May

May 2013 IASB meeting notes — Part 4 (Final)

27 May 2013

The IASB's meeting was held in London on 21-24 May 2013. We have posted the final Deloitte observer notes from Friday's session on limited amendments to IFRS 9, where the IASB and FASB discussed feedback received by the IASB on its exposure draft ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9'.

Click through for direct access to the notes:

Friday, 24 May 2013

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

EFRAG does not support interim standard on rate regulation

25 May 2013

The European Financial Reporting Advisory Group Technical Expert Group (EFRAG TEG) has published a draft comment letter on the IASB's exposure draft ED/2013/5 'Regulatory Deferral Accounts'. In the proposed comment letter the EFRAG makes clear that it does not agree with the pursuance of this interim project.

The draft comment letter on the Exposure Draft (ED), which was published by the IASB on 25 April 2013, states:

 

EFRAG does not support the ED because:
  • It results in a lack of comparability between (a) entities that take advantage of the ED and (b) entities that already apply IFRS or do not wish to apply the ED; and
  • It is not limited to facilitating first-time adoption but maintains previous accounting policies for an indefinite period. Other interim standards such as IFRS 4 and IFRS 6 have shown that there was no such thing as a short-term interim standard.

Nevertheless, the EFRAG has also analysed the proposed standard in order to support the IASB in its efforts and has found cross-cutting measurement issues with IFRS 3, IFRS 9 and IAS 39, IAS 12, IAS 28, and IAS 36. The EFRAG also found presentation issues in connection with IFRS 10, IAS 1, and IAS 8. Furthermore, certain difficulties that application of the proposals may raise were identified.

Please click for access to the draft comment letter on the EFRAG website.

EFRAG is seeking for comments on the letter by 21 August 2013.

May 2013 IASB meeting notes — Part 3

24 May 2013

The IASB's meeting was held in London on 21-24 May 2013. We have posted Deloitte observer notes from Wednesday's session on novation of derivatives and continuation of hedge accounting (IAS 39); Thursday's sessions on macro hedge accounting and revenue recognition; and Friday's joint IASB/FASB session on revenue recognition.

EFRAG Rate Regulated Activities Working Group composition announced

24 May 2013

The European Financial Reporting Advisory Group Technical Expert Group (EFRAG TEG) in its May meeting has approved the composition and chairman for the EFRAG Rate Regulated Activities Working Group. The working group was created to advise and provide input on rate-regulated activities and its application within Europe to the EFRAG TEG and the EFRAG Consultative Forum of Standard Setters.

The composition of the working group contains a balance of different backgrounds and geographical origins and is chaired by Bill Hicks of the EFRAG TEG. The composition is as follows:

Member

Title

Bill Hicks (Chairman)

EFRAG TEG member

Anne Azzola

French, Morgan Stanley in the UK

Nicola Bruno

Atlantia SpA, Italy

Jeanette Calleja Borg

Water Services Corporation, Malta

Emmanuel Fraser

National Grid plc, UK

Cosimo Guarini

Terna Spa, Italy

Lieve Kerckhof

Elia System Operator NV, Belgium

Katja van der Kuij

Dutch, KPMG in the UK

Laura López Sotomayor

Ferrovial SA, Spain

Markus Lotz

50Hertz Transmission GmbH, Germany

Pascale Mourvillier

GDF Suez, France

Javier Parada

Deloitte, Spain

Javier Pastor Zuazaga

IBERDROLA SA, Spain

Thomas Possert

Energie Steiermark AG, Austria

Michael Reuther

PwC, Germany

Gerard van Santen

Ernst & Young, Netherlands

Per Timmermann

PwC, Denmark

Magali Viandier

EDF, France

Thomas Carlier (Correspondence member)

Deloitte, Belgium

Christophe Patrier (Correspondence member)

Deloitte, France

European Commission (Observer)

 

A press release is available on the EFRAG website.

Non-financial reporting will actively contribute to a new, more responsible corporate world, says Barnier

24 May 2013

The European Commissioner for Internal Market and Services, Michel Barnier, spoke at the Global conference on sustainability and reporting in Amsterdam which also saw the launch of the new G4 guidelines developed by the Global Reporting Initiative (GRI). Barnier highlighted the measures taken by the Commission to promote long-termism in the corporate sector which also include a recent proposal on non-financial reporting.

Barnier started out by drawing a very bleak picture of the current situation with Europe still recovering from the worst crisis in 50 years, a crisis which spread from the financial sector to the every-day life of many citizens and companies. And he made out one key reason why Europe (and the world in general) ended up in the current situation: "short-termism that has dominated the corporate sector for too long".

Restoring the soundness of the financial sector is of course an immediate goal and has been tackled through various measures following recommendations of the G20, which also include reiterated calls on the IASB and FASB to finalise their work on key outstanding projects for achieving a single set of high-quality standards. However, as Barnier points out, if the soundness is to be sustainable, the short-termism dominating the corporate sector needs to be eliminated. Ageing challenge and climate change are very long-term problems; arriving at gender, geographical, educational, professional and age diversity in companies and meeting obligations towards employees, consumers, local communities and public authorities are goals we want to permanently achieve.

For Barnier there is only one way this can be brought about: creating transparency about all these issues. Therefore, so Barnier, Europe has taken a series of measures:

  • In April 2013, the European Commission published proposed amendments to European accounting legislation in order to require certain large companies to provide additional information on social and environmental matters.
  • Also in April 2013, the European Council, Parliament and Commission agreed on the finalisation of a new Accounting Directive that includes new requirements regarding an enhanced transparency in the extractive and logging industries. 
  • Commissioner Barnier also announced that the Commission will expand the reporting obligations that banks must comply with to disclose their profits, taxes and subsidies in each country to all large companies and groups.

Barnier also responded to criticism that Europe should have waited with these initiatives, which will involve costs and efforts, until the economic crisis was over and his response was "But I say: Transparency is part of the solution, not the problem!" However, he stated that while the proposals regarding transparency as well as social and environmental responsibility and the new reporting requirements on banks and extractive and logging industries were the right way to progress, the European Commission will continue to pay attention to not overburdening companies – in particular small and medium businesses – with unreasonable requirements. He concluded:

This is how we will make good practice the norm. And this is how non-financial reporting will actively contribute to the new, more responsible corporate world we need to build together.

Please click for access to the full text of the speech on the European Commission website.

GRI updates sustainability reporting guidance

24 May 2013

The Global Reporting Initiative (GRI) has released the fourth major revision of its Sustainability Reporting Guidelines, dubbed 'G4'. The GRI's guidelines are widely used in preparing sustainability reports and are designed to provide a standardised approach to reporting on economic, environmental, social and governance (ESG) performance. The revised guidelines are intended to be easier to use, place a greater emphasis on materiality in sustainability reporting, and include new and updated disclosures in various areas, including governance, ethics and integrity, supply chain, anti-corruption and greenhouse gas (GHG) emissions.

The G4 guidelines are presented in two parts:

  • Reporting principles and standard disclosures - this includes the criteria to be applied when preparing sustainability reports in accordance with the guidelines, the reporting principles underlying sustainability reports (in terms of content and quality), and the standard general and specific disclosures required
  • An implementation manual - providing further explanation on how to apply the reporting principles and prepare the standard disclosures.

The table below provides an overview of the G4:

 

Reporting principles

Principles for defining report content

  • Stakeholder inclusiveness
  • Sustainability context
  • Materiality
  • Completeness

Principles for defining report quality

  • Balance
  • Comparability
  • Accuracy
  • Timeliness
  • Clarity
  • Reliability
Standard disclosures

General standard disclosures

  • Strategy and analysis
  • Organisation profile
  • Identified material aspects and boundaries
  • Stakeholder engagement
  • Report profile
  • Governance
  • Ethics and integrity
  • General standard disclosures for sectors (if available)

Specified standard disclosures

  • Disclosures on management approach
  • Aspects, by category:
    • Economic - economic performance, market presence, indirect economic impacts, procurement practices
    • Environmental - materials, energy, water, biodiversity, emissions, effluents and waste, products and services, compliance, transport, overall, supplier environment assessment, environmental grievance mechanisms
    • Social - labour practices and decent work, human rights, society, product responsibility (with additional indicators for each)
  • Specified standard disclosures for sectors (if available)

The Guidelines offer two options on how to prepare a sustainability report ‘in accordance’ with G4:

  • 'core' - essential elements providing a background for sustainability reporting
  • 'comprehensive' - requiring additional standard disclosures around strategy and analysis, governance, ethics and integrity, and more comprehensively communicate performance.

Reports prepared 'in accordance' with G4 are also required to include a 'GRI Content Index' which effectively cross references disclosures made to the individual report elements required by G4. The GRI also requests organisations using the guidelines to notify GRI upon release of the report if they are 'in accordance' with the guidelines or contain the standard disclosures but have not fulfilled the other requirements meet the 'core' or 'comprehensive' classifications.

In terms of materiality, the guidelines outline the principle that an entity should report on items from the list of subjects covered by the guidelines (called 'Aspects') that reflect an organisation's significant economic, environmental or social impacts or which substantially influence the assessments and decisions of stakeholders. Materiality is considered the "threshold at which Aspects become sufficiently important that they should be reported". The Implementation Manual provides additional guidance on applying the principle, including, among other aspects, a focus wider than only on the financial condition of an organisation, consideration of internal and external factors, alignment with established methodologies and concerns for expert communities, and focusing on those areas requiring active management or engagement by the organisation. A series of 'tests' are also provided.

G4 also provides guidance on how to present sustainability disclosures in different reporting formats, such as standalone sustainability reports, integrated reports, annual reports, and online reporting. There is also an emphasis on harmonisation with other important global frameworks, and the guidelines outline 'links' to including the United Nations (UN) Global Compact Principles, the UN ‘Guiding Principles on Business and Human Rights’, and the OECD Guidelines for Multinational Enterprises. It also considers the relationship between integrated reporting and sustainability reporting, noting:

Although the objectives of sustainability reporting and integrated reporting may be different, sustainability reporting is an intrinsic element of integrated reporting. Sustainability reporting considers the relevance of sustainability to an organization and also addresses sustainability priorities and key topics, focusing on the impact of sustainability trends, risks and opportunities on the long term prospects and financial performance of the organization. Sustainability reporting is fundamental to an organization’s integrated thinking and reporting process in providing input into the organization’s identification of its material issues, its strategic objectives, and the assessment of its ability to achieve those objectives and create value over time.

Organisations reporting using the GRI guidelines can continue to use the previous guidelines ('G3' and 'G3.1') until they transition to the G4 guidelines. However, GRI is expecting all entities to complete the transition to G4 in reports published after 31 December 2015.

Click for press release on the launch - the G4 guidelines can be downloaded here (both links to GRI website).

May 2013 IASB meeting notes — Part 2

23 May 2013

The IASB's meeting is being held in London on 21-24 May 2013. We have posted Deloitte observer notes from Wednesday's sessions on mandatory purchases of NCI (IFRS 3), interim financial report (IAS 34), contingent consideration (IFRS 3), valuation of biological assets (IAS 41/IFRS 13), equity method in separate financial statements (IAS 27), and conceptual framework.

IFRS Foundation Annual Report 2012

23 May 2013

The IFRS Foundation (IFRSF) under which the IASB operates has published its Annual Report for 2012. The report is split into three sections: IFRS Foundation, Standard-setting activities, and Financials.

In his "Report of the Chairman of the IFRS Foundation Trustees" Michel Prada describes the organisation in two chapters. The first chapter depicted by the developments and accomplishments between 2001 to 2011 and chapter two, which began in 2012, “will be characterised by consolidating and building on the successes of the first chapter.” Additionally, for 2013, the report states the following three priorities for the IFRSF:

First, we will work to ensure that the initiatives resulting from the strategy and governance reviews are fully bedded in. Second, we will work in close co-operation with the Monitoring Board and others to further develop the long-term funding arrangements for the organisation. Third, we will undertake several initiatives to encourage the adoption and consistent application of IFRS globally. These include the development of country and jurisdictional profiles on the use of IFRS, which are to be published and maintained on the IFRS website.

In his “Report of the Chairman of the IASB” Hans Hoogervorst describes various standard setting projects, including the convergence project with the FASB (revenue recognition, financial instruments, and leases) and conceptual framework. Regarding the convergence project, Chairman Hoogervorst states:

The decade-long convergence programme has been quite an achievement. While full convergence has not been possible in all areas, our work with the FASB has harmonised and improved financial reporting requirements globally. It is a credit to both boards that we have been able to achieve so much coming from, in many cases, very different starting points.

The full report which contains additional statements from the Monitoring Board, Due Process Oversight Committee, IFRS Interpretation Committee, and Advisory Council, as well as audited financial statements is available on the IASB's website.

IASB Senior Director of Technical Activities appointed as Board member

23 May 2013

The Trustees of the IFRS Foundation have announced the appointment of Sue Lloyd as IASB member beginning 1 January 2014. She replaces Prabhakar Kalavacherla (PK) who will retire from the IASB on 31 December 2013 after having served a full, five-year term.

Ms Lloyd is a Senior Director of Technical Activities at the IASB and currently responsible for leading the technical staff in the development of new International Financial Reporting Standards (IFRSs).

Ms Lloyd is originally from New Zealand and a former member of the Australian Accounting Standards Board. Before joining the IASB's staff as Director of Capital Markets, with responsibility for the IASB’s work to reform the accounting for financial instruments, she held various senior positions within the banking sector in the United Kingdom and in Australasia.

For more information and comments on the appointment by the Chairman of the Trustees’ Nominating Committee, the IASB Chairman, and Ms Lloyd herself please see the press release on the IASB website.

Outcomes from United States review of business combination accounting

23 May 2013

The United States Financial Accounting Foundation (FAF) has announced the completion of its post-implementation review of FASB Statement No. 141 (revised 2007), 'Business Combinations' (Statement 141R). The review found that Statement 141R resolved some of the issues associated with the purchase method of accounting for business combinations, that its principles and requirements generally are understandable and can be applied as intended, and that investors generally find the resulting information to be useful. However, the review also noted a number of other issues and makes a number of recommendations for improvements to FASB's standard-setting process.

Statement 141R, codified in United States Accounting Standards Codification Topic 805, Business Combinations, was issued in 2007 as a result of a joint IASB-FASB project and is largely consistent with IFRS 3 Business Combinations published by the International Accounting Standards Board (IASB) in January 2008. The Statement introduced a number of changes designed to improve the accounting for business combinations, focusing on the recognition of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, at their fair values at acquisition date (subject to some exceptions).

The FAF post-implementation review was undertaken by a review team whose procedures included reviewing the FASB’s historical files, conducting stakeholder surveys and questionnaires, interviewing stakeholders, reviewing academic publications, and reviewing disclosures and other public information of selected public companies. Accordingly, the conclusions of the review were based on consideration of the input received from a broad range of constituents, including investors preparers, auditors, academics, and financial regulators.

The review sought to evaluate whether Statement 141R is accomplishing its stated objectives of improving the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. It also considered the implementation and continuing compliance costs and related benefits of Statement 141R, and is designed to provide feedback on improving the standard setting process.

Although the review found Statement 141R resolved some practice issues, that its principles and requirements are understandable and generally can be applied as intended, and achieved improvements in the relevance and completeness of business combination information, a number of additional findings were also noted:

  • Some practice issues remain unresolved, including identifying when a new basis of accounting is appropriate and accounting for combinations between joint ventures and organisations under common control. Stakeholders participating in the review indicated guidance in these areas is still needed
  • Although Statement 141R is converged with IFRS 3 in many areas, some substantive differences remain between their requirements
  • Some stakeholders, particularly preparers for medium to small organisations, had difficulty applying Statement 141R in the areas of measuring the fair value of assets acquired and liabilities assumed, measuring the fair value of contingent consideration, and determining whether a transaction is a business combination or an asset purchase (the latter issue also recently considered under IFRS by the IFRS Interpretations Committee)
  • Some review participants question the reliability or decision usefulness of the reported information for business combinations that include assets and liabilities that are difficult to measure at fair value, result in a bargain purchase gain, or in substance may be asset purchases
  • The costs and complexity of applying Statement 141R are higher than the FASB anticipated, particularly due to costs of determining measurements required by the standard
  • Improvements in the area of comparability, reliability, and representational faithfulness of business combination information were not fully achieved in large part because of the questions about the reliability of fair value measurement requirements.

The review's recommendations on improving the FASB's standard-setting process included:

  • The process for identifying, prioritising, tracking, and resolving significant financial reporting issues should be enhanced and formalised, and issues subject to regular reporting and updates
  • The decision making around the need for a project or resuming a deferred project should be clearly identified and documented
  • Key research (such as field work and reviewing academic studies) should be consistently conducted as early as possible in the agenda-setting and deliberation phases of a project, and research and economic principles relied upon fully identified in a standard's basis for conclusions.

The IASB also has a post-implementation review of IFRS 3 on its active agenda, with formal launch of the project expected in the second or third quarter of 2013.

The FAF has also announced commencement of a post-implementation review of FASB Statement No. 157, Fair Value Measurements (FAS 157), and has launched a survey to solicit constituent feedback on this standard.

Click for FAF press release (link to FAF website).

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