preventing revenue leakage.

In February 2011, the Indian Ministry of Corporate Affairs (MCA) issued 35 Indian Accounting Standards (Ind-AS) which were converged with IFRS, and announced their 'phased implementation' once certain Indian tax and other issues were resolved.  To date, an implementation date of the new Ind-AS standards has not been announced.

The Committee report is therefore an important step in addressing the concerns around the use of IFRS in India, particularly where Ind-AS might otherwise also be used for tax purposes, and may be seen a bringing India a step closer to adopting IFRS (in the form of Ind-AS, which contains some modifications of IFRS principles).

The Committee report analyses various issues which may arise in notifying Accounting Standards under section 145 (1) of the Indian Income-tax Act, 1961.  These issues include:

  • Whether taxpayers would be required to maintain two sets of books of account i.e. one in accordance with the Accounting Standards issued by the Institute of Chartered Accountants in India (ICAI), and another in accordance with the Accounting Standards notified under the Act.  The report recommends standards notified under the Act should be made applicable only to the computation of taxable income (rather than a separate set of books) and be termed as “Tax Accounting Standards” (TAS)
  • Whether the TAS should be made applicable to all taxpayers or to a class of taxpayers having turnover / income above a certain threshold limit.  The Committee recommends that the TAS should be made applicable to all taxpayers
  • Resolutions of conflicts between the express provisions of the Act and the TAS.  The Committee recommends provisions of the Act should prevail over the TAS
  • Other matters.  The Committee recommends that any required transitional provisions should also be notified along with the TAS and that appropriate modification in the return of income be made.

The Committee's report also includes drafts of the Tax Accounting Standards themselves, which are based on accounting standards with modifications considered appropriate for tax accounting purposes.  For instance, the proposed TAS would measure gains and losses on certain foreign currency transactions on a realised basis, and prohibit the revaluation of property, plant and equipment for tax purposes.

The original mandate of the Committee included a requirement to suggest method of determining  the tax base (book profit) for the purpose of India's Minimum Alternative Tax (MAT) in case of companies migrating to IFRS in the initial year of adoption and thereafter.  The Committee report concludes that given the fluid and uncertain situation regarding the transition to Ind-AS, the Committee decided to primarily focus on the formulation of TAS harmonised with the provisions of the Act, and recommends that the status of the transition to Ind-AS should be carefully monitored.

The CDBT is requesting comments and suggestions on the final report be submitted by 26 November, 2012.

Click for (links to Indian Ministry of Finance website):

IVSC and IFAC renew their Memorandum of Understanding

26 Oct 2012

The International Valuation Standards Council (IVSC) and the International Federation of Accountants (IFAC) have renewed their Memorandum of Understanding (MoU), which will further strengthen the collaborative efforts of both organisations in areas of common interest.

Under the MoU, several areas of common interest identified are:

  • "For valuers and auditors to obtain a better mutual understanding of standards relevant to the role of both in relation to financial statements,
  • To promote the additional credibility and acceptability of valuations prepared in accordance with IVS."

The MoU will remain effective until 31 December 2015.

Click to view the IVSC press release (link to IVSC web site).

IASB tweaks its work plan

26 Oct 2012

The International Accounting Standards Board (IASB) has publicly released a slightly revised work plan making two minor changes to the previous version dated 19 October 2012. The updated plan drops the 'development of strategy' for the Agenda Consultation process and clarifies the next project milestone in the project on 'bearer biological assets' under IAS 41 will be an exposure draft rather than a discussion paper.

The IASB took the reference to the development of a strategy out because it implied that a strategy would be developed over the next six months while this work has already been completed and most of it discussed in public. The details of the strategy for the next three years will be included in the feedback statement on the agenda consultation.

The clarification in relation to the IAS 41 project is consistent with the IASB's discussions at the September 2012 meeting where it was decided that a discussion paper is not required due to the existing research that had already been undertaken in the area.

Click for IASB work plan as of 25 October 2012 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

Meeting documentation pack for the WSS meeting

25 Oct 2012

The IASB has posted to its website a 'meeting documentation pack' for the the annual World Standard Setters (WSS) meeting, which is currently being hosted by the IASB in London (starting today). The pack contains the detailed agenda with speakers' lists, all slides that will be shown and all agenda papers.

The WSS meeting offers a forum for the national standard setters organised in the International Forum of Accounting Standard Setters (IFASS) to exchange views with the IASB. A meeting of the IFASS has just been held in Zurich (22-23 October).

Of special interest at this meeting is the question how the IASB will work together with the national standard setters in the new Accounting Standards Forum that is to be up set to formalise the IASB's co-operation with national standard setters.

Please click for downloading the meeting pack from the IASB's website.

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