April

Comments summarised on disclosure framework discussion paper

24 Apr 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), and the UK Financial Reporting Council (FRC) have published a summary of comments received on their discussion paper (DP) 'Towards a Disclosure Framework for the Notes'.

Issued in July 2012, the DP proposed ways to improve the quality of information in the notes to the financial statements and to reduce immaterial disclosures. After the consultation period, which ended 31 December 2012, the EFRAG, ANC, and FRC reviewed and summarised comments received from respondents, various outreach meeting, and webcasts. The summary notes the following:

  • Support for the proposal that a more consistent and rational approach to disclosures should be developed and that it should be developed cooperatively with standard setters, regulators, and auditors.
  • Additional discussions may be needed about whether disclosure problems are conceptual or related to application.
  • General support for the DP's key principles.
  • An absence of clear consensus on users’ needs and indicators to help standard setters assess what disclosure requirements are appropriate; however, there was support for simplifying the requirements.
  • Many believed that guidance on the application of materiality could be helpful and that changes to behaviours are necessary.
  • Agreement that focusing on communication principles rather than compliance would improve disclosure.

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Japan's Business Accounting Council advances discussions on IFRS

24 Apr 2013

Japan’s Business Accounting Council (BAC) met on 23 April 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan.

Following on from the previous BAC meeting in March, the BAC discussed directions and policy issues regarding the use of IFRSs in Japan. Although there was no formal decision made at the meeting, it was observed that there was no objection against the idea of lowering the existing regulatory hurdle for voluntary use of IFRSs by amending the eligibility criteria (see our IAS Plus jurisdiction page for Japan for details on the criteria).

The first part of the meeting was about the Accounting Standards Advisory Forum (ASAF). The chair of the ASBJ outlined the objectives and the members of the ASAF and then explained the discussions held at the first forum meeting that he took part in, particularly around the conceptual framework. A few questions and comments were made by the BAC members. During his explanation, the chair touched on the ASBJ’s plan to set up a new ASBJ technical committee on ASAF related work.

The rest of the meeting was spent on the use of IFRSs in Japan. The Financial Services Agency (FSA) official summarised the current situation surrounding IFRSs in Japan and globally and the views expressed by BAC members at the previous meeting. He then proposed that the BAC deliberate short-term directions to be followed by Japan, focusing on issues identified in the interim discussion paper issued in July 2012 by the BAC. It was also noted that the deliberation would need to reflect matters such as 1) the 2008 G20 communiqué about the single set of high quality global standard, 2) the need for international harmonisation of accounting standards, 3) the use of IFRSs in the monitoring board membership criteria, 4) provisions in the IFRSs that are problematic and/or under development, 5) the internationally uncertain environment such as the use of IFRSs in the US, 6) the need to enhance predictability as to the future state of the financial reporting framework in Japan, and 7) the varying cost-benefit balance among different entities.

In addition to the proposals above on broad directions, BAC member views were sought on short-term specific initiatives such as 1) lowering the regulatory hurdle for the voluntary use of IFRSs, 2) responses to uncertainty that may be faced in practice by using IFRSs that are principle based, 3) communicating views from Japan, for example by an effective use of the Asia-Oceania Office of the IFRS Foundation in Tokyo, 4) the need for an additional endorsement process to review each of the IFRSs individually, in addition to the current ‘designation’ process for IFRSs as issued by the IASB, 5) the need for an in-depth review of the provisions in IFRSs, to decide whether application of these is appropriate in Japan, 6) streamlining local requirements to disclose for separate financial statements in accordance with Japanese GAAP, and 7) any other short-term issues, including necessary measures to be taken by stock exchanges.

More than 15 members of the BAC expressed their views mostly on certain specific initiatives. On the first initiative, BAC members expressed support in general. On the second issue, one BAC member noted that applying any accounting framework requires professional judgment in practice. On the fourth and fifth initiative, which could result in a fourth framework of accounting standards in Japan (in addition to Japanese GAAP, designated IFRSs, and US GAAP, all of which are currently used in Japan), views by the BAC members were mixed and concerns as well as alternative ideas were expressed. On the sixth initiative, opposite views were expressed by the preparer representatives who favour a lessening of the burden and the user representatives relying on the information currently provided.

A BAC member asked about the timeline. After confirming that no objection was heard on the first initiative, the FSA official explained that deliberations on policy initiatives would continue. However, he expressed his expectation that a BAC opinion would be formed without spending too much time on the short-term actions. He admitted that debates as to actually mandating the use of IFRSs would require further time.

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

Deloitte view on IASB's proposals on acquisitions of interests in joint operations

24 Apr 2013

Deloitte has submitted its comment letter on the IASB's proposals in Exposure Draft ED/2012/7 'Acquisition of an Interest in a Joint Operation'. We agree that application of the principles of IFRS 3 'Business Combinations' is an appropriate methodology when an acquired joint operation constitutes a business, but support the work of the IFRS Interpretations Committee to produce additional guidance on the meaning and application of the 'business' concept.

The comment letter notes that the proposal "places additional emphasis on the definition of a business", and the support for further guidance on this concept is consistent with our earlier views on Exposure Draft ED/2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

The IFRS Interpretations Committee is expected to discuss the definition of a 'business' at its forthcoming meeting on 14-15 May 2013.  Whilst an agenda for the meeting is yet to be published, the Committee has published two agenda papers on the issue that are expected to be considered at the meeting (links to the IASB website):

  • The first paper provides an overview of the outreach activities undertaken by staff to identify challenges in distinguishing business combinations from asset acquisitions to help in identifying matters for which the IASB might be seeking feedback in any forthcoming Request for Information arising from the post-implementation review of IFRS 3, and asks for the Committee's feedback on whether this experience and information should be contributed to the project
  • The second paper provides a detailed analysis of the outreach activities, including liaison with the Financial Accounting Standards Board (FASB) and Financial Accounting Foundation (FAF) (which is undertaking its own post-implementation review on its equivalent business combination requirements in FAS Statement 141R), and feedback received from interested parties across a number of industries including investment property, extractive industries, pharmaceuticals, banking, shipping and solar and wind farms.  It also includes a summary of various issues which could be brought to the attention of the IASB.

Click for access to the full comment letter.

Russell Golden named next FASB Chair

23 Apr 2013

The Financial Accounting Foundation (FAF) has announced that the next Chair of the Financial Accounting Standards Board (FASB) will be Russell G. Golden. Effective 1 July 2013, Mr Golden will be succeeding the current Chair Leslie F. Seidman.

Mr Golden’s first term as Chair will last until 30 June 2017, where he will be eligible for a second term lasting three years.

Mr Golden was a partner in Deloitte & Touche LLP prior to joining the FASB as a senior technical advisor in 2004. In July 2007, he was appointed director of technical application and implementation activities for the FASB. From 2008 to September 2010, he was the technical director of the FASB and chaired the FASB’s Emerging Issues Task Force. Since September 2010, Mr Golden has served as a FASB board member.

A press release on this announcement is available on the FAF website.

In a conference call held soon after the announcement, Mr Golden commented that his initial priorities will be completion of the four MOU projects with the IASB (financial instruments, revenue recognition, leases and insurance), and a focus on improving accounting for United States private companies.

In discussing convergence of accounting standards, Mr Golden noted the importance of the FASB and IASB remaining committed to converged solutions, including in the longer term. He pointed out that significant progress had been made in many areas over a number of years, notwithstanding a recent focus on differences in the IASB and FASB's proposals on financial instruments impairment.

Mr Golden further commented:

I believe convergence is extremely important, and I've been working on it here as a member of the FASB staff and a member of the FASB board. I'm looking forward to working with the IASB to try to arrive at improved converged conclusions. I think the fact that the FASB was invited to join the Accounting Standards Advisory Forum is a good thing. I think that participating in this is consistent with the FASB's long-term objective of promoting greater convergence in financial accounting standards, with the ultimate goal of achieving agreement and acceptance of those standards across the globe.

In response to a question about potential conflicts between globally converged outcomes and local constituent needs, Mr Golden stressed that "every attempt" should be made to develop converged solutions, but concluded "while it's important to consider convergence, what is most important in my mind is that we are developing improved solutions for our various stakeholders".

We are grateful to the United States Financial Accounting Foundation (FAF) for permission to post information from the FASB – New FASB Chair conference call.

Summary of the April 2013 Trustees' meeting

23 Apr 2013

The IFRS Foundation Trustees' have announced the summary of the conclusions for their meeting held in London on 9-11 April 2013.

The summary of the meeting includes the following reports:

 

Report of the Trustees’ Executive session

  • First meeting of the newly-formed Accounting Standards Advisory Forum (ASAF)
    The Trustees were encouraged that the meeting had gone well, with a high quality level of debate.
  • Funding of the IFRS Foundation
    The Trustees discussed various different approaches to putting in place a more longer-term funding arrangement.
  • Recent developments in both the United States and Japan
    The Trustees noted the need to ensure that the question regarding a decision on domestic use in the US remains as an item on the SEC’s work programme. Developments in Japan seemed to indicate to the Trustees a speeding up in a positive way of the Japanese consideration of the adoption of IFRSs.
  • Nominations
    The Trustees agreed to extend for a period of 9 months (with an option to extend to up to one year) the term of Tsuguoki (Aki) Fujinuma as Vice-Chairman of the Trustees.
  • Education and content services
    The Trustees reviewed progress toward the development of an eIFRS 'app', subject to successful user testing.
  • Constitution review
    Staff will begin preparations to complete the next review of the Constitution by 2015.
  • Research programme
    The Trustees discussed plans to develop a research capability.

 

Meeting with the Monitoring Board

  • Report of the Chairman of the IASB
    Hans Hoogervorst, Chairman of the IASB, provided the Trustees and the Monitoring Board with an update on the IASB’s activities including international engagement, progress on the four major outstanding convergence projects, and work on the conceptual framework project.
  • Report of the Chairman of the Due Process Oversight Committee
    Scott Evans, Chairman of the Due Process Oversight Committee (DPOC) reported on the recent activities of the DPOC. Major projects are the revision of the Due Process Handbook including the development of a Due Process Protocol.
  • Regional outreach activity
    As part of the Trustees’ meeting, the IFRS Foundation hosted a joint event with the Institute of Chartered Accountants in England and Wales (ICAEW) at which the Trustees and the leadership of the IASB met with representatives of key stakeholders to discuss issues under the theme The relationship between financial reporting and long-term investing.

The full summary of conclusion of the IFRS Foundation Trustees' meeting is available on the IASB website.

Summary of the April 2013 DPOC meeting

23 Apr 2013

The IASB has posted a summary of the 10 April 2013 Due Process Oversight Committee (DPOC) meeting that was held in London during the Trustees’ meeting.

Topics discussed during the DPOC meeting were:

  1. Update on technical activities — Updates were given on the progress of the major projects on the IASB’s work plan. Regarding insurance contracts, the DPOC affirmed its view that the IASB had met all the required due process steps for its upcoming exposure draft to be issued in the first half of 2013. Other major projects discussed were impairments, classification and measurement, leases and revenue recognition.

    In addition, the DPOC received updates on newer projects to the agenda, in particular, the conceptual framework project which the Accounting Standards Advisory Forum discussed during its 8-9 April 2013 meeting and will serve as the consultative group. Other newer projects to the agenda discussed were rate-regulated activities, bearer plants, and the research programme.

  2. Due process ‘lifecycle’ review of upcoming hedge accounting guidance — a summary was given of the due process steps taken since 2008 on the hedge accounting project. The DPOC noted that it was satisfied with due process steps the IASB has completed, but will need to consider the decision made during the IASB’s April 2013 meeting before the IASB can proceed with the Ballot Draft of a new IFRS 9.
  3. Progress on post-implementation review (PIR) of IFRS 8 — the DPOC reviewed the draft agenda papers on PIR that are to be used during discussions at the IASB April 2013 meeting. Topics reviewed were (1) sources of input to the IFRS 8 PIR, due process and next steps, (2) messages received and feedback summary, and (3) lessons learned about the PIR process.
  4. Update on consultative groups — the DPOC reviewed (1) the IASB’s proposed composition of a new rate-regulated activities consultative group and (2) proposed change in membership to the financial instruments consultative group. The DPOC also agreed on a proposal to have a DPOC member observe (in person) a meeting of the major groups once a year and submit a report back to the Committee on the attendance and quality.
  5. Update on operations
  6. Review of correspondence — No new correspondence cases were submitted since the Committee’s previous meeting in January 2013.
  7. Any other business

The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB website.

New issue of the European Conceptual Framework newsletter

23 Apr 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), the Accounting Standards Committee of Germany (ASCG), the Organismo Italiano di Contabilità (OIC) and the UK Financial Reporting Council (FRC) have published the third issue of their new newsletter ‘Keep up with getting a better framework’ informing European constituents on the latest developments regarding the progress of the Conceptual Framework project with the IASB and other stakeholders.

The third issue of the newsletter summarises and comments on the tentative decisions reached at the March 2013 IASB meeting regarding the content of the forthcoming Discussion Paper. In addition, the newsletter summarises some initial views expressed by National Standard Setters in the EFRAG CFSS meeting of 3 April 2013, which was devoted to the preparation of the first meeting of the IFRS Accounting Standards Advisory Forum (ASAF) where the conceptual framework was the dominating topic.

Conceptual framework topics discussed in this issue of the newsletter are:

  • the scope of the project,
  • definition and recognition of elements,
  • measurement,
  • development and content of the Discussion Papern and
  • debt/equity.

The joint European strategy on the conceptual framework includes issuing specific newsletters as new developments become available issuing bulletin reports on specific issues during the course of the project in an effort to stimulate debate that may be used in discussions with the IASB.

The new issue of the newsletter is available on the EFRAG website.

IASB issues reporting back documents on insurance contracts (ED)

22 Apr 2013

The International Accounting Standards Board (IASB) has issued two ‘reporting back’ documents relating to its exposure draft on insurance contracts. The documents are working drafts prepared by the IASB staff which contains modifications from tentative decisions reached by the IASB during its meetings on insurance contracts.

Issued July 2010, the exposure draft on insurance contracts provides guidance on a comprehensive framework, removes issues with existing practices (IFRS 4), and provides comparability across various markets.

The ‘reporting back’ documents cover the following proposals:

  • Contracts with cash flows that vary with the returns on underlying items (including ‘participating’, ‘universal life’, ‘with profits’ and ‘unit-linked’ contracts)
  • Accounting for reinsurance contracts

The ‘reporting back’ documents, along with other resources related to the exposure draft, are available on the IASB website.

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Full text of the final compromise on the Accounting Directive available

22 Apr 2013

On 9 April 2013, the European Council, Parliament and Commission informally agreed on the finalisation of a new Accounting Directive that aims at reducing the administrative burden of accounting and at enhanced transparency in the extractive industry. The full text of the final compromise on the Accounting Directive has now been made available.

The text agreed on at the beginning of April and made available now has been submitted to the Committee of Permanent Representatives (Comité des représentants permanents, COREPER) which has to agree to it.

The proposal aims at reducing the administrative burden on small companies in particular, increasing the clarity and comparability of financial statements and enhancing the transparency of payments to governments by the extractive industry and loggers of primary forest. Mandatory country-by-country is in fact one of the major changes introduced into the new Accounting Directive.

Subject to no further changes and legal-linguistic verification of all the language versions by Legal-linguists of European Parliament and European Council, the new Directive could be published in the Official Journal in June or July 2013. Member States will then be given two years to implement the Directive in national law.

The full text of the agreed compromise is available through the public register of Council documents.

Denmark replaces existing accounting standards for SMEs with one single standard

22 Apr 2013

In an effort to modernise accounting for small and medium-sized entities (SMEs) and to inspire the preparation of informative and relevant financial statements, the Accounting Technical Committee of FSR – Danske Revisorer (FSR – Danish Auditors) has published a new accounting standard replacing existing guidelines scattered so far through a number of standards.

Until now, the FSR offered two sets of non-mandatory guidelines for the so-called class B and class C companies. They had the option of following either the accounting standard for small companies issued by the FSR in 2007 (class B companies) or the suite of Danish Accounting Standards number 1-22 (class B and C companies) if they did not choose to follow the Danish Financial Statements Act alone. The Danish Accounting Standards were based on International Accounting Standards (IAS) but were not updated since 2002 because the application of IFRSs became mandatory for listed companies in Europe in 2005. The accounting standard for small companies was again based on the Danish Accounting Standards but adapted to SMEs’ needs.

Apart from complying with the Danish Financial Statements Act, which is based on the 4th and 7th EU Accounting Directives, following a certain (set of) accounting standard(s) has not been mandatory for B and C class companies and continues to be voluntary. The new, single standard issued in mid-April is an updated version of the old standard for class B companies expanded to now also include class C companies. It embodies also some current accounting thinking for smaller entities as for example reflected in the IFRS for SMEs. It is to be understood as accounting guidance for issues not covered by or explained in detail in the Act and as inspiration for preparing good informative financial statements.

Going forward, B and C class companies have the following options:

  • drawing up their financial statements based on the Danish Financial Statements Act alone
  • drawing up their financial statements based on the Danish Financial Statements Act but also applying the new accounting standard for class B and C companies to ensure informative and relevant financial reporting
  • following full IFRSs.

The accounting standard for small companies issued in 2007 and the suite of Danish Accounting Standards number 1-22 have been withdrawn.

Listed companies (class D companies) are not affected by this change. They will continue to apply full IFRS as adopted for use in the EU, as is required for all listed companies in Europe.

The new accounting standard comes into force with financial statements for reporting periods beginning on or after 1 January 2013. Early application is permitted.

The accounting landscape for SMEs in Europe is currently undergoing some change. Only recently, the UK FRC issued FRS 102 replacing local GAAP with a new standard based on the IFRS for SMEs. The European Union is currently revising the Accounting Directives in an effort to simplify and unify accounting requirements for SMEs, and so-called micro entities in particular. As reported before, agreement on the revision of the Accounting Directives has just been reached although details of the changes have not been communicated yet. In connection with the revision of the Accounting Directives there had also been calls to allow the application of the IFRS for SMEs in member states that choose to do so; however, as the IFRS for SMEs conflicts with certain provisions of the 7th Accounting Directive, this has not come to pass.

Please click for further information on the FSR website (Danish language only):

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