January

Research paper on IFRS compliance across Europe shows inconsistencies

28 Jan 2013

A recent research report by the Centre for Financial Analysis and Reporting Research (CeFARR) at the Cass Business School entitled 'Accounting for asset impairment: a test for IFRS compliance across Europe' shows inconsistencies in IFRS compliance reflected in European listed companies' impairment reporting practices.

The authors, Hami Amiraslani, George E. Iatridis, and Peter F. Pope, investigate the degree of compliance with International Financial Reporting Standards by analysing impairment disclosures related to non-financial assets within a sample of over 4,000 listed companies from the European Union plus Norway and Switzerland during 2010-11.

The key findings of the research are:

  • Compliance with some impairment disclosure requirements varies quite considerably. This might also point at differences in applying IFRSs
  • Impairment disclosure requirements that require more effort are less often followed than those that require less effort or can be dealt with by boilerplate disclosures
  • Reporting environments with stronger regulatory and institutional infrastructure will see more high-quality impairment reporting
  • Reporting environments with a strong regulatory infrastructure and strict enforcement will see more timely recognition of impairment losses.

Accounting for asset impairment: a test for IFRS compliance across Europe can be downloaded from the Cass Business School website.

The IASB chairman Hans Hoogervorst commented on the results of the research and the responsibilities of the IASB regarding compliance in a speech given at the Cass Business School.

The CeFARR results support the finding of the European Securities and Markets Authority (ESMA) review of 2011 IFRS financial statements related to impairment testing of goodwill.

Hans Hoogervorst addresses consistency in financial reporting

25 Jan 2013

IASB Chairman Hans Hoogervorst gave a speech at the Cass Business School in London, on the search for consistency in financial reporting standards. In his speech, he outlines five ways that the IASB is helping to promote a more consistent application of IFRS.

Hoogervorst first discussed the European adoption of IFRS — before which, it had been nearly impossible to compare financial statements across countries, competitors, and industries. Even though there are currently discrepancies among nations in the application of IFRSs, Hoogervorst said, "The truth is that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards."

Hoogervorst also pointed out that it was not primarily the task of the IASB to manage the uniform application of its standards. Rather, this is the task of regulators and auditors. But he also admitted that the IASB could indeed contribute to a consistent application of IFRS. He outlined the following five areas that the IASB is taking the lead on:

  • Developing principle-based standards that are capable of being applied, audited and enforced on an internationally consistent basis. Mr Hoogervorst cited deeper cooperation with organisations such as EFRAG and AOSSG, and the important role the proposed Accounting Standards Advisory Forum (ASAF) will have in 'road testing' new standards
  • Completing a post implementation review of major standards and interpretations two years after they have come into effect, noting the post-implementation reviews of IFRS 8 and IFRS 3
  • Extending the scope and responsibilities of the IFRS Interpretations Committee, which provides the IFRIC the tools it needs to react more quickly and effectively, avoiding discrepancies in practice
  • Increasing production of educational material, with education material on IFRS 11 Joint Arrangements expected, following the initial material on IFRS 13 Fair Value Measurement which was released in December
  • Expanding the cooperation with securities regulators at the international and regional levels, including "possibly through some form of MoU or other formal agreement".

The full speech is available on the IASB website.

EFRAG comments on the CICA research paper on financial reporting measurement issues

25 Jan 2013

In June 2012, the Canadian institute of Chartered Accountants (CICA) posted to its website a reasearch paper "Toward a Measurement Framework for Financial Reporting by Profit-oriented Entities" to stimulate study and debate, and to provide input for the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB). The European Financial Reporting Advisory Group (EFRAG) has commented on the paper.

In the CICA paper, a definition of current market value was put forward that embodies a set of properties that make it a most relevant measure of assets and liabilities for financial reporting purposes. Other measurement bases were evaluated as possible substitutes when current market value is not practicable of faithful representation.

EFRAG welcomes the work carried out by the CICA, however, EFRAG disagrees with the paper's conclusion that Current Market Value is the most ideal (relevant) measurement basis, when the value is practicable of faithful representation. Rather, EFRAG does not believe that it would be possible to identify a single ideal measurement basis.

EFRAG therefore concludes that "we think the role of a measurement framework should be to explain the properties of various measurement bases and by reference to users’ needs provide directions on when the different properties are important. In addition, it should provide directions on how to choose between alternative measurement bases when the most relevant basis would not result in assets and liabilities being practicable of faithful representation."

Please click to download the comment letter from the EFRAG website.

Final notes from the January 2013 IFRS Interpretations Committee meeting

25 Jan 2013

We've posted further Deloitte observer notes from the IFRS Interpretations Committee meeting held in London on 22-23 January 2013, covering the last session on the first day of the meeting and all of the topics discussed on the second day.

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):


Tuesday, 22 January 2013 (09:00-17:10)

New Items for initial consideration


Wednesday, 23 January 2013 (09:00-17:00)

Due Process Documents

Annual improvements

New Items for initial consideration

Administrative session

 

The following item was not considered at this meeting, and will instead be considered at a future meeting:

  • IAS 29 Financial Reporting in Hyperinflationary Economies — Applicability of IAS 29 to financial statements prepared under the concept of financial capital maintenance in constant purchasing power units


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

Mary Jo White nominated as SEC Chairman

24 Jan 2013

President Barack Obama has nominated Mary Jo White as Chairman of the US Securities and Exchange Commission (SEC). If confirmed by the Senate, White would replace Elisse Walter, the acting chair since Mary Schapiro's resignation in December 2012.

Ms White was the first woman to be appointed as US Attorney for the Southern District of New York, serving from 1993 to 2002. She specialized in white-collar crime, a key reason for her selection as chair of the SEC. She is currently chair of the litigation department at Debevoise & Plimpton.

Click to view the press release on the White House's website.

First results of the IASB disclosure survey

24 Jan 2013

The International Accounting Standards Board (IASB) has published first results of a survey aimed at assisting the IASB to gain a clearer picture on the perceived "disclosure problem". The survey was conducted in preparation for the discussion forum on disclosures that will be hosted by the IASB on 28 January 2013.

The 225 responses received by the IASB gave the following overall picture:

  • Over 80 per cent those who completed the survey felt that improvements could be made to the way financial information is disclosed. Many also indicated that there was a need for improvements across all parts of the annual report.
  • Most preparers of financial statements (50 per cent of all responses were received from preparers) said that the disclosure requirements were extensive and too little attention was being paid to exclude immaterial information.
  • Users of financial statements (making up 20 per cent of all respondents) felt to a large extent that preparers should do more to focus on relevant information to improve communication.
  • Several causes for the overload problem were identified, among them the way the standards are set and the way that preparers, auditors and regulators apply the standards.

The above numbers and results were drawn from the press release available on the IASB website. The IASB announced that the full results of the survey will be published as part of a Feedback Statement that will also contain the feedback from the disclosure forum.

    Notes from the first day of the January IFRS Interpretations Committee meeting

    24 Jan 2013

    IFRS Interpretations Committee held its meeting in London on 22-23 January 2013. Deloitte observer notes from the first day of the meeting are now available.

    The topics discussed on the first day of the meeting were as follows (click through to access detailed Deloitte observer notes for each topic):

     

    Tuesday, 22 January 2013 (09:00-17:10)

    Introduction

    Review of Tentative Agenda Decisions published in September IFRIC Update

    Items for continuing consideration

    Active Committee Projects


    Notes from the final session on day one, discussing the timing of the recognition of intercompany charges under IFRS 2, will be posted soon.  In addition, the following items included on the initial agenda were not discussed, and will be considered at a future meeting:

    • IAS 7 Statement of Cash Flows — Definitions of operating, financing and investing
    • IAS 7 Statement of Cash Flows — Classification of interest paid that is capitalised as part of the cost of an asset

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

    The Bruce Column — ESMA backs up its impairment warning

    23 Jan 2013

    European securities regulator ESMA has issued some tough research findings to back up its previous warnings on levels of goodwill impairment. Robert Bruce, our resident columnist, looks at the evidence.

    Back in November last year, the European Securities and Markets Authority (ESMA) told companies that goodwill impairment was one of the priorities they should be focussing on in their report and accounts this year.

    At that point the ESMA Chairman, Stephen Maijoor, said that: ‘The market value of many listed companies has fallen below their book value, a situation potentially indicating impairment and thus the need for an impairment test. ESMA considers that particular attention has to be paid to the valuation of goodwill and intangible assets with indefinite life spans, whenever significant amounts are recognised in the financial statements’.

    Now ESMA has issued a more specific warning about the levels of goodwill impairment. In November it was a simple warning. Now it has backed it up with its own research.

    It has issued a review of the accounting practices of over 200 companies across Europe which had significant amounts of goodwill. And the results bear out the earlier worries that impairment was not being carried out to anything like the extent that ESMA would consider to be healthy. The figures are quite remarkable. The report shows that: ‘Significant impairment losses of goodwill were limited to a handful of issuers’. In effect 5% of the issuers in the sample accounted for almost 75% of the goodwill impairment and roughly three-quarters of these 75% were reported by just 3 issuers.

    Backed up by these findings ESMA has returned to the fray with ever more urgency. Reflecting on the research ESMA says: ‘This therefore raises the question as to whether the level of impairment disclosed in 2011 financial reports appropriately reflects the difficult economic operating environment for companies’.

    And in a further warning it notes that although the major disclosures related to goodwill impairment testing were generally provided, ‘in many cases these were of the boilerplate variety and not entity-specific’. Small wonder that in its report it concludes that ‘the quality of narrative information could be improved when describing the events and circumstances which led to the recognition of impairment’.

    Amongst the boilerplate ESMA complains about were the use of ‘worsening economic outlook’, ‘slowdown of the demand’, and ‘competitive environment’. In a nutshell companies need to be more realistic in reflecting the realities and more specific in describing what they have done and why they have done it.

    ESMA emphasises the importance of improving the overall disclosure provided. And in particular it recommends that issuers: ‘Better specify the key assumptions used in the impairment test; include sensitivity analyses with sufficient detail and transparency, especially in situations when indicators are present that impairment might have occurred; determine the growth rates used to extrapolate cash flows projections based on budgets and forecasts; and disclose specific discount rates for each material cash-generating unit rather than average discount rates’.

    All of this can be highly judgmental. The use of cash flow forecasts is not a precise science even in good times, and at the moment it is particularly challenging. And caution is advisable around growth forecasts and discount rates.

    As Maijoor said in conclusion: ‘Good quality financial information is key for investors in understanding the financial health of an issuer in whom they hold assets or in who they may wish to invest. Goodwill, and its impairment, are key components in making a realistic evaluation of firms.  In that respect ESMA’s review will help in providing a more harmonised approach to the disclosure of goodwill impairment under IFRS throughout the European Union’.

    Click for our previous stories:

    EFRAG Update with a summary of the December 2012 and January 2013 EFRAG conference calls and meetings

    23 Jan 2013

    The European Financial Reporting Advisory Group (EFRAG) has released the January 2013 issue of its 'EFRAG Update' newsletter.

    The newsletter contains a summary from the EFRAG TEG conference call held in December 2012 and the EFRAG TEG meeting held in January 2013. Highlights were the approval of

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

    IFRS taxonomy 2012 in Hungarian

    23 Jan 2013

    The IFRS Foundation has published a Hungarian translation of the IFRS (International Financial Reporting Standards) Taxonomy 2012.

    Please click for:

    The IFRS Foundation also points out that in order to provide further support to Hungarian-speaking users of the IFRS Taxonomy, the IFRS Taxonomy Illustrated (link to IASB website) is available for viewing and use in Hungarian. The IFRS Taxonomy Illustrated presents a simplified view of the IFRS Taxonomy in an easy to read, visual format that does not require knowledge of XBRL, with linkages to the electronic IFRSs (eIFRS).

    Correction list for hyphenation

    These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.