A new architecture announced by UN will help business support sustainable development

30 Sep 2013

During the triennial UN Global Compact Leaders Summit, UN Secretary-General Ban Ki-moon discussed sustainability reporting and introduced a new architecture that is "designed to drive and scale up corporate actions to directly advance United Nations goals".

In a speech announcing this new architecture, Secretary-General Ban Ki-moon addressed the more than one thousand business executives in attendance by asking them to do more in regards to sustainable reporting:

Companies that take their responsibilities to people and the planet seriously will increasingly be in the vanguard. That is why the investment community is looking closely at sustainability and factors like environmental stewardship, labour standards, social responsibility and good governance. In short, business can no longer ignore its social and environmental responsibilities. We need it to help build sustainability through the marketplace. Ladies and Gentlemen, your companies have already committed to these principles. Most of you are reporting on your progress. But I want you to go further. First, I want you to see what more you can or should be doing in your own operations and in your relationships with trading partners. Second, I want you to act on your commitment by helping to swell the ranks of the Global Compact so we reach a critical mass. Third, I want you to consider how to use your expertise and resources to help to promote the changes we need for a truly sustainable future. We need you to advance innovations and forge collaborations that can have transformative impacts on some of the toughest issues we face. I am firmly committed to the power of partnerships, working with business and all key stakeholders to make progress on UN objectives.

The UN Secretary General was also joined by Georg Kell, Executive Director of the UN Global Compact (UNGC), Ernst Ligteringen, Chief Executive of Global Reporting Initiative (GRI), and Peter Bakker, President of the World Business Council for Sustainable Development (WBCSD), to "affirm plans for mutual collaboration between the three organizations to support and empower business to take action on sustainable development".

In the GRI press release following this announcement, the organisation noted how this collaboration will occur in the future:

A key factor will be the need for businesses to demonstrate accountability and transparency by publicly disclosing their sustainability impacts, according to widely accepted guidelines. The GRI Guidelines – the most widely used sustainability reporting framework in the world - are an effective tool for businesses to integrate sustainability into their strategies and to regularly assess and articulate their impact on sustainable development.

To achieve alignment with key partners, GRI plans to work with UNGC and WBCSD to develop private sector guidance that will help companies enhance their sustainability management and reporting with a view to global sustainable development goals and targets.

Also at this summit, the Africa Sustainability Barometer was released and highlights the need for greater corporate reporting on issues of sustainability in Africa. The Barometer will be issued annually to gauge the role of sustainable business in Africa as a means to achieve development objectives on that continent.

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EFRAG outreach on Conceptual Framework

30 Sep 2013

EFRAG, the IASB and Dutch Accounting Standards Board (DASB) have announced a joint outreach event on the revision to the Conceptual Framework, to be held in Amsterdam on 30 October 2013. This is part of a series of EFRAG outreach events, being held throughout Europe from October to December 2013, in cooperation with national standard setters and the IASB whenever possible.

The objective of these events is to discuss the proposals in the IASB's July 2013 Discussion Paper, A Review of the Conceptual Framework for Financial Reporting. The feedback received at these outreach events will be used by EFRAG to finalise its comment letter to the IASB on the Conceptual Framework.

Registration for the Amsterdam session is available on the DASB website before 15 October. More information on other dates and locations will be available in due course on the EFRAG website.

Report from recent IFASS meeting released

30 Sep 2013

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in São Paulo on 17‐18 April 2013.

Highlights from the meeting included:

Relationships between the IASB and national standard-setters/regional bodies

  • IASB staff provided background and details of the IASB's Accounting Standards Advisory Forum (ASAF) and discussed the comment letters regarding the proposal to form ASAF, that body's role, structure and size, membership criteria, the selection of members, ASAF's relationship to other bodies, and the memorandum of understanding that appointees are required to sign. Participants were also updated on the results of ASAF's inaugural meeting.
  • Participants discussed the future of IFASS and the character/objectives of its activities. There was a consensus that IFASS should continue to meet twice a year.


International Public Sector Accounting Standards Board (IPSASB) update

The following two key messages were provided:

  • There are huge challenges involved in encouraging decision‐useful information for accountability by governments.
  • Can a global public standard-setter be more effective if it reflects cultural diversity?

Update on the IASB's work plan

Participants were informed about the status of the major projects (revenue recognition, leases, insurance, macro hedging, classification and measurement, impairment, and rate regulation) as well as the progress regarding several (in part new) narrow-scope projects.

Reports from regional groups

Reports were received from the AOSSG, EFRAG, GLASS, and PAFA representatives.

Topical issues

The meeting saw discussions of the following issues:

  • Accounting for investment tax credits,
  • Discount rate in IAS 19,
  • Accounting issues where controlling and controlled entities prepare financial statements under different frameworks,
  • Emissions trading schemes,
  • Goodwill amortisation and impairment,
  • Measurement framework,
  • IFRS for SMEs,
  • Conceptual framework,
  • Role of the business model in financial reporting, and
  • Use of Other Comprehensive Income.

Click for the full report (link to Malaysian Accounting Standards Board website).

Development of endorsed IFRS in Japan

30 Sep 2013

The Accounting Standards Board of Japan (ASBJ) has posted to its website the English language translation of a message from the ASBJ's Chairman Ikuo Nishikawa regarding the 'Development of endorsed IFRS'.

In June 2013, Japan’s Business Accounting Council (BAC) issued its final report on the use of International Financial Reporting Standards (IFRSs) in Japan. The report recommended a number of measures, among them the introduction of 'endorsed IFRSs' with the endorsement process to be conducted by ASBJ.

The Chairman's message offers an overview of the envisaged endorsement process in three broad areas:

  • Recommendations on the IFRS Endorsement Process
  • The ASBJ’s Previous Experiences
  • How to proceed with the Endorsement Process by the ASBJ

Please click for access to the article on the ASBJ's website.

An 'Update on IFRS application in Japan' to be delivered by a representative of the Japanese Financial Services Agency (FSA) is also part of the agenda for the upcoming meeting of the IASB's IFRS Advisory Council - please click for access to the agenda paper for the update on the IASB's website.

Results of outreach meetings with investors and analysts on the proposed accounting by lessees

27 Sep 2013

The IASB staff have published a summary of feedback from investors and analysts on the lessee accounting proposals. The outreach events summarised were held between May and September 2013.

During the outreach events the IASB and the FASB asked investors and analysts three main questions about the proposals in the ED/2013/6 Leases which was published in May 2013:

  • Do leases create assets and liabilities for a lessee and, if so, should they be recognised on a lessee’s balance sheet?
  • What are your views on the proposed changes to a lessee’s income statement?
  • What are your views on the proposed note disclosure package?

On the balance sheet question the credit analysts and analysts consulted within the credit rating agencies generally supported the changes proposed to a lessee’s balance sheet while the views of equity analysts were more mixed.

Regarding the income statement proposals most, but not all, investors and analysts consulted agreed that there are economic differences between most leases of real estate and leases of equipment and vehicles and understand the rationale behind the dual approach proposed. Most of those who supported the balance sheet proposals, and yet disagreed with the dual approach in the income statement, still support the project overall. They are willing to accept the proposals in the income statement to achieve what they consider to be an improvement to financial reporting.

Not all investors and analysts consulted expressed views on the disclosure proposals. Of those who did, there was general support for those proposals. However, some investors and analysts suggested not changing the recognition and measurement of leases at all, but only improving note disclosures.

Please click for access to the full summary on the IASB's website.

A Guide to the IFRS Education Initiative

27 Sep 2013

The IFRS Foundation has published 'A Guide to the IFRS Education Initiative' highlighting the progress made in each of the IFRS Foundation Education Initiative’s main projects.

The main projects of the Education Initiative are:

  • Framework-based teaching - supporting IFRS teachers,
  • IFRS adoption and implementation support,
  • IFRS for SMEs adoption and implementation support, and
  • Investor-focused IFRS education.

These projects are aimed at reinforcing the IFRS Foundation's goal of promoting the adoption and consistent application of IFRS. In fulfilling this objective, the Education Initiative especially takes into account the particular needs of small and medium-sized entities (SMEs) and emerging economies and aims at contributing to the rigour and consistency in which IFRS is applied worldwide by enhancing the understanding of IFRS in the investor community.

Please click for access to A Guide to the IFRS Education Initiative on the IASB's website.

EFRAG draft comment letter on the conceptual framework discussion paper

27 Sep 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Discussion Paper (DP) containing proposals for topical areas where the IASB considers a revision and amendment of the existing Conceptual Framework necessary.

EFRAG agrees with the high priority the IASB has given to this project and appreciates the work that the IASB has done in analysing areas that have proven problematic in the past. While EFRAG supports the practical approach taken in the project aimed at completing the project within a few years, EFRAG does not agree with all of the proposed solutions and thinks that in some cases issues should be addressed on a more conceptual basis.

EFRAG's key comments are:

  • EFRAG disagrees with the decision not to reconsider Chapters 1 and 3 of the existing Conceptual Framework. EFRAG believes that especially the approaches regarding stewardship, reliability and prudence should be opened for discussion again.
  • EFRAG appreciates the IASB’s preliminary view that financial statements can be made more relevant if the IASB considers how an entity conducts its business activities.
  • EFRAG agrees that measurement should be based on how assets contributes to future cash flows and liabilities will be settled or fulfilled.
  • EFRAG also welcomes that the DP addresses the distinction between liabilities and equity but EFRAG does not support all proposals made in this connection.

EFRAG is giving the conceptual framework project a lot of attention and has found several ways of contributing to the discussion and of soliciting constituents views. A publication series has been developed that discusses issues that arise in the course of the IASB's project - so far seven of the Conceptual Framework bulletins have been published, among them bulletins on  accountability, reliability and prudence. EFRAG has also initiated a series of outreach events are being held across Europe to discuss the proposals in the DP.

Please click for access to the following information:

IASB outreach events for conceptual framework - agenda papers available

26 Sep 2013

The International Accounting Standards Board (IASB) will be hosting a series of public outreach events on its 'Conceptual Framework' Discussion Paper. The agenda papers for the round-table events in London have been posted on the IASB website.

The agenda for the meeting includes the following topics, which will be discussed in a similar format to all round table events:

  1. Measurement,
  2. Profit or loss and other comprehensive income, 
  3. Asset and liability definitions, recognition and derecognition, and
  4. General discussion: other areas.

Agenda papers for topics 1. and 3. have been made available already, the other papers will follow soon. All papers will be available through this IASB page.

FASB Board member promotes XBRL: 'It's in your best interest'

25 Sep 2013

Harold Schroeder, a FASB Board member, gave a speech at the XBRL US Conference yesterday in Las Vegas, Nevada. Mr Schroeder focused on the need for structured data and explained the FASB's involvement with the taxonomy.

In his speech, Mr Schroeder often referred to his background as a portfolio manager to emphasise the relevancy and importance of XBRL to investors. He also articulated the tangible benefits of XBRL for investors:

  • reduced cost, thus improving investor returns,
  • increased productivity as a result of faster and better analysis, and
  • increased opportunity for higher returns because more companies can be analysed.

Mr Schroeder acknowledged that data aggregators have been creating their own competing taxonomies for years. However, third-party vendors have limited resources and their data sets frequently contain errors. A standardised taxonomy — where filers tag their own financial statements — reduces the number of errors, especially as time goes on. He noted that preparers also have the benefit of being in control of their financial statements. Mr Schroeder said, 'With structured data, using a standardised taxonomy, the preparer is better able to take control of the data that investors receive'.

Mr Schroeder also discussed why he believes the FASB should be involved in developing and maintaining the taxonomy, saying that the tasks best reside with accounting standard experts. It is a natural fit that the FASB — the US standard setter — would take on the responsibility of the taxonomy.

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The Bruce Column — Conserving the concept of stewardship

25 Sep 2013

Ever since the specific mention of stewardship fell out of the IASB’s work on a conceptual framework, there has been a clamour for its reinstatement. Our regular resident columnist, Robert Bruce takes a look at moves to ensure its return.

The term ‘stewardship’, the International Accounting Standards Board (IASB) told us, does not translate well in languages across the world. So it dropped it from the current version of its conceptual framework. Then the debate started up and it is showing little sign of ceasing. Over and over again at investor forums and similar events it is stewardship to which investors and analysts return.

But there may be an opportunity to reinstate it. The latest bulletin from the main European standard setters, including the UK Financial Reporting Council and EFRAG, is timely and is published as the IASB is consulting on the conceptual framework and is asking in its discussion paper issued in July whether stewardship should be reinstated. The bulletin points out that there is ‘considerable controversy about whether accountability, or stewardship, should also be explicitly included’.  The IASB points out that in the original, pre-2010, framework the word stewardship was not used in describing the objective of general purpose financial reporting, but although the chapter concerned does not use the phrase stewardship, ‘it was not the intention of the IASB to remove the concept of stewardship from the objectives of financial reporting’.

Stewardship is all about directors’ duties and how they discharge them. Current investors are interested in cash, the management of resources and so on. For investors looking to the future it could be seen as less important. But the long-term relies on the current stewards not wrecking and wasting current resources. So ultimately it is equally important for future and current investors.

So the framework needs to stress both ideas, that of holding management to account and producing ‘decision-useful’ information. ‘There is’, as the bulletin points out, ‘a very significant overlap between accountability and decision-usefulness’. That hasn’t stopped some arguing that an accountability objective and decision-usefulness are incompatible.

But if an overlap exists should it be recognised explicitly in the conceptual framework? The final conclusion in the bulletin is a resounding ‘Yes’. ‘EFRAG and the FRC believe the provision of information on accountability/stewardship is a primary objective of financial reporting’, it says, ‘not merely a part of or ancillary to another objective, and should be reinstated as such’.

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