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IASB publishes proposals for limited amendments to equity accounting

22 Nov 2012

The International Accounting Standards Board (IASB) has released Exposure Draft ED/2012/3 'Equity Method: Share of Other Net Asset Changes', which proposes limited scope amendments to IAS 28 to include guidance on how an investor accounts for its share of the changes in net assets of an associate or joint venture that are not recognised in profit or loss or other comprehensive income of the investee ('other net asset changes').

The issue of how an investor should account for other net asset changes arose from consequential amendments to IAS 28 Investments in Associates made in 2007, which removed explicit guidance previously in that standard.  The issue was initially considered by the IFRS Interpretations Committee, who recommended the IASB make a limited scope amendment to IAS 28 Investments in Associates and Joint Ventures (2011).  IAS 28 (2011) carries over the core equity method requirements from the earlier version of IAS 28 and is effective from 1 January 2013, meaning the previous version could not be amended prior to it being superseded.

The proposals in ED/2012/3 would require an investor to recognise in its own equity its share of the changes in the net assets of the investee that are not recognised in profit or loss or other comprehensive income of the investee, or that are not distributions received.

Examples of transactions of an associate or joint venture which may result in other net assets changes include:

  • issues of additional share capital to parties other than the investor
  • buy-backs of equity instruments from shareholders other than the investor
  • writing of a put option over the investee's own equity instruments to other shareholders
  • purchase or sale of non-controlling interests in the investee's subsidiaries
  • equity-settled share-based payments.

The calculation of the amount recognised in equity may also reflect the change (if any) in the investor's ownership interest caused by the transaction giving rise to the other net asset change, e.g. a reduction in ownership interest because of the issue of shares by an associate to other shareholders.

The proposed approach would effectively reinstate the requirements of IAS 28 prior to the 2007 amendment and as such is a short-term solution to address diversity in practice until such time as the IASB gives broader consideration to the equity method of accounting.

An effective date for the amendments will be announced after exposure.

The ED contains an alternative view by on of the board members who believes  that the amendment is inconsistent with concepts of other IFRSs (IAS 1, IFRS 10), and would cause serious conceptual confusion. This board member is of the opinion that this short-term solution would not improve financial reporting but would instead undermine a basic concept of consolidated financial statements.

The exposure draft is open for a comment period of 120 days, and closes on 22 March 2013.

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New composition of the EFRAG Supervisory Board announced

22 Nov 2012

The European Financial Reporting Advisory Group (EFRAG) has posted to its website information concerning the new composition of the EFRAG Supervisory Board. Among the newly appointed private sector members is Stig Enevoldsen, Partner with Deloitte (Denmark) and former EFRAG Chairman.

The term of all members of the EFRAG Supervisory Board expired late September 2012. Following the recommendations of the EFRAG Governance and Nominating Committee, the EFRAG General Assembly appointed and reappointed in its meetings of 25 October and 20 November the 14 private sector members of the EFRAG Supervisory Board. All members are appointed for a 3-year mandate. The public policy members of the EFRAG Supervisory Board, including the Chairman, will be announced in December following the conclusion of the EC nomination process.

Please click for a list of all private sector members of the EFRAG Supervisory Board on the EFRAG website.

Additional notes from the November 2012 IASB meeting

21 Nov 2012

The IASB's November meeting is being held in London on 19-21 November 2012, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from Monday's education session on Impairment and joint session on Revenue recognition; Tuesday's education session on Conceptual framework and joint education session on Impairment; and Wednesday's education session on FSB Enhanced Disclosure Forum (update).

Click through for direct access to the notes:

Monday, 19 November 2012

Tuesday, 20 November 2012

Wednesday, 21 November 2012

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

AASB expresses concern on revenue recognition

21 Nov 2012

The Australian Accounting Standards Board (AASB) has written a letter to the International Accounting Standards Board (IASB) expressing concerns about the direction of some of the IASB’s recent discussions on the revenue recognition project, including the possible re-introduction of a 'collectibility threshold' for revenue.

The IASB discussed the possibility of a 'collectibility threshold' at its September 2012 meeting in the context of possible refinements to the revenue model to clarify the proposals on the presentation of the impairment loss line item.

In the unsolicited letter, the AASB notes that it "considers that the re-introduction of a collectibility threshold for revenue would be inconsistent with the core principle of the proposed model that an entity should recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services".

The letter goes on to note that a collectibility threshold introducing credit risk into the measurement of revenue is a valuation, rather than transaction, driven approach.  It also outlines that the credit risk of the customer is not related to the goods and services provided and netting bad debts against revenue may obscure useful information.

The letter also outlines that the AASB is also concerned about the introduction of 'rules-based' requirements relating to proxies for measuring an entity’s performance.  In particular, the letter provides feedback on the IASB's consideration of the suitability of ‘units of delivery’ or ‘units produced’ as output methods to measure progress that was discussed at the IASB's October meeting.

The aim of the AASB is to bring the issues raised in the letter to the attention of the IASB "before the IASB finalises this important project".  The IASB and FASB are discussing revenue recognition at the IASB meeting being held this week.

The issue of the letter follows on from discussions about various IASB projects at the AASB's meeting on 31 October - 1 November 2012.  At the meeting, the AASB also noted concerns about the leases project (which will be included in its response to the forthcoming exposure draft), and expressed concern about the IASB's recent investment entities amendments, which we previously reported on.

Click for a copy of the AASB's letter (link to AASB website).

Notes from the November 2012 IASB meeting

20 Nov 2012

The IASB's November meeting is being held in London on 19-21 November 2012, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from Monday's education session on levies and Tuesday's sessions on offsetting and due process documents.

Click through for direct access to the notes:

Monday, 19 November 2012

Tuesday, 20 November 2012

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

New issue of the IASB's 'Investor Perspectives'

20 Nov 2012

A new edition of the IASB's newsletter for investors entitled Investor Perspectives is now available.

In this edition, IASB board member Paul Pacter discusses the amendments to investment entities. The newsletter reviews the four main issues the IASB had to consider while developing the amendments. The four main issues were:

  • How should investment entities account for their investments?
  • Which entities should qualify as investment entities?
  • Should a non-investment entity parent consolidate an investment entity subsidiary?
  • What disclosures should investment entities make?

Click to view 20 November 2012 — Paul Pacter: Investors, preparers and the IASB agree on consolidation exception for investment entities (link to IASB website). All Investor Perspectives are archived on the IASB's website.

ESMA comment letter on the IFRS Foundation Due Process Handbook

20 Nov 2012

The European Securities and Markets Authority (ESMA) has published to its website a comment letter to the IFRS Foundation regarding its draft 'Due Process Handbook'.

The comment letter is dated 23 October 2012, but was only made available by ESMA now.

In the comment letter, the ESMA believes that the due process objectives and how to achieve these objectives should be more clearly stated in the Due Process Handbook and related to the objectives of the IFRS Foundation (ie to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles).

In addition, the ESMA states:

As a result of the importance ESMA attaches to the independence of the IASB, and while fully agreeing that all stakeholders should be consulted, we believe that, as a general rule, the IASB should drive its own agenda and perform its own activities. We acknowledge that in some instances the Board may feel the need to work jointly with other standard-setters.  In those cases we believe that the Board should always ensure that the output of these projects meet the objectives and high quality standards that the Board has set for its own projects.

The ESMA also believes the role of the Due Process Oversight Committee (DPOC) should be focused on substance and not only on the process. The DPOC should also consider whether the Due Process Handbook objectives are met.

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IASB publishes proposals arising from its 2011-2013 annual improvements cycle

20 Nov 2012

The International Accounting Standards Board (IASB) has released Exposure Draft ED/2012/2 'Annual Improvements to IFRSs 2011–2013 Cycle', containing the latest proposals for minor corrections and edits to IFRS.

The IASB's annual improvements project provides a streamlined process for dealing efficiently with a collection of amendments to IFRSs. The primary objective of the process is to enhance the quality of standards, by amending existing IFRSs to clarify guidance and wording, or to correct for relatively minor unintended consequences, conflicts or oversights. Amendments are made through the annual improvements process when the amendment is considered non-urgent but necessary.

The Exposure Draft proposes changes to the following pronouncements:

Pronouncement Amendments proposed
IFRS 1 First-time Adoption of International Financial Reporting Standards (changes to the Basis for Conclusions only) Meaning of effective IFRSs
Clarifies that an entity, in its first IFRS financial statements, has the choice between applying an existing and currently effective IFRS or applying early a new or revised IFRS that is not yet mandatorily effective, provided that the new or revised IFRS permits early application. An entity is required to apply the same version of the IFRS throughout the periods covered by those first IFRS financial statements.
IFRS 3 Business Combinations Scope of exception for joint ventures
Clarifies that:
  • IFRS 3 excludes from its scope the accounting for the formation of all types of joint arrangements as defined in IFRS 11 Joint Arrangements
  • the scope exception in paragraph 2(a) of IFRS 3 only applies to the financial statements of the joint venture or the joint operation itself.
IFRS 13 Fair Value Measurement Scope of of paragraph 52 (portfolio exception)
Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation.
IAS 40 Investment Property Clarifying the interrelationship of IFRS 3 and IAS 40
Clarifies that IFRS 3 and IAS 40 are not mutually exclusive when classifying property as investment property or owner-occupied property. Determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 and investment property as defined in IAS 40 requires the separate application of both standards independently of each other.

The proposed effective date for the amendments is for annual periods beginning on or after 1 January 2014, although entities are permitted to adopt them earlier.

The Exposure Draft does not include proposals in relation to the use of the revenue-based depreciation and amortisation under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, as the IASB decided at its October 2012 meeting to separately expose these proposals.

The proposals follow on from the proposals for the 2010-2012 annual improvements cycle, where an Exposure Draft was issued in May 2012, with finalised amendments from that cycle expected in the second quarter of 2013.

The Exposure Draft is open for comment for 90 days, with comments closing on 18 February 2013.

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EDTF will present findings regarding the risk disclosure of banks to the IASB

20 Nov 2012

On 30 October 2012, the Enhanced Disclosure Task Force (EDTF) published a report a report to the Financial Stability Board (FSB) recommending key enhancements to the risk disclosures made by banks. During the current IASB meeting, the EDTF will present the findings and recommendations from the report to the IASB. A slide deck for the presentation has now been made available on the IASB website.

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.

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.

During the session with the IASB (Wednesday, 21 November, 11.00-12.00 GMT), the EDTF will therefore focus on areas of particular interest to the IASB. The following points are mentioned in the presentation (quoted from the slide deck):

  • EDTF consistent with paragraphs 7 and 31 of IFRS 7
  • Disclosure can be made in audited accounts, MD&A or Pillar 3
  • Principles and recommendations build on existing GAAP and other disclosure requirements
  • Reflects current risk issues focussed on banks
  • Recommendation to describe the policy for identifying impaired loans, including how the bank defines impaired, restructured and cured loans as well as explanation of the loan forbearance policies
  • Reconciliation of movement in impaired loans
  • Maturity analysis of assets and liabilities on a residual contractual maturity basis
  • Encumbered assets table
  • Package of liquidity and funding recommendations and usefulness of consolidated cashflow statement

Please click for access to the full slide deck on the IASB website. Registration for the webcast of this session is possible through the IASB page for the November IASB meeting.

IOSCO report calls for further work on securitisation vehicles

19 Nov 2012

The International Organization of Securities Commissions (IOSCO) has released a report 'Global Developments in Securitisation Regulation', which includes in its recommendations that the Financial Stability Board, International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) should work toward further harmonisation of approaches to consolidation of securitisation special purpose vehicles (SPVs).

As part of its ongoing work into the 'shadow banking' sector, the Financial Stability Board (FSB) is undertaking a process of reviewing reforms of securitisation markets, an important alternative source of funding for the banking sector which can play a role in supporting economic growth. As part of this process, the FSB requested that IOSCO conduct a stock-taking exercise on certain aspects of securitisation and develop policy recommendations as necessary.

The report covers a broad range of topics and recommendations focused on the core topic of securitisation markets, such as information provided to investors, standardisation and convergence of regulation and terminology, and the prudential treatment of securitisation arrangements.

In discussing accounting issues, the report notes the current deleveraging occurring in the banking sector, and the contrast with the need for consolidation "to avoid any form of shadow financing".  In developing the recommendations around accounting, the report goes on to say:

Besides in a context where Basel III is going to phase in the introduction of a mandatory leverage ratio requirement for all Basel Committee on Banking Supervision member jurisdictions in the midterm, accounting, and differentiated impacts that may result from differences in accounting regimes, balance sheet presentation, and domestic regulatory adjustments can have significant impact. Accounting regimes and in particular, the use of International Financial Reporting Standards and the use of U.S. generally accepted accounting Principles can lead to large variations if a level playing field is not maintained. Thus IOSCO would urge standard setters and authorities to work closely together to ensure that from accounting and prudential perspectives that the combination of rules for consolidation of SPVs shown on the balance sheet and subsequent prudential treatment applied on this basis achieve consistent and similar outcomes.

Click for access to the full report (link to IOSCO website).

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