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IVSC exposes proposed guidance on valuation uncertainty, forest valuation

19 Nov 2012

The International Valuation Standards Council (IVSC) has released two new Exposure Drafts of proposed 'Technical Information Papers' dealing with valuation uncertainty and the valuation of forests.

The IVSC's International Valuation Standards (IVS), last comprehensively updated in July 2011, contain the principles of valuation rather than prescriptive requirements.

IVSC Technical Information Papers (TIPs) are designed to provide technical guidance for valuation professionals on generally accepted best practice, but do not provide valuation training or instruction or direct that a particular approach or method should or should not be used in any specific situation.

Valuation uncertainty

The exposure draft on valuation uncertainty looks at how valuation uncertainty can be identified, explained and disclosed in a way that is informative to those relying on valuations, and responds to calls from the G20 and financial regulators around the world for improved standards of transparency and disclosure of valuation uncertainty factors.

The Exposure Draft proposes to define 'valuation uncertainty' as follows:

The possibility that the estimated value may differ from the price that could be obtained in a transfer of the same asset or liability taking place at the same time under the same terms and within the same market environment.

The Exposure draft also notes that material uncertainty can be caused by various factors, including:

  • market uncertainty - arises when a market is disrupted at the valuation date by current or very recent events such as sudden economic or political crises
  • model uncertainty - arises from characteristics of either the valuation model, or method, used
  • input uncertainty - arises where there are a number of equally reasonable or feasible inputs or assumptions that can be used from the degree of veracity that can be attached to the data inputs used in the valuation and their impact on the outcome.

The Exposure Draft makes a clear distinction between market risk, which is both generally understood and acknowledged by investors and reflected in the pricing, and uncertainty caused by disruption or dislocation in the market place.

The Exposure Draft also discusses many IFRS concepts and their interaction with IVS, including the Level 1/2/3 hierarchy in IFRS 13 Fair Value Measurement.

The Exposure Draft notes a simplistic expression of valuation uncertainty might be to provide a range within which the value is considered to fall, but concludes this "is not recommended" for various reasons, including the use of amounts usually requires a single valuation figure, the possibility of unrealistic extremes of a range, and the possibility that users may assume all outcomes within the range are equally likely of occurring, or assume there is no possibility of a valuation falling outside a range.

Valuation of forests

The second Exposure Draft deals wit the way in which valuations of forestry assets are prepared and presented, particularly in light of IAS 41 Agriculture, which requires the fair value of the biological asset (tree crop) to be estimated.

The Exposure Draft:

  • proposes that all three approaches described in the IVS Framework (market approach, income approach, and cost approach) are applicable to the valuation of forests, and includes some of the strengths and weaknesses of methods under each approach in the context of valuing forestry interests
  • points out significant diversity in the length of the explicit forecast period that is used when using a discounted cash flow model to value a forestry interest, and seeks constituent feedback on this issue
  • discusses the discount rate used in a discounted cash flow model noting "evidence that in some parts of the world inappropriate reliance is being based on models such as the Capital Asset Pricing Model or the Weighted Average Cost of Capital"
  • notes the use of the cost approach is mostly applicable to recently planted forests because the physical and possible economic changes that occur as a forest matures mean that other methods become more reliable
  • explores difficulties with one suggested valuation approach in IAS 41 which is that the value of the “raw land” be deducted from the value of the combined asset,  with the residual representing the value of the biological asset, and discusses the specific question of how to measure a biological asset when the 'highest and best use' of the land is not forestry (this issue was also recently considered by the IFRS Interpretations Committee).

Comment period

Both exposure drafts are open for comment until 15 February 2013.  Click for (links to IVSC website):

New editorial corrections from the IASB

19 Nov 2012

The IASB has posted a new batch of editorial corrections to its website ahead of the publication of the IFRS 'Blue Book' in the coming weeks.

This batch makes corrections to:

  • Corrections to stand-alone Standards:
    • IFRS 10 Consolidated Financial Statements (issued May 2011)
    • Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (issued December 2011)
    • Annual Improvements 2009–2011 Cycle (issued May 2012)
  • Corrections to IFRS 2012 (Blue Book), IFRS 2012 (Red Book), A Guide through IFRS 2012
  • Corrections to the Glossary (issued in IFRS 2012 (Red Book) and A Guide through IFRS 2012)

In accordance with its newly established procedures, editorial corrections are issued three times a year - before the issue of IFRS (Blue Book), IFRS (Red Book) and A Guide through IFRS.  The IASB recently announced the IFRS 2012 (Blue Book) will be published in December 2012.

Access the editorial corrections on the IASB website.

Deloitte comment letter on IFRS 8 post-implementation review

16 Nov 2012

Deloitte’s IFRS Global Office has submitted a letter of comment to the International Accounting Standards Board (IASB) regarding its Request for Information on the post-implementation review of IFRS 8 'Operating Segments'.

We support the IASB decision to include the post-implementation review programme to its due process. We anticipate that the programme will increase the quality and consistency in financial reporting. However, we believe the process could benefit from the following:

  • Clarity that it is intended to identify whether the objectives of the Standard have been fulfilled, rather than to re-assess whether those objectives were correctly identified, as any need for a fundamental re-appraisal of the principles behind a Standard could instead be identified as part of the Board’s periodic agenda consultation process.
  • Setting the public consultation phase of a post-implementation review within a clearly defined process would be beneficial both to the Board in determining the detailed questions to be asked and to constituents in framing their responses to those questions.
  • The Request for Information, which focuses primarily on investors and preparers, could give further consideration to feedback by other constituents such as auditors and securities regulators.
  • The Financial Accounting Foundation is currently conducting a post-implementation review on its standard on segment reporting, we encourage the IASB and FASB to co-ordinate any amendments to their respective guidance in order to maintain a consistent application.

Click to access our comment letter.

See our previous article on IASB post-implementation review.

EFRAG draft comment letter on the IFRS Foundation’s proposal to establish an accounting standards advisory forum

16 Nov 2012

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IFRS Foundation’s proposal to establish an accounting standards advisory forum. EFRAG supports the main ideas of the proposal and indicates that it is willing to become a member of the new forum.

The IFRS Foundation issued the proposals for the creation of the Accounting Standards Advisory Forum (ASAF) on 1 November 2012. Creation of such a forum was recommended by the Trustees' strategy review to provide technical advice and feedback to the IASB from the standard-setting community.

In the draft comment letter, EFRAG supports the IFRS Foundation’s view that the size of the ASAF should be limited to allow for efficient and effective technical discussions. EFRAG also supports allocating seats to organisations rather than to individuals, however, EFRAG also believes that the IFRS Foundation should give those organisations the possibility to decide which individual is to represent the organisation at specific stages of a project. EFRAG also suggests a certain flexibility regarding the commitments the participants are asked to make in order not to preclude certain jurisdictions from participating.

In the draft comment letter EFRAG also suggests becoming a member of the ASAF itself. EFRAG argues that its close collaboration with all national standard-setters in Europe combined with its mandate from the European Commission makes it well placed to represent Europe in the technical financial reporting debate.

Please click for the following documents on the EFRAG website:

Comments on the letter are invited by 7 December 2012.

New Zealand finalises for-profit differential reporting regime

16 Nov 2012

The New Zealand External Reporting Board (XRB) and New Zealand Accounting Standards Board (NZASB) have released a"for-profit package" of standards which represent the first step toward the implementation of New Zealand's new Accounting Standards Framework. The first package implements a multi-tier structure for for-profit entities, encompassing fully IFRS-compliant standards (NZ IFRS), a 'reduced disclosure regime' (NZ RDR), existing differential reporting requirements, and old NZ-GAAP.

The last two tiers are transitional and will ultimately be removed, leaving entities with either 'NZ IFRS' or 'NZ RDR'.  The transitional tiers will be removed when New Zealand legislative changes provided for in the Financial Reporting Bill 2012 come into force, removing the statutory requirement from most small and medium sized companies to prepare financial statements in accordance with GAAP.

For-profit entities applying NZ IFRS are required to make an explicit and unreserved statement of compliance with IFRS.  Entities applying the NZ RDR will follow the recognition and measurement requirements of IFRS, but will not be required to comply with all presentation and disclosure requirements.

The following table summarises the tiers reflected in the for-profit package:

Tier Eligible entities Accounting Standards applied
1 Publicly accountable entities (as defined), or large (as defined) for-profit public sector entities NZ IFRS

Non-publicly accountable entities, and non-large for-profit public sector entitles
Which elect to be in Tier 2

NZ IFRS Reduced Disclosure Regime
3 Non-publicly accountable entities and either all of its owners are members of the entity's governing body, or not large (as defined)
Which elect to be in Tier 3*
NZ IFRS Differential Reporting (NZIFRS Diff Rep)*
4 Non-publicly accountable entities, not required to file financial statements, and not large (as defined)
Which elect to be in Tier 4.*

*Transitional tier

Although the for-profit package also restructures accounting standards for 'public benefit entities', the accounting outcomes for those entities under the new standards are not changed pending the finalisation of further phases expected for such entities in the not-for-profit and public sectors.

The new regime is largely consistent with the exposure drafts issued in April 2012 and applies from 1 December 2012.

Click for press release (link to XRB website).

ACCA report on IFRS in the US

16 Nov 2012

The Association of Chartered Certified Accountants (ACCA) has released a research report 'IFRS in the US: An investor's perspective' that outlines the outcome of a survey of nearly 500 US-based investors (professional investment managers, asset managers and fund managers) which asked whether they believe the US Securities and Exchange Commission (SEC) will eventually adopt IFRS. The survey resulted in 57 percent of investors surveyed expecting the adoption of IFRS in the US to occur 'one-day', with the long term benefits outweighing the costs.

According to Sue Almond, Technical Director at ACCA, "More investors believe the eventual adoption of IFRS in the USA will result in a net benefit to the American economy than not. In ACCA's view, US adoption of IFRS would give a tremendous boost to the cause of globally comparable financial reporting, and more importantly, the US and world economies. ACCA has repeatedly called for putting investors at the heart of the standard-setting process globally, and this is why we commissioned this research, to understand what American investors thought about the future of IFRS in the USA."

Chairman Hans Hoogervorst also weighed in with his thoughts on the ACCA results, "The ACCA's findings are consistent with anecdotal feedback we hear from the US investor community. They also lend further credence to the argument that the USA is well prepared for a successful transition to IFRS."

The report also identified several key findings investors have noted in regards to the adoption of IFRS, as follows:

  • The most informed investors polled believe it will take US corporates some four and a half years to be ready for IFRS. They ask that convergence plans aim for full convergence, allowing adequate time for investors and industry to adjust.
  • Awareness of IFRS among US-based investors is modest: when asked, only 34% of investors felt able to cite specific differences between US GAAP and IFRS.
  • However, 38% of investors said they were comfortable comparing statements prepared under IFRS with statements prepared under US GAAP.
  • Investors saw marginal differences between IFRS and US GAAP, with 22% of investors claiming that the quality of disclosures under IFRS is higher, versus 25% who favoured US GAAP.
  • Among investors with a solid understanding of IFRS, however, the balance shifts to 40% to 21% in favour of IFRS.

Further, the report identified the main concerns US investors' have towards a move to IFRS. According to the report, these concerns are:

  • Will IFRS adoption lead to reduced complexity for US corporates?
  • Is IFRS adoption going to lead to a dangerous loss of US influence over the standard-setting process?
  • Are US corporates likely to see cost savings and synergies emerging as a result of IFRS adoption?
  • Will IFRS adoption make it easier to compare the performance of US corporates with that of other companies overseas?
  • Are US auditors likely to second-guess management more frequently as a result of IFRS adoption?

Click to view the ACCA's press release and the research report, "IFRS in the US: An investor's perspective" (links to ACCA website).

Notes from the November 2012 IFRS Interpretations Committee meeting

15 Nov 2012

IFRS Interpretations Committee held its meeting in London on 13-14 November 2012. Deloitte observer notes for the meeting are now available.

A full listing of all of the topics discussed at the meeting follows (click through to access detailed Deloitte observer notes for each topic):

Tuesday, 13 November 2012 (10:00-17:45)


Active Committee Projects

Review of Tentative Agenda Decisions published in July IFRIC Update

Items for continuing consideration

Administrative session

Due Process Documents

Annual Improvements

  • IFRS 8 — Aggregation of operating segments
  • IFRS 8 — Reconciliation of the reportable segments' assets to the entity's assets
  • IFRS 13 — Short-term receivables and payables
  • IAS 12 — Recognition of deferred tax assets for unrealised losses

New Items for initial consideration

Wednesday, 14 November 2012 (09:00-15:25)

Due Process Documents

New items for initial consideration

Click here to go to the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Mary Tokar appointed as member of the IASB

15 Nov 2012

The Trustees of the IFRS Foundation announced the appointment of Mary Tokar as a member of the IASB for an initial term ending 30 June 2017. The term is renewable for a further three years. Ms Tokar will join the IASB in January 2013.

For more than 10 years, Ms Tokar has been the global leader for KPMG’s International Financial Reporting Group, leading the firm's dialogue with the global accounting regulatory and standard-setting communities. Having worked with engagement teams and clients around the world in their transition to and application of IFRS, she has gained extensive experience in the application of IFRSs in both developed and emerging economies. Previously, Ms Tokar worked at the US Securities and Exchange Commission (SEC) as the Senior Associate Chief Accountant, International, in the Chief Accountant’s Office. Ms Tokar was a member of the IFRS Interpretations Committee between 2001 and 2007.

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

IFRS Foundation opens regional Asia-Oceania office

15 Nov 2012

The IFRS Foundation has officially opened an office in Tokyo for enhanced liaison in the Asia-Oceania region - it is the first regional office of the IASB. The opening of the office reflects the commitment of the IFRS Foundation to become a truly international accounting standard-setter and is intended to support greater regional outreach and participation in the IASB’s standard-setting activities.

The IFRS Foundation announced the establishment of the Tokyo office in February 2011 in order to expand opportunities for direct contact between the IFRS Foundation and its stakeholders in the region. An Office Director was appointed in September 2012.

The reasons for locating the first international office the Asia-Oceania region were many as Michel Prada, the Chairman of the Trustees of the IFRS Foundation, pointed out in his opening remarks: "The Asia-Oceania region is home to some of the largest capital markets and fastest growing economies in the world" and there is "a great deal of support for IFRS across the entire region". However, the region is also diverse, so it is hoped that the opening of a local presence will "ensure that views across the region are heard and considered as part of the standard-setting process".

Mr Prada also pointed out that the office will provide an interface with the Asia-Oceania Standard-Setters Group (AOSSG), the platform of regional national standard-setters for discussing problems and sharing experiences in the convergence process, for participating in the development of IFRSs, and for making contributions to a single set of high quality global accounting standards. Mr Prada commended the AOSSG for its work and expressed the hope that it would become a member of the new Accounting Standards Advisory Forum (ASAF) the IASB has undertaken to set up.

Please click for the press release on th IASB's website which also offers access to the transcript of Mr. Prada's openings remarks and a transcript of the opening remarks spoken by Hans Hoogervorst, the IASB Chairman, as well as more information on the Asia-Oceania office in English, Chinese, Hindi, Japanese, and Korean.

EFRAG Update with a summary of the October and November 2012 EFRAG conference calls and meetings

15 Nov 2012

The European Financial Reporting Advisory Group (EFRAG) has released the November 2012 issue of its EFRAG Update newsletter.

The newsletter contains a summary from the EFRAG TEG conference call held in October 2012 and the EFRAG TEG meeting held in November 2012 . Highlights were the finalisation of a comment letter on put options written on non-controlling interests and discussions of the major projects of the IASB and of current discussion papers (EFRAG/ASB on income tax, CICA on a measurement framework, ANC on accounting for emission rights).

Click for the EFRAG Update (link to EFRAG website).

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