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2012

Deloitte comment letters on recent tentative agenda decisions of the IFRS Interpretations Committee

28 Nov 2012

Deloitte’s IFRS Global Office has submitted letters of comment to the IFRS Interpretations Committee (Committee) on four tentative agenda decisions published in the September 2012 edition of 'IFRIC Update'. We disagree with the observations of the Committee in its tentative decision on assessing 'continuing employment' under IFRS 3 and do not agree with the position taken by the Committee in relation to income and expenses arising on financial instruments with a negative yield. We generally agree with the remaining tentative agenda decisions but suggest a number of improvements.

Below is a summary of the comment letters:

IFRS 3 — Continuing employment

This issue concerns the appropriate accounting in accordance with IFRS 3 Business Combinations for contingent payments to selling shareholders in circumstances in which those selling shareholders become, or continue as, employees (specifically on whether paragraph B55(a) of IFRS 3 is conclusive in determining that payments to an employee that are forfeited upon termination of employment are remuneration for post-combination services).

Our comment letter makes the following observations:

  • We do not agree with the IFRS Interpretations Committee’s observation that an arrangement in which contingent payments are automatically forfeited if employment terminates should lead to a conclusion that the arrangement is compensation for post-combination services
  • We do not believe that either a desire to avoid divergence with US GAAP or to wait for the completion of FASB’s post-implementation review of FAS141R are appropriate reasons to reach a premature conclusion on this important issue
  • The need for a deeper consideration of this issue is illustrated by circumstances in which under the terms of a business combination all selling shareholders become employees and all consideration for their shares is forfeited upon termination of employment.

Read the full comment letter.

IAS 39 — Income and expenses arising on financial instruments with a negative yield – presentation in the statement of comprehensive income

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but do not believe that the absolute position taken (i.e. that these amounts are neither interest income nor interest expense) is appropriate as it assumes that the negative yield results from the issuer charging a custodian fee for safeguarding the holder’s money. This may not be the case in every scenario as there might be other circumstances leading to a negative yield.

Read the full comment letter.

IAS 28 — Impairment of investments in associates in separate financial statements

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda and with the conclusion that investments in subsidiaries, joint ventures and associates accounted for at cost in an entity’s separate financial statements in accordance with an accounting policy adopted under paragraph 38 of IAS 27 Consolidated and Separate Financial Statements (2008) or paragraph 10 of IAS 27 Separate Financial Statements (2011) are subject to the requirements of IAS 36 Impairment of Assets (although this conclusion differs from the Committee’s previous conclusion noted in the July 2009 IFRIC Update).

Read the full comment letter.

IAS 27/IFRS 10 — Non-cash acquisition of non-controlling interest by a controlling shareholder in the consolidated financial statements

This issue concerns whether the difference between the carrying amount and fair value of non-cash consideration for the purchase of a non-controlling interest should be recognised in profit or loss in the controlling shareholders’ consolidated financial statements.

We agree with the IFRS Interpretations Committee’s decision not to add this item onto its agenda but note that the reference to IFRSs ‘generally requiring’ recognition of a gain or loss on derecognition of an asset in profit or loss could be enhanced by reference to the specific requirements of paragraph 68 of IAS 16 Property, Plant and Equipment and paragraph 113 of IAS 38 Intangible Assets.

Read the full comment letter.

IFRS Foundation publishes IFRS Taxonomy update for investment entities

28 Nov 2012

The IFRS Foundation has published IFRS Taxonomy 2012 interim release for investment entities.

On 31 October 2012, the IASB published Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), providing an exception to the consolidation requirements in IFRS 10 for investment entities. This IFRS Taxonomy interim release contain additional taxonomy items that reflect the amendment made by Investment Entities, but are not included in the core IFRS Taxonomy.

Click for more details (link to IASB website). Our dedicated XBRL page is here.

IASB publishes proposals for limited amendments to IFRS 9

28 Nov 2012

The International Accounting Standards Board (IASB) has released Exposure Draft ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9 (proposed amendments to IFRS 9 (2010))'. The proposed changes would introduce a 'fair value through other comprehensive income' (FVOCI) measurement category for particular financial assets.

The proposed limited scope amendments to IFRS 9 Financial Instruments are designed to:

  • address specific application questions raised by interested parties
  • consider the interaction of the classification and measurement model for financial assets with the IASB’s Insurance Contracts project
  • reduce key differences with the U.S. Financial Accounting Standards Board’s (FASB) tentative classification and measurement model for financial instruments.

The proposed new 'fair value through other comprehensive income' (FVOCI) measurement category would include certain financial assets when two conditions are met:

  • the contractual cash flows of the assets are solely payments of principal and interest and
  • the assets are used in a business model which is neither to exclusively hold nor sell.

In addition, a newly introduced paragraph clarifies that gains or losses on a financial asset in the new measurement category would be recognised in other comprehensive income, with the exception of impairment losses and foreign exchange gains and losses. Upon disposal, any gain or loss previously recognised in other comprehensive income (OCI) would be recycled to profit or loss for the period.

The application guidance for the ED includes several examples of financial assets with contractual cash flows that are solely payments of principal and interest on the principal amount outstanding and of when the entity’s business model may be to manage assets both to collect contractual cash flows and to sell.

The amendments proposed are a step back towards current requirements in IAS 39 Financial Instruments: Recognition and Measurement even though important differences remain.

Use of the new FVOCI category would be mandatory.

The Exposure Draft also proposes that only the completed version of IFRS 9 (including classification and measurement, impairment and general hedge accounting chapters) can be newly applied prior to the mandatory effective date with the exception that entities would be permitted to choose to early apply only the ‘own credit’ provisions in IFRS 9 once the completed version of IFRS 9 is issued. This means that the current choice regarding which version of the standard can be early applied would be dropped.

The comments on the exposure draft close on 28 March 2013.

Click for:

IFRS Foundation Education Initiative webcasts on non-financial assets

28 Nov 2012

The IFRS Foundation has announced that webcasts will be held on 12 December 2012 to explain how to use the IFRS teaching material that the IFRS Foundation Education Initiative is developing to support those teaching IFRSs to develop their students’ ability to make the judgements and estimates that are necessary to apply IFRSs. This session will focus on non-financial assets.

The objective of the education initiative is to reinforce the IFRS Foundation’s goal of promoting the adoption and consistent application of a single set of high-quality international accounting standards, taking into account the special needs of small and medium-sized entities and emerging economies.  The wider education initiative encompasses deliverables such as the annual briefing document on IFRS for chief executives, audit committees and boards of directors, and education material on IFRS 13 Fair Value Measurement.

The emphasis on framework based teaching is one of the three key projects included in the IFRS Education Initiative Plan 2012-2016 (link to IASB website).  Two one and a half hour webcast sessions focusing on teaching students non-financial assets will be held on 12 December 2012, at 9:30am and 3:30pm GMT.

More information and registration information is available on the IASB website.

IIRC publishes 'prototype' framework, reaffirms timeline for finalisation

27 Nov 2012

The International Integrated Reporting Council (IIRC) has released a finalised 'prototype' of its integrated reporting framework (stylised as '<IR>') and reaffirmed the expected timing of the issue of a consultative document as it moves towards finalisation of the framework by the end of 2013.

The prototype document has been drafted through the parallel efforts of a number of topic-specific collaboration groups, the IIRC’s Technical Task Force and the IIRC Secretariat, and takes into consideration constituent feedback received on the IIRC's 2011 Discussion Paper.

The finalised prototype framework follows on from the announcement of the prototype at a September 2012 IIRC conference, which itself followed a draft framework document which was released in July 2012.  Compared to the draft document, the prototype framework is substantially broader in its content, with significant fleshing out of the core principles, concepts and guidance.

In conjunction with the release of the final prototype document, the IIRC has confirmed that it expects to publish a formal 'consultation draft' of the framework in April 2013, to be followed by the final framework, dubbed “version 1.0″, in December 2013.

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

SEC Chairman Mary Schapiro to step down

26 Nov 2012

After nearly four years in office, US Securities and Exchange Commission (SEC) Chairman Mary Schapiro will step down on 14 December 2012. Her named successor, Elisse B. Walter, is currently one of the SEC Commissioners.

Chairman Schapiro is one of the longest-serving SEC Chairmen; she was appointed by US President Barack Obama on 20 January 2009. In the wake of the financial crisis in January 2009 she strove to strengthen, reform, and revitalize the agency. She oversaw a more rigorous enforcement and examination programme, and shaped the Dodd-Frank Wall Street Reform and Consumer Protection Act.

After the publication of the SEC final staff report Work Plan for the Consideration of Incorporating IFRSs into the Financial Reporting System for U.S. Issuers in July 2012, which did not contain any recommendation regarding the adoption of IFRSs in the United States, it is viewed as a positive signal that the designated SEC Chairman Elisse B. Walter noted in a recent speech that although the time frame was uncertain she believed the United States "will get there eventually" with IFRS adoption.

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

IASB work plan updated

25 Nov 2012

The International Accounting Standards Board (IASB) has publicly released a revised work plan following a number recently published pronouncements. The expected finalisation of amendments resulting from the proposed equity method amendments to IAS 28 and the 2011-2013 annual improvements cycle has been announced, and the release of an exposure draft on financial instrument impairment has been deferred.

Details of the changes are:

 


Due process documents expected before the end of 2012

The following due process documents are expected to be issued by the end of 2012 (this includes those items already noted above in some cases):

Click for IASB work plan as of 23 November 2012 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

UK implements revised differential reporting regime

23 Nov 2012

The United Kingdom Financial Reporting Council (FRC) has issued two new standards which implement a revised differential reporting regime for UK companies. The new regime introduces a 'reduced disclosure regime' for individual financial statements of subsidiaries and ultimate parents.

The move toward a new differential reporting regime has been a long and controversial process in the United Kingdom, with a consultation process on the future of financial reporting in the UK and Republic of Ireland taking place between 2002 and 2012.

The effect of the changes is that more financial reporting will be based on IFRSs. In announcing the publication of the standards, the FRC commented:

By using an international-based framework all entities, and users, will be using the same accounting language regardless of size, but a proportionate approach to disclosure aims to meet users’ information needs, without imposing undue reporting burdens.

The two new standards are as follows:

  • FRS 100 Application of Financial Reporting Requirements - sets out the overall financial reporting requirements, giving many entities a choice of detailed accounting requirements depending on factors such as size, and whether or not they are part of a listed group
  • FRS 101 Reduced Disclosure Framework - applies to the individual financial statements of subsidiaries and ultimate parents, allowing them to apply the same accounting as in their listed group accounts, but with fewer disclosures.

These standards will be followed by a third standard, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which is expected to be issued in 2013.

The Financial Reporting Standard for Smaller Entities (FFSSE) is also amended by the standards and will remain in force under the new regime.

The new requirements will be effective from 1 January 2015, but may be adopted early.

Click for press release (link to FRC website).

Deloitte (United Kingdom) has also published an edition of its iGAAP Alert discussing the changes in more detail.

Further notes from November IASB meeting

23 Nov 2012

The IASB's November meeting was held in London on 19-21 November 2012. We've posted Deloitte observer notes from the additional IASB-only session on financial instrument impairment held on Wednesday.

Click through for direct access to the notes:

Wednesday, 21 November 2012

  • Financial instruments — Impairment (IASB only)
    • Criteria for recognition of lifetime expected losses
    • Methods and information to assess expected losses and transfer criteria
    • Disclosures applicable to entities applying the simplified approach for trade and lease receivables.

Remaining notes on the joint IASB-FASB and IASB-only discussions on insurance contracts will be posted soon.

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

Deloitte comment letter on IFRS for SMEs comprehensive review

22 Nov 2012

Deloitte’s IFRS Global Office has submitted a letter of comment to the International Accounting Standards Board (IASB) on its Request for Information 'Comprehensive Review of the IFRS for SMEs'.

We agree that the triennial review of the IFRS for SMEs should be comprehensive in its scope, but believe that some underlying principles for making changes to the Standard would be beneficial in ensuring that a consistent approach is followed and that the IFRS for SMEs remains coherent in its approach and its relationship to full IFRSs.

The letter outlines that we believe that the following principles should be followed:

  • The IFRS for SMEs should not be amended to reflect changes in full IFRSs as complex and significant as the revised requirements on consolidation, accounting for joint arrangements and measurement of fair value included in IFRS 10 , IFRS 11 and IFRS 13 respectively before those changes are effective. Rather, the suitability of a significant new standard should be assessed for its suitability for incorporation into the IFRS for SMEs once a track record of its application under full IFRSs emerges. The post-implementation review of the new standard may provide an opportunity to make this assessment
  • Any incorporation of a full IFRS standard into the IFRS for SMEs should retain the integrity of the conceptual model applied in that standard
  • In assessing the suitability of a full IFRS standard for incorporation into the IFRS for SMEs, the Board should (as noted in the October 2010 Guide to the IFRS for SMEs) take into account the costs to, and the capabilities of SMEs to prepare financial information before moving to any more complex model
  • Reversal of the IASB’s decisions to include simpler requirements in the IFRS for SMEs than are included in full IFRSs should only be considered where there is clear evidence that this is necessary.

The letter also comments on other issues, such as local public authorities being best placed to judge how the financial reporting framework for entities using the IFRS for SMEs is applied in their jurisdictions, the need to articulate clearly the type of entity for which the IFRS for SMEs is designed, and the drafting process for any amendments to the standard.

Click for access the comment letter.

 

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