FASB comment deadline on the proposal for accounting for credit losses on financial assets extended

29 Mar 2013

The US Financial Accounting Standards Board (FASB) has extended the comment deadline for its proposal to improve financial reporting about expected credit losses on loans and other financial assets held by banks, financial institutions, and other public and private organizations. The new comment deadline is 31 May 2013.

The FASB issued the proposed Accounting Standards Update (ASU) Financial Instruments — Credit Losses on 20 December 2012. The proposed ASU introduces the current expected credit loss (CECL) model for accounting for the impairment of financial assets. The proposed CECL model is intended to require more timely recognition of credit losses, while also providing additional transparency about credit risk. It replaces the multiple existing impairment models in US GAAP which generally require that a loss be incurred before it is recognised.

On 7 March 2013 the International Accounting Standards Board (IASB)  published its long-awaited proposal for a new accounting model for impairments of financial assets. In the Exposure Draft (ED) the Board proposes a model according to which credit losses are no longer recognised if incurred; rather, entities would recognise expected credit losses on financial assets and on commitments to extend credit based upon current estimates of expected shortfalls in contractual cash flows as at the reporting date.

The key difference between the IASB’s proposals and the FASB’s approach is that the FASB would not distinguish between instruments that have deteriorated since their initial recognition and those that have not. Instead, the FASB would require a single measurement model for all financial instruments when determining the impairment allowance: At initial recognition entities would recognise a charge equaling the present value of lifetime expected credit losses.

Constituents had been asking the FASB to extend the comment deadline to give them time to consider the IASB ED and the FASB's proposal in parallel. Earlier this week the FASB staff already issued a document responding to frequently asked questions in order to help constituents understand the FASB proposals.

Please click for further information on the FASB website:

Deloitte comment letter on proposed limited amendments to IFRS 9

29 Mar 2013

We've submitted our comment letter on the IASB's ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9'. While we support the objective of the proposed amendments, we believe the guidance could be made simpler and clearer, and also call for the IASB and FASB to reconcile any remaining differences in their respective classification and measurement models as far as possible.

The comment letter contains the following observations:

We support the objective of the proposed amendments and the introduction of a third business model as it better captures the spectrum of business models that exist in reality. However, we believe that the third business model would be better defined as a residual category for assets that do not meet the conditions to be considered as held to collect contractual cash flows or as held to sell. This should facilitate the production of simpler, clearer application guidance. Additionally, we encourage the IASB and the FASB to reconcile the differences that currently exist between their proposed application guidance in this area as this would enhance international comparability of financial statements.

In addition, the comment letter makes the following points:

  • the introduction of a benchmark test adds an additional layer of complexity to the cash flow characteristics criterion
  • the proposals do not address the accounting for financial instruments in economies where rates are not set by the forces of supply and demand, but by the government or related agencies
  • we ask the IASB to reconsider the effective date of IFRS 9 in light of the delays in completing IFRS 9.

The full comment letter can be accessed here.

EFRAG endorsement status report

28 Mar 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments. The latest report reflects the endorsement of the 'Annual Improvement to IFRSs, 2009-2011 Cycle' by the European Commission.

On 27 March 2013, the European Union issued a commission regulation which resulted in the endorsement of Annual Improvements to IFRSs, 2009-2011 Cycle. The amendments made by the IASB's annual improvements project are now incorporated into European law. The EFRAG has updated its endorsement status report to reflect the EU's decision.

Please click for the EFRAG Endorsement Status Report as of 28 March 2013.

Stay Tuned Online – IFRS and UK GAAP update

28 Mar 2013

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. The March 2013 webcast is now available.

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 March 2013 webcast:

  • the finalised replacement for current UK GAAP
  • recent developments in financial instruments accounting, including the proposed approach to impairment under IFRS 9 and the classification and measurement of financial instruments
  • a run through various IASB publications proposing other amendments to current IFRSs, and
  • a round up of UK corporate reporting news, including proposals around going concern reporting.

To access the recording Click Here.

IASB publishes Request for Information on Rate Regulation

28 Mar 2013

The International Accounting Standards Board (IASB) has issued a Request for Information (RFI) seeking comments from stakeholders to identify high-level overviews of rate-regulatory schemes that should be included as part of the scope in the development of a Discussion Paper.

The Rate regulation project was originally added to the IASB technical agenda in December 2008 and published an exposure draft on 22 July 2009. Comments received on the exposure expressed divergent views. No consensus was ever reached and the project was therefore suspended in September 2010.

The IASB has reactivated this project as part of its response to the Agenda Consultation 2011. The RFI is an early steps the IASB is taking to reactivate the project. The RFI, along with other research, will be used in the development of a Discussion Paper. The goal of the Discussion Paper is "to identify what information about the consequences of rate regulation would be most useful for users of IFRS financial statements and whether the IASB should develop specific guidance for accounting for those consequences."

Summary of questions asked in the Request for Information
Question 1 — what types of goods or services are subject to the rate regulation described for consideration in the Discussion Paper?
Question 2 — what are the objectives of the rate regulation and how do they influence the interaction between rate regulator, the rate-regulated entity and customer?
Question 3 — what sort of rights or obligations does the regulation create?
Question 4 — In relation to the rights or obligations identified in the comments to Question 3, how does the rate-regulated entity enforce its rights, or how does the rate regulator enforce the settlement of the rate-regulated entity's obligations?
Question 5 — How does the rate regulation ensure the recovery or reversal of under- or over-recoveries of allowable costs (ie variance amounts) (if applicable)? Are these mechanisms effective in recovering or reversing those amounts within the targeted time frame?

Comment deadline is 30 May 2013.

More information is available on the IASB website.

European Union formally adopts Annual Improvements 2009-2011

28 Mar 2013

The European Union has published a Commission Regulation endorsing the amendments made by the International Accounting Standards Board (IASB) 'Annual Improvements 2009-2011 Cycle'.

The European Union has published the Commission Regulation (EC) No 301/2013 of 27 March 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 28 March 2013. This regulation adopts the amendments made by the IASB's Annual Improvements to IFRSs 2009-2011 cycle (issued 17 May 2012) into European law.

The improvements made by the IASB address areas of inconsistencies and adds clarification to IFRSs, namely IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34, and IFRIC 2. The Technical Expert Group of the European Financial Reporting Advisory Group has confirmed that the improvements meet the technical criteria for adoption.

The amendments must be applied, at latest, to annual periods beginning on or after 1 January 2013.

More information on the IASB's Annual Improvements to IFRSs 2009-2011 is available on our project page.

IFRS XBRL taxonomy for 2013 is available

27 Mar 2013

The IFRS Foundation has published the IFRS Taxonomy 2013. The IFRS Taxonomy is a translation of IFRSs (International Financial Reporting Standards) into XBRL (eXtensible Business Reporting Language).

The 2013 taxonomy is consistent with IFRSs as issued by the IASB at 1 January 2013 and IFRS for Small and Medium-sized Entities as issued on 9 July 2009. Also, it contains XBRL tags for all IFRS disclosure requirements.

Click here to access the IFRS Taxonomy files and accompanying materials on the IFRS Foundation's website.

IIRC publishes further background paper on the business model

27 Mar 2013

The International Integrated Reporting Council (IIRC) has published on its website a further 'background document' in the lead up to the expected issue of its consultation document on integrated reporting (stylised as <IR>) in mid-April. The latest background paper discusses the 'business model' concept, and follows earlier papers on the concepts of 'capitals' and 'materiality'.

Consistent with the previous papers, the paper have been prepared by the IIRC's Technical Collaboration Groups (TCGs) and do not necessarily reflect the views of the IIRC or the member organisations from which the participants of the TCGs were sourced.

The paper seeks to explore and reconcile current divergent approaches in business model reporting with the aim of reaching a common, widely-accepted definition of the business model within the context of integrated reporting.  To this end, the paper proposes to define the 'business model' as "the organization's chosen system of inputs, business activities, outputs and outcomes that aims to create value over the short, medium and long term".

The proposed definition builds on the concept of a 'business model' included in the IIRC's Discussion Paper which was released in September 2011, and the later Prototype Framework released in November 2012, by further emphasising that reporting on an entity's business model is central to an investors understanding of the entity and its strategy, governance, performance and prospects.  The paper also seeks to respond to constituent concerns about better understanding the interrelationship between the business model and capitals (financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital).

The paper includes a review of literature related to the business model concept, which included professional and academic articles and internet sources such as websites and blogs.  It also notes the increasing use of the business model concept in accounting standards:

The term has also gained attention in reporting for its link to accounting standards and financial statement preparation. Business model thinking provides an interesting paradigm for developing financial reporting standards. For example, a business model approach to the accounting for financial instruments determines that a debt security has to be measured at market value when it is held for trading purposes, but is reported at historic cost if it is intended to be held to maturity.

The paper's discussion around recurrent themes identified notes the importance of various aspects of the business model, including the nexus between an entity's business model and its financial performance, and the existence of of inputs, actions or activities, and outcomes or impacts on customers and other stakeholders.  The definition of business model put forward in the paper includes these concepts.  In doing so, it includes and distinguishes between 'outputs' (products and services) and 'outcomes' (internal and external impacts, such as environmental impacts) in order to present a broader overall view of the business model and provide a connection to the capitals.  The inclusion of 'outcomes' in the definition of business model adds to the definition that was present in the Discussion Paper and Prototype Framework and represents a stronger link to the short and long-term impacts of an entity's business activities on the capitals.

The paper concludes that business model reporting is integral to an entity's integrated report and that disclosures should facilitate an understanding of the entity's organisational aspects, posing the following questions:

  • What are the impacts of key external factors upon the organisation?
  • What does the organisation do to create value for customers and other stakeholders, and thereby for providers of financial capital?
  • What are the organisation’s desired outcomes?
  • What does the organisation rely on in terms of the capitals?
  • What is the organisation’s positioning in the value chain and the markets in which it operates?

The full background paper can be found on the IIRC's website.  The International Federation of Accountants (IFAC) was one of the organisations involved in preparing the background paper and has issued a press release (link to IFAC website).

Japan's Business Accounting Council meets to resume discussions on IFRS

26 Mar 2013

Japan’s Business Accounting Council (BAC) met on 26 March 2013 to resume its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. The meeting was the first to address IFRSs since Japan’s December 2012 general election, with a renewed composition of the BAC (approximately 10 out of 30 council members have been changed). There was no consensus at the meeting, and the BAC is expected to continue deliberations at future meetings.

During the meeting, Financial Services Agency (FSA) officials discussed (1) recent IFRS adoption experiences in Canada and Korea, primarily on the basis of relevant reports by Canada’s Accounting Standards Board and by Korea’s Financial Supervisory Service and Accounting Standards Board; (2) the current state of the governance and strategy review of the IASB, including the finalised assessment approach of the IFRS Foundation’s Monitoring Board for determining its membership criteria; and (3) the recently formed Accounting Standards Advisory Forum (ASAF).

In addition, a BAC member from the Japan Business Federation (JBF) presented views of preparers on the use of IFRSs in Japan. Noting the increased number and importance of voluntary IFRS adopters in Japan, the presenter touched on additional measures that might be taken to further facilitate voluntary adoption of IFRSs in Japan, including lowering a regulatory hurdle for voluntary use of the standards. The presenter also highlighted the importance of a future BAC deliberation timeline, which would give preparers greater predictability. Finally, the presenter discussed a process for dealing with potentially unacceptable IFRS requirements and clarified that IFRSs as issued by the IASB should always be permitted for use regardless of such process.

During discussions after the presentation, FSAs officials acknowledged the difficulty in developing a timeline for BAC deliberations and stated that issues would be addressed that were identified in the July 2012 interim discussion paper. (See an earlier article on the interim discussion paper.).

Handouts for the meeting are available on the FSA’s Web site (Japanese only). The next meeting date has not yet been announced.

Updated IASB work plan

26 Mar 2013

Following its March meeting, the International Accounting Standards Board has updated its work plan. A timing of expected milestones in a number of projects has been changed, and a number of new expected project steps and narrow scope projects have been added.

Summary of changes

Details of the changes are:

Updates to major projects

Newly added narrow-scope projects

Updates to narrow-scope projects

A large number of due process documents are expected in the second or third quarters.  Projects where exposure drafts are expected in the second quarter include insurance contracts, leases, rate-regulated activities (interim IFRS).  In addition, the finalised IFRS on revenue recognition is expected to be finalised by the end of June 2013, and a discussion paper on the IASB's conceptual framework project is also expected within the same time frame.  In addition, due process documents in a number of other projects are expected in the second or third quarters.

Click for IASB work plan dated 25 March 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

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