G8 stress the need for transparency in the use of natural resources

19 Jun 2013

Meeting in Lough Erne in Northern Ireland on 17-18 June 2013, the Group of Eight (G8) finance ministers discussed the themes of 'Tax, Trade and Transparency' and agreed to make sure the world’s poorest people benefit from the natural resources of their various countries by improving the transparency of their extractive industries and land rights.

The final communiqué promotes transparency as a means of empowering people to hold governments and companies to account and states:

We have agreed a transformative Open Data Charter to make budget data and other government information public in an easily accessible way. We will make progress towards common global reporting standards to make extractive industry payments more transparent.

The Open Data Charter published as an appendix to the communiqué explains:

Open data can increase transparency about what government and business are doing. Open data also increase awareness about how countries’ natural resources are used, how extractives revenues are spent, and how land is transacted and managed. All of which promotes accountability and good governance, enhances public debate, and helps to combat corruption. Transparent data on G8 development assistance are also essential for accountability.

Improved transparency in the extractive industries and country-by-country reporting have also been the focus recent of legislative acts and announcements.

The European Parliament has voted last week to approve the new Accounting and Transparency Directives responding to international developments in this field, in particular the inclusion of a requirement to report payments to governments in the Dodd Frank Act in the United States. (However, the EU disclosure requirements are more comprehensive including also the logging industry and large unlisted companies.)

Last week, Canadian Prime Minister Stephen Harper announced on his website that the Canadian government will be establishing new mandatory reporting standards for Canadian mining companies to enhance the transparency of the payments they make to local, state and national governments. His website also contains an announcement of the formation of partnerships with Peru and Tanzania to further strengthen transparency in their extractive industries. (Similar partnerships were formed at the G8 summit between Burkina Faso and France, Colombia and the EU, Ghana and the United Kingdom, Guinea and the United States, Mongolia and Germany as well as Myanmar and the United States.

Please click for further information on the UK G8 Presidency website:

"One size does NOT fit all"

18 Jun 2013

On 13 June, the Accounting Standards Committee of Germany (ASCG) celebrated its 15th anniversary. It did so with a symposium entitled ‘National standard-setting in the national, European and international context’ which saw a presentation by Prof. Dr. Christian Leuz of the University of Chicago Booth School of Business, followed by a round of questions and answers and a panel discussion with IASB chairman Hans Hoogervorst and the chairmen of the national standard-setters of France, Italy and the United Kingdom: Jérôme Haas, Angelo Casò and Roger Marshall. The discussion was moderated by the president of the ASCG, Dr. Liesel Knorr.



Professor Leuz discussed the challenges for standard setting and the global convergence in financial reporting. He focused on two questions in particular: first, the extent to which there is evidence of convergence and second, whether IFRS adoption brought the desired effect. He introduced the audience to research he had conducted in the field which showed that even the question of whether IFRS adoption brought global convergence and had the desired effects cannot be answered easily. IFRSs were originally developed from an Anglo-American viewpoint and were thus made to fit an Anglo-American historical and legal context. (Hans Hoogervorst later picked up this point in the panel discussion and pointed out that the IASB has since become much more multinational. The latest move in that direction was the creation of the Accounting Standards Advisory Forum (ASAF), a body of 12 standard-setters from all over the world).

Thus, Professor Leuz argued, the approach pursued seemed to assert that once the product (i.e., the standards) had been sufficiently refined it would fit all jurisdictions and purposes. However, Professor Leuz hinted at differences in history, in the legal context, and even in ways of thinking. (Later in the question and answer session the buzz word of “culture” was brought up.) So Professor Leuz pointed out that even though the same standards might be adopted across many jurisdictions, this would by no means allow for the conclusion that reporting practices in these jurisdictions converged. On the contrary, application of the very same standards might actually lead to very different results, as they might not fit a jurisdiction-historical or legal context or they might not fit easily into the local way of thinking about accounting, which is generally driven by the local way of doing business and contracting. He concluded: “One size does not fit all.”

Professor Leuz also looked at the promise that IFRSs would bring more easy access to capital markets and an enhanced means of financing. Research conducted in this area showed that the results differed vastly and more often than not showed no changes. He explained that the effect of an IFRS adoption was difficult to isolate, as the adoption rarely occurred as an isolated event. Usually, jurisdictions would also introduce other measures, such as enhanced transparency requirements or an effective enforcement mechanism. His research suggests that, it is not so much IFRS adoption, but concurrent changes in financial reporting enforcement that played a crucial role for the observed capital-market effects around IFRS adoption.

Similarly, when looking at voluntary IFRS adoptions around the world, not all firms appear to see benefits. Primarily those firms that adopt IFRS because they have strong incentives to be transparent and to communicate with the capital markets appear to benefit.

Based on this research Professor Leuz came to suggest an interesting approach: Would it not, he asked, be an idea to achieve greater convergence by not trying to adopt IFRSs across all jurisdictions and all companies in that jurisdiction but rather to apply IFRSs only to those companies that demonstrably would benefit from an adoption? Greater convergence, he claimed, could much more easily be achieved if one concentrated on large, internationally-oriented companies that want to and need to operate in an international context anyway. A U.S. multinational has much more in common with, for example, a European multinational than with some small listed company deep in the heart of mainland America. Instead of trying to make one size fit all, he concluded, convergence might prove much more successful when keeping the size one is trying to fit something to in mind.


Panel discussion

In the panel discussion this point was quickly picked up as well. The chairmen of the large European standard-setters described how they had experienced the adoption of IFRSs in Europe and in their jurisdictions. One point was whether IFRSs should completely replace local GAAP at some point of time (Italy requires IFRSs also for separate and individual financial statements, the UK has recently introduced FRS 102, a standard that is based on the IFRS for SMEs), or whether it could, in fact, do so given the differences in culture and history. A point was made that adoption of IFRSs in some of the major economies not yet on IFRSs (e.g. India, Japan, and the U.S.) might actually be held back with reference to the fact that the one-size-fits-all approach did not work well in some of the major economies that did chose it. When asked directly, Hans Hoogervorst conceded that he did not expect the United States to adopt IFRSs for all entities. His expectations were, he said, that the Unites States would make IFRSs an option for large, internationally-oriented companies – in this regard he picked up the suggestion that Professor Leuz had made at the end of his presentation.

The idea of one-size-does-not-fit-all was also taken up when the question of the business model in accounting did come up. The president of the French standard-setter argued that the business model needed to play a bigger role and would need to be incorporated into standard-setting, beginning with a definition of the business model. The IASB chairman countered this by pointing out that the business model does already play an important role in standard-setting. He pointed at IFRS 9 where different business models were already considered and led to different accounting treatments within the same standard. Thus, the business model was already considered – it was just not called a “business model”. However, all parties agreed that defining a business model, considering how many business models a company might reasonably have etc. was a difficult task, and could potentially lead to labeling something a business model that, in essence, would be nothing else than management intent.

The symposium ended with questions from the audience to the panel members and the general feeling that much food for thought had been offered and critical open questions had been pointed at.


Additional information

The ASCG has published on its website notes taken during the symposium and the slides used by Professor Leuz during his presentation (both documents available in German only).

Telcommunications sector survey on revenue recognition

18 Jun 2013

A survey of telecommunications operators has shown a wide variation of readiness for the forthcoming standard on revenue, and revealed a number of concerns in relation to its adoption.

The survey, undertaken by Deloitte's Technology, Media and Telecommunications group, gathered the thoughts of over 40 operators in relation to key questions on the understanding of the proposals in the IASB-FASB joint project on revenue recognition, and their concerns from an operational, commercial and accounting methodology perspective.

Key findings from the survey include:

  • The most significant concerns expressed by respondents were meeting the data and information requirements that the proposed accounting will require, closely followed by the impact that this will have on IT systems
  • Concerns also exist over the level of awareness of the proposals amongst the analyst and investor community
  • The implementation of a portfolio approach to revenue recognition is desired but is likely to be very challenging
  • There is a wide variation of readiness and work undertaken to date amongst operators.

Click to access the full survey.

EFRAG field-test results on proposals to IFRS 9

17 Jun 2013

The European Financial Reporting Group (EFRAG) has issued a report containing the results of the field test conducted by the EFRAG and National Standard Setters (NSS) ANC, ASCG, FRC and the OIC, on how the new requirements in IFRS 9, as amended by Exposure Draft (ED) ‘Classification and Measurement: Limited Amendments to IFRS 9’, would affect the current classification and measurement of financial assets.

The focus of the field test was to (1) identify when the application of the new classification and measurement requirements in IFRS 9 would lead to changes in the current measurement of financial assets under IAS 39 and (2) gather facts and objective data from participants rather than views and opinions.

In general, the results of the field test indicated that:

More financial assets would be measured at FV-PL under IFRS 9 because they fail the contractual cash flow characteristics assessment.

Bifurcation of financial assets is currently used only to a limited extent.

Investment strategies and/or the level at which the business model test is performed could change when implementing IFRS 9 to achieve a particular accounting measurement.

The field-test results will be used as input to the European Commission’s endorsement process. Additionally, the EFRAG and NSS will use the feedback received to develop their views on the impacts of the proposals.

More information on the results of the field test are available on the EFRAG website.


Japan's Business Accounting Council continues discussions on IFRS

13 Jun 2013

Japan’s Business Accounting Council (BAC) met on 12 June 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. Although it was previously suggested that this meeting would be the final one to conclude this round of debates, the BAC continued discussions around further details of three specific initiatives to further promote use of IFRSs in Japan. As such, no decisions as to its report were made during the meeting.

The first initiative is easing the eligibility to use of IFRSs voluntarily. The Financial Services Agency (FSA) official presented a summary of views expressed by the BAC member on this initiative and proposed to relax regulations to permit the use of IFRSs by companies that take the step of going public as well as companies that do not own a foreign subsidiary with 20 billion yen or more of the stated capital, while retaining some other criteria such as the one regarding the entity’s readiness to use IFRSs. No critical concern was expressed by the BAC members.

The second initiative is the introduction of a fourth framework of accounting standards (in addition to Japanese GAAP, designated IFRSs, and USGAAP) that are to be developed through a new "endorsement" process. Based on previous debates, the FSA official presented the following principles:

  • The endorsement process (that could result in partial modifications to IFRSs as issued by the IASB) is to be established in addition to the existing designation process (that is generally to ratify IFRSs as issued by the IASB without modifications), for multiple reasons. The endorsed IFRSs are also for voluntary use and will not be mandated.
  • The endorsement process would commence from an initial assessment by the ASBJ, followed by the FSA's ratification.
  • Three criteria are to be considered in endorsing an IFRS, which are 1) conceptual merits, 2) practical burden, 3) coordination with related institutions etc. (eg. when application is difficult or too costly in light of industry regulations). It was also noted that modifications to IFRSs, if any, should be limited to an extent that can be justified reasonably.

Certain BAC members commented on aspects of the FSA's proposal such as the nature of the endorsed IFRSs (eg. whether such is of transitional nature or not), relationship of the designated IFRSs and Japanese GAAP, and the process/criteria of endorsement. Although some advocated that the ultimate state of the accounting standard frameworks in Japan be streamlined, strong oppositions to the proposal were no longer expressed.

On the third initiative of streamlining local disclosure requirements of separate financial statements in accordance with Japanese GAAP, the FSA official articulated the previously presented initiative to replace certain disclosures required under the Financial Instruments and Exchange Act with similar ones under the Companies Act where consolidated financial statements already provide information on a group basis, except for regulated industries for which other industry regulators are to be consulted. Further, a potential need for supplemental disclosure outside of a financial statement is proposed to facilitate usefulness. Compared to previous discussions, concerns by users appear to have been eased to some extent. Other members also commented on technical aspects of the initiative.

In closing the meeting, the chairman of the BAC noted that at the next meeting the BAC would conduct deliberations to finalise this round of debates, based on a summary paper to be provided by the FSA.

Handouts for the meeting are available on the FSA’s website (Japanese only). The next meeting is scheduled for 19 June 2013.

European Parliament approves new Accounting and Transparency Directives

13 Jun 2013

The European Parliament has voted to approve the new Accounting and Transparency Directives. The reform of these Directives was predominently aimed at reducing the administrative burden on small companies, enhancing the transparency of payments to governments by the extractive industry and loggers of primary forest, and creating a mandatory country-by-country reporting requirement.


Accounting Directive

The new Accounting Directive reduces unnecessary and disproportionate administrative costs on small companies by simplifying the preparation of financial statements and reducing the amount of information required by small companies in the notes to financial statements. Under the Directive, small companies are only required to prepare a balance sheet, a profit and loss account and notes to meet regulatory requirements.

When examining the various policy options available to replace the old Accounting Directives, the Commission examined and rejected the option to adopt the IFRS for SMEs at EU level as the Commission deemed that IFRS for SMEs did not meet the objective of reducing the administrative burden. Nevertheless, EU Member States are able to permit or require the IFRS for SMEs as their accounting standard for all or some of their unlisted companies provided that the Directive is fully implemented and the standard, which is partially in conflict with the Accounting Directive, is modified to comply with any accounting requirement of the Directive that departs from the IFRS for SMEs.


Transparency Directive

The revised Transparency Directive closes an existing gap in the notification requirements by requiring disclosure of major holdings of all financial instruments that could be used to acquire economic interest in listed companies. A second major change is the fact that the requirement to publish quarterly financial information was abolished. This aims at reducing the administrative burden and encouraging long term investment.


Country-by-Country reporting

Country-by-country reporting was introduced with the new Accounting Directive. In order to ensure a level playing field between companies, the same disclosure requirement has been incorporated in the proposal to revise the Transparency Directive.

The disclosure requirement will require listed and large non-listed companies with activities in the extractive industry and the logging of primary forests to report any payments made to governments on a country-by-country basis in an effort to improve the transparency. The Commission responded to international developments in this field, in particular the inclusion of a requirement to report payments to governments in the Dodd Frank Act in the United States, but the EU disclosure requirements are more comprehensive including also the logging industry and large unlisted companies.


Further Information

The EU Commissioner for Internal Market and Services, Michel Barnier, published a press release welcoming the European Parliament vote:

Financial reporting obligations have been modernised and costs reduced, in particular for SMEs. With the new rules on country by country reporting, we have created a framework where businesses and governments must disclose revenues from natural resources. This framework will also contribute to the fight against tax fraud and corruption.

Click for (links to European Commission website):

Notes from the IFRS Advisory Council meeting

12 Jun 2013

The IFRS Advisory Council met in London on 10-11 June 2013. We have posted the Deloitte observer notes from the meeting. Topics discussed included the costs and benefits of IFRS adoption, project updates and discussion on various IASB projects, an evaluation of the post-implementation review process, the Accounting Standards Advisory Forum (ASAF), and the role and composition of the IFRS Advisory Council.

Click through for direct access to the notes:

Monday, 10 June 2013

Public sessions (09:15-17:30)

Tuesday, 11 June 2013

Public sessions (09:00-15:00)


Please click to access the preliminary and unofficial notes taken by Deloitte observers during the meeting.

The next council meeting is on 14-15 October 2013 in London.

IASB XBRL team seeks participants for its 2013 XBRL Industry Practice Project

10 Jun 2013

In the last three years, the IASB XBRL team has been interacting with companies from various countries and industries to identify and develop extra concepts to the IFRS taxonomy reflecting common practices. The IASB XBRL team is re-establishing the project to examine and develop common industry practice concepts for the IFRS Taxonomy, and is looking to work directly with stakeholders across different industries and regions in order to increase comparability, reduce the number of XBRL extensions, and lower the burden on preparers. The process will be conducted by a joint programme of empirical analysis and interaction with industry representatives.

For 2013, the project will be focusing to the following industries:

  • pharmaceuticals,
  • real estate,
  • telecommunications; and
  • transport.

The IASB is looking for participation from the following groups:

  • Preparers,
  • Users (Investors and Analysts),
  • Industry groups,
  • Regulators and Supervisors.

Application from all geographical regions is encouraged.

Companies interested in participating in this project should express their interest by 28 June. The first meeting will take place on 8 July.

For further information please go to the press release on the IASB's website.

Agenda for the June 2013 IASB meeting

09 Jun 2013

The IASB is meeting at its offices on 18 and 19 June 2013. Topics to be discussed by the IASB include the comprehensive review of the IFRS for SMEs and the annual improvements (cycles 2010-2012 and 2011-2013). The meeting also includes a joint meeting with the FASB to discuss the IASB's feedback on its proposals for limited scope amendments to IFRS 9 (classification and measurement).

The IASB has also cancelled the education sessions originally scheduled for the previous week.

The full agenda for the meeting, as of 8 June 2013, can be found here. We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

ACCA research shows that investors are concerned about corporate reporting but also think integrated reporting might help

08 Jun 2013

The Association of Chartered Certified Accountants (ACCA) has issued two reports, ‘Understanding investors: directions for corporate reporting’ and ‘Understanding investors: the changing landscape’, which are part of a research series examining what investors want from corporate reporting. The reports reveal that investors have a lower level of confidence when it comes to corporate reports since the global financial crisis. However, they also show that integrated reporting might provide investors with information they are currently looking for elsewhere.

The reports, which surveyed 300 investors, shows that many investors feel too much discretion is given to managers over the financial numbers reported and would rather collect information elsewhere than from a traditional corporate report. Some investors even believe that annual reports do not provide much value. This is reflected in the following results of the report:

  • 69% respondents are more skeptical about company-provided information since the global financial crisis
  • 63% place greater value on information generated outside the company
  • 63% believe management has too much discretion in the numbers it reports

This led Ewan Willars, ACCA director of policy, to note that “[a]ccounting standard setters and regulators should be worried about the high percentage of investors who see no use to annual reports and the distrust of management discretion over company figures.” He also suggested that there might be a need to place more emphasis on external audits.

However, the findings of the reports also show that investors see a responsibility for selective reporting with the companies themselves: 93% of the respondents expressed support for the concept of integrated reporting and believed this could contribute to the usefulness of the information put out by the company. They would, among others, expect the following benefits from integrated reporting:

  • Better ability to understand the long-term outlook of a company
  • Greater information on how long-term risks, such as climate change, will affect the business model
  • Better understanding of all sources of capital, not just financial
  • Greater understanding of key risks and opportunities
  • More robust, less marketing-oriented approach to reporting on non-financial issues
  • More joined-up picture of a company’s prospects

While the reports show that investors are clearly interested in integrated reporting, they also remain wary of the complexity and the fact that sometimes integrated reporting seems to be a goal in itself. The reports state: “It will be important to ensure that developments such as integrated reporting help investors to access the information they need, rather than simply burden them with even more data.”

Please click for (links to ACCA website):

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