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Latest exposure draft from IASB seeks to clarify depreciation and amortisation

04 Dec 2012

The International Accounting Standards Board (IASB) has published ED/2012/5 'Clarification of Acceptable Methods of Depreciation and Amortisation (Proposed Amendments to IAS 16 and IAS 38)'. The proposals would provide additional guidance on how the depreciation or amortisation of property, plant and equipment and intangible assets should be calculated, precluding the use of revenue-based methods.

The proposed amendments would introduce additional paragraphs into IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to clarify the interpretation of the largely equivalent concepts of 'depreciation' and 'amortisation'.

IAS 16 and IAS 38 require the depreciation or amortisation method to reflect the pattern in which an asset's future economic benefits are expected to be consumed.  A variety of methods may be used in meeting this requirement, and an entity is required to select the method that most closely reflects the expectation pattern of consumption of the future economic benefits embodied in the asset.  Common methods include the straight-line method, the diminishing balance method and the units of production method.

The proposed amendments would clarify that revenue-based methods of depreciation and amortisation cannot be used in meeting the requirements of IAS 16 and IAS 38.  This is because such methods reflects a pattern of generation of economic benefits that arise from the operation of the business of which an asset is part, rather than the pattern of consumption of an asset’s expected future economic benefits.

The premise behind the proposed amendment sees revenue as an interaction of two factors: quantity and price.  Unlike quantity (units), price is generally not directly linked to the consumption of the underlying asset, but instead reflects the market dynamics surrounding the goods and services the entity produces.

Previous IASB discussions on this matter included the consideration of research showing revenue-based depreciation or amortisation methods are sometimes used in two particular industries: service concession arrangements (which triggered the initial request for clarification on this matter to the IFRS Interpretations Committee) and in the media business (where revenue may be utilised as a 'surrogate' for viewer numbers when depreciating film and similar rights).  The Basis for Conclusions accompanying the proposals notes the limited circumstance when revenue could be used is when the use of a revenue-based method gives the same result as the use of a units of production method.

The proposed amendments also provide some further guidance in the application of the diminishing balance method, noting that information about technical or commercial obsolescence of the product or service output is relevant for estimating the pattern of consumption of future economic benefits of the asset and the useful life of the asset.

The amendments proposed in the exposure draft were original proposed to be included in the 2011-2013 cycle of annual improvements, which were published on 20 November 2012.  The IASB decided on separate exposure at its October 2012 meeting, partially on the basis of concerns noted by the Due Process Oversight Committee that the proposed amendments may not meet the annual improvements criteria.

The exposure draft is open for comment for a period of 120 days which closes on 2 April 2013.  The amendments are expected to be finalised in the third quarter of 2013.

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

German translation of the IFRS for SMEs available

04 Dec 2012

The IFRS Foundation has announced the availability of a German translation of the IFRS for SMEs.

In the European Union, the publication IFRS für KMU (ISBN: 978-3-9814735-6-8) is available through Fidacta. You can order by email:, online: or by fax: +49 431 590 76 06. Copies sell for € 69 (includes applicable taxes and shipping). Volume discounts apply.

In Switzerland, the publication IFRS für KMU is available through IDL Schweiz AG. You can order by email: or by fax: +41 56 418 60 71. Copies sell for CHF 89 (includes taxes, shipping is CHF 12,50). Orders of six or more copies will be shipped free of shipping charge.

United States IFRS decision 'most important since the 1930's'

04 Dec 2012

In a speech to the American Institute of CPAs (AICPA) 2012 Conference on Current SEC and PCAOB Developments, Paul A. Beswick (Acting Chief Accountant of the United States Securities Exchange Commission), said the decision on whether IFRS should be adopted in the United States may be the "single most important accounting determination for the Commission since... the 1930's".

Notwithstanding his comments regarding the importance of the SEC's decision on IFRS, Mr Beswick gave little away in terms of the next steps the SEC might take, other than expressing an expectation of working with the new SEC Chair, Elisse B. Walter, and existing SEC Commissioners and commenting that people should "please stay tuned".

Mr Beswick also discussed a broad range of topics, including the FASB's work around disclosures (including its proposed disclosure framework), and the corollary issue of what consideration should there be to creating overlap with existing financial reporting requirements outside the financial statements such as the MD&A (Management's Discussion and Analysis) required to accompanying financial statements.

In discussing the various IASB-FASB convergence projects (leases, revenue recognition, financial instruments and, to a lesser extent within the context if his speech, insurance contracts), Mr Beswick noted he was "encouraged about the level of convergence in the revenue and leases projects that Boards have achieved to date".  Calling for "perspective" on the financial instruments project, he noted it was "almost unthinkable by some that the Boards would be able to reach substantive agreement on classification and measurement" and that the "Boards are a lot closer than probably many would have guessed".

Mr Beswick went on to lament the failure of some to "acknowledge that the finalization of these projects will improve financial reporting for the benefit of investors".  He also noted the challenges in achieving converged approaches to the interpretation and implementation of standards resulting from the projects and the need for securities regulators to work together on a global basis.

The conclusion of the discussed various other issues such as auditor independence, the need for strong internal control over financial reporting, and the various developments worldwide looking to improve the audit report.

Click for full text of Mr Beswick's speech (link to SEC website).

A number of other SEC speakers also spoke at the conference on IFRS-related matters.  Jenifer Minke-Girard (SEC Senior Associate Chief Accountant) provided an overview of the SEC staff report on IFRS, noting that comments are continuing to be received on the report and are being considered.  Julie A. Erhardt (SEC Deputy Chief Accountant) outline what she saw as three recurring themes driving countries to adopt IFRS: a "domestic upgrade" to "buy" IFRS instead of developing domestic standards, the ability of IFRS to lower the cost of capital through foreign investment, and "foreign access" being more easily permitted where two trading countries both adopt IFRS.

For a detailed summary of the 2012 AICPA national conference on current SEC and PCAOB developments, see the Deloitte (United States) Heads Up newsletter.

New Zealand issues third package of exposure drafts towards enacting its new differential reporting regime

03 Dec 2012

The New Zealand External Reporting Board (XRB) and the New Zealand Accounting Standards Board (NZASB) have published a third package of exposure drafts designed to implement the revised New Zealand Accounting Standards Framework. This package of proposals would result in the optional use of 'simple format reporting standards' for not-for-profit entities based on accrual accounting (linked to the proposed adoption of IPSAS), or cash accounting, depending on meeting particular criteria.

The following types of entities would be eligible to apply each tier:

  • Tier 3 - Non-publicly accountable (as defined) with expenses that are less NZ$2 million, and which elect to be in Tier 3
  • Tier 4 - Entities allowed by law to use cash accounting, and which elect to be in Tier 4.

Entities that do not elect to be in these tiers would apply the proposed 'Public Benefit Entity (PBE) Standards', which themselves would be based on International Public Sector Accounting Standards (IPSAS), with some modifications.

The exposure drafts outline the reporting requirements for each tier, introduce simplifications in recognition and measurement requirements, and are designed to be written  in simplified language that is not overly technical.  As an illustration: the accrual accounting exposure draft outlines common categories of transactions and proposes guidance on when such transactions would be recognised.

The package also contains exposure drafts of optional templates and associated guidance notes for simple format reporting by Tier 3 and Tier 4 not-for-profit entities.

The XRB and NZASB expect to issue two further packages of exposure drafts in the coming months: one dealing with the 'simple format reporting standards' for public sector public benefit entities, and a revised set of PBE Standards that will apply to both public sector and not-for-profit 'Tier 1' and 'Tier 2' public benefit entities. 'Tier 2' entities would benefit from a 'reduced disclosure regime' but otherwise apply the recognition and measurement requirements of PBE Standards.

Completion of the various public benefit entity phases of the overall framework project would result in only New Zealand for-profit entities with standards that are compliant with, or based on, IFRS.

The third package of exposure drafts is open for comment until 28 June 2013.  Click for more information (link to XRB website).

Update: Subsequent to the issue of these exposure drafts, the XRB published a report (link to XRB website) from its NFP Reporting Entity Working Group. The working group’s suggestions will be considered by the NZASB as part of its enhancement of Tier 1 and Tier 2 PBE Standards to make them more applicable to the NFP sector.

ESMA Chair discusses U.S. IFRS adoption, global consistency in IFRS

03 Dec 2012

The European Securities and Markets Authority (ESMA) has released the text of a speech given by Steven Maijoor (ESMA Chair) to a recent Audit Quality Symposium held by the Canadian Public Accountability Board. In the speech, Mr Maijoor reiterated many of his previous comments, including disappointment at a lack of a decision on IFRS in the United States, and consistency in application of IFRS on a global basis.

Consistent with his earlier remarks, Mr Maijoor noted "disappointment that there is no progress or clear sign of political will to keep IFRS adoption high on the agenda in the US" and that it would be a "shame to miss the opportunity" by the United States "walking away from IFRS".

In discussing the need for consistent application of IFRS around the globe, Mr Maijoor noted this is the "prime responsibility of issuers and their auditors, securities regulators can intervene when there are violations of IFRS in published financial statements" and discussed the recent European-wide initiative to outline consistent enforcement priorities.

Broadening the theme to global enforcement, Mr Maijoor noted ESMA efforts to improve liaison with regulatory and enforcement bodies and reiterated a need for "further deepening of our international co-operation".

Highlighting outcomes from enforcement activities, Mr Maijoor noted a need for improved disclosure as it "allows issuers to provide investors with high-quality information within a principles-based environment".  He went on to comment on the importance of entities making relevant disclosure in accordance with objective-based disclosure requirements (such as found in IFRS 7 Financial Instruments: Disclosures):

However, a principles-based environment can only survive if clear and entity-specific disclosures, re-assessed at the end of each reporting period, bring useful decision-making information to investors. If not, detailed prescriptive requirements would need to be developed and we all know that what is important today will not necessarily be so in the next financial year. The only way to avoid this is for issuers to stop providing boilerplate information directly mimicking the standards.

Click for the full text of the speech (link to ESMA website).

IVSC consults on valuation of investment property and public sector assets

03 Dec 2012

The International Valuation Standards Council (IVSC) has issued two due process documents seeking feedback on valuation topics. A discussion paper has been released on the valuation of investment property (particularly in meeting the requirements of IAS 40 'Investment Property'), and an exposure draft on the valuation of specialised assets used by public sector entities for service delivery.

Investment property

The Discussion Paper Investment Property seeks views on the valuation of investment property, both in the context of IAS 40 Investment Property and more broadly.

The IVSC has promulgated two standards that relate to investment property, namely IVS 233 Investment Property under Construction and IVS 230 Real Property Interests.

IVS 233 was made in response to constituent concerns about inappropriate techniques being adopted following the amendment to IAS 40 made in 2008 (arising from the 2006-2008 cycle of annual improvements) to require investment property under construction to be measured at fair value rather than cost, provided fair value can be reliably determined.  Some constituents argue that IVS 230 obviates the need for a separate IVS on investment property.

The Discussion Paper seeks views on issues such as the following:

  • Whether the definition of 'investment property' used in IVS 233 should remain consistent with that used in IAS 40, or whether the definition may not be optimal for non-financial reporting purposes such as transactions or asset management, as it is too specific to accounting rather than valuation purposes
  • How certain items attached to or associated with a property should be reflected in valuations of investment property, particularly whether, and if so when, the value of an intangible asset (such as rights) should be included in the value of a property interest
  • How any additional guidance should be promulgated by the IVSC, e.g. amendments to IVS 233 and/or IVS 230, the issuance of guidance in the form of a Techincal Information Paper (TIP), or in some other manner
  • Whether additional guidance is needed on applying the 'highest and best use' concept in the IVS Framework and IFRS 13 to investment property
  • Whether guidance should be given in areas where valuation problems arise in relation to investment properties, e.g. no or limited sales transactions, completed buildings remaining unleased, and the construction of discount rates
  • Whether the IVSC should attempt to set benchmarks that indicate whether inputs and valuations should include or exclude different types of tax or other costs
  • Whether a valuation report for investment property should state which level of the 'fair value hierarchy' in IFRS 13 the valuation of an investment property be placed. Furthermore, if the inputs fall within Level 3, whether the sensitivity analysis required by IFRS 13 should also be provided in the valuation report
  • Whether the IVSC should provide guidance on when it might not be possible to reliably determine the value of an investment property.

Comments on the paper close on 1 March 2013.

Click for (links to IVSC website):

Specialised public service assets

Specialised public service assets include buildings, structures, equipment and land used to provide transport, utilities and social, cultural and recreational services.

The IVSC's exposure draft Valuations of Specialised Public Service Assets responds to concerns that different approaches are being adopted by public sector entities for the valuation of specialised assets used for service delivery.  Issues arising include whether valuations should reflect the value the asset gives to society, taking sub-optimal uses in to account, reproduction or replacement cost as a basis for valuation, and how obsolescence should be reflected.

The exposure draft proposes a new Technical Information Paper (TIP) to provide guidance on these issues.  Topics discussed in the exposure draft include:

  • Whether the status of the owner of an asset as for-profit or not-for-profit should impact its valuation
  • The distinction between 'market value' (which should give the same outcome as 'fair value' under IFRS 13) and 'investment value' (an owner-specific value which may include measures relating to the public benefit created by or accruing to the asset)
  • Distinguishing between measuring the value of the asset and measuring the social value, ie the impact of that asset on either other assets or the wider community
  • Whether or not specialised public service assets such as roads, town squares, footpaths, public parks and gardens, informal recreational areas, etc are assets for which public users make no direct payment for access or us can be reliably measured
  • Proposing four principal categories of specialised public service assets, and providing examples of types of asset that fall within each of these categories.

The exposure draft also notes that the IVSC is also aware of a project being undertaken by the International Public Sector Accounting Standards Board (IPSASB) to introduce a Conceptual Framework which includes a review of measurement and valuation concepts for publicly owned assets.  However, given the long time frames involved in finalising the IPSASB's project, the IVSC has decided to propose guidance on the valuation of specialised assets.

Comments on the exposure draft close on 1 March 2013.  Click for (links to the IVSC website):

IASB webcast on classification and measurement — limited amendments to IFRS 9

30 Nov 2012

On 5 December 2012 the IASB staff will give a webcast on the proposals included in the recently issued Exposure Draft 'Classification and Measurement: Limited Amendments to IFRS 9', including a question and answer session.

Details of the webcast are provided below:

Topic: Classification and Measurement: Limited Amendments to IFRS 9
Date and time: Wednesday 5 December 2012
09:00 GMT and 13:30 GMT

Morning slot: web registration / listening by telephone
Afternoon slot: web registration / listening by telephone

Click for:

  • Our 28 November 2012 story on Exposure Draft ED/2012/4 Classification and Measurement: Limited Amendments to IFRS 9.

New IFRS for SMEs training module in Spanish

30 Nov 2012

A Spanish-language translation of Module 34 'Specialised Activities' of the IFRS for SMEs training material is now available.

In total, 31 Spanish-language modules are available for download from the IFRS Foundation website and can be accessed here.

The IFRS Foundation is developing 35 stand-alone training modules - one for each section of the IFRS for SMEs. The modules are free-to-download. Currently, training modules are available in English, Arabic, Russian, Spanish, and Turkish.

FASB proposes scope clarification of offsetting disclosures

29 Nov 2012

On 26 November 2012, the US Financial Accounting Standards Board (FASB) issued Proposed Accounting Standards Update, 'Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities'. The proposed ASU would clarify which instruments and transactions are subject to the disclosure requirements under ASU 2011-11 'Disclosures About Offsetting Assets and Liabilities' for financial assets and liabilities that are offset in the statement of financial position or subject to master netting arrangements or similar agreements.

The proposed ASU is intended to address preparer concerns that the scope of the disclosure requirements under ASU 2011-11 is overly broad and that the related compliance costs would exceed any benefits ultimately realized by financial statement users. Like the requirements under ASU 2011-11, the proposed requirements would be effective for fiscal years beginning on or after 1 January 2013, and interim periods therein. Retrospective application would be required for any period presented that begins before the entity’s initial application of the new requirements. Comments on the proposal are due by 21 December 2012.

Impact on convergence with IFRSs

Concurrently with the FASB’s issuance of ASU 2011-11, the IASB issued amendments to IFRS 7 with a comparable effective date and essentially the same disclosure requirements as those under ASU 2011-11. Accordingly, if the FASB’s proposal is finalised, fewer financial instruments would be subject to the offsetting disclosure requirements under US GAAP than under IFRSs.

At their November 2012 meeting, the IASB staff updated the IASB on the FASB’s decisions regarding the scope of the offsetting disclosures and indicated that it did not recommend that the IASB consider changing the scope of the disclosures under IFRSs. The session was informational, and the IASB was not asked to make any decisions. It is uncertain whether the IASB will revisit this issue in the future.

Click for:

Stay Tuned Online – IFRS and UK GAAP update

29 Nov 2012

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues.

Each update lasts no more than an hour, and sessions are normally held three times a year, approximately at the end of March, July, and November. We intend to make a recording of each session available on IAS Plus for a period of at least four months from the date of the presentation.

The topics covered in the November 2012 webcast:

  • New consolidation rules for investment entities
  • Corporate governance developments
  • Narrative reporting and ‘joined up writing’
  • New IFRS reduced disclosure framework and an update on the future of UK GAAP
  • Other developments

To access the recording click here.

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