The two reports on the role of Europe in international standard-setting and questions regarding the adoption of international standards are:

• the AFEP-MEDEF report Strengthening the process for adopting International Accounting Standards: A strategic challenge for the European Union that was published in July 2013 and suggests changes to the role of the conceptual framework in developing IFRSs and calls for some changes to the European regulation on IFRS as well as the European structures in place as a result of this regulation and
• the Maystadt report released in September in draft version and expected in its final version in November 2013 which sets out the special advisor's preliminary recommendations for enhancing the EU’s role in promoting high quality accounting standards.

The reports will be presented by their authors, Michel Pébereau and Philippe Maystadt in an afternoon session on 14 November.

Please click for access to the full programme of the symposium on the ANC website. Registration for the symposium is possible through this link.

The proposed guidelines are the result of a review of Standards No. 1 and 2 on the enforcement of financial information developed by the Committee of European Securities Regulators (CESR), ESMA's predecessor, and were published in July 2013. FEE believes that some of the proposals seem to suggest that ESMA is assuming responsibilities that lie with other parties.

FEE points out that although a common approach to enforcement is to be supported, the European Transparency Directive states that the final responsibility for supervising compliance with the provisions of the Transparency Directive remains with the designated central competent authorities of the relevant Member State. ESMA has no legislative powers regarding the enforcement of financial information. In this context FEE also comments that the guidelines should not pose any additional requirements to those stated in the Transparency Directive and ESMA should be careful not to overstep the boundaries of the Transparency Directive. Also, common enforcement priorities should leave sufficient flexibility for the national competent enforcement authorities to add domestic priorities, taking into account their specific circumstances.

FEE also highlights that ESMA should not try to become a standard-setter. In connection with the discussion of materiality, FEE supports ESMA's view that improvement is needed in this area but warns that the responsibility for determining this should remain with the IASB. FEE welcomes the announcement of the IASB to start a project on materiality in the context of revising IAS 1 Presentation of Financial Statements. FEE also sees the danger of ESMA assuming unintentionally a standard-setting role in connection with issuing reports that contain statements on specific accounting treatments, especially the ESMA enforcement decision reports.

FEE also believes that ESMA should also not assume an interpretative role. ESMA can use statements and/or opinions to explain the concepts underpinning their enforcement and the methods they use in their operation, however, ESMA should stay away from anything that can be interpreted as IFRS application guidance, as the IFRS Interpretations Committee remains the sole source of interpretation of IFRSs. As ESMA itself had proposed in the guidelines that "ESMA and enforcers do not issue any general IFRS application guidance to issuers", FEE's point in this case is simply to strongly support this statement.

Please click for access to the full comment letter on the FEE website.

A full listing of the topics discussed at the meeting follows (click through to access detailed Deloitte observer notes for each topic):

Thursday 17 October 2013 (11:30-13:15)

• Report of the IFRS Foundation Chair
• Report of the IASB Chair and Senior Technical Directors
• Due Process Oversight Committee (DPOC) report

Mr Prada reflected on Europe's adoption of IFRS and spoke about protecting the Standards in their entirety; he cautioned against customising them for use in Europe. Mr Prada cited Philippe Maystadt's draft report, warning that "a tweak here, a failure to endorse there and very quickly you can have Standards that are once again incompatible with other parts of the world. . . . We all need to be vigilant to ensure that Europe continues to be a champion in global financial accounting reporting, for the good of Europe and for the stability of the global financial system".

Mr Prada went on to examine the challenges of transparency and maintaining legitimacy. He also discussed the importance of collaboration with national and regional standard-setting bodies. The cooperation allows greater consistency in adoption, implementation and enforcement of IFRS.

The full text of the speech and a video recording of the speech are available on the IASB website.

First, Mr Golden commented on actions in Japan. He mentioned two papers, Keidanren’s 10 June position paper, “Basic Stances on Japan’s Future Corporate Accounting System,” and the Business Accounting Council’s 19 June paper, “The Present Policy on the Application of International Financial Reporting Standards (IFRS).” Both papers provid helpful analyses on the global effort to converge accounting standards. From his analysis of the papers, Mr Golden provided four important principles, which are:

1. Working towards a common set of global accounting standards.
2. Full participation with the IASB during the standard-setting process.
3. Maintaining and improving national accounting standards.
4. National business cultures require jurisdictions to maintain differences in national accounting standards.

He believes that it is important for Japan and the US to take a leadership role in advancing these principles around the world.

Next, Mr Golden provided a brief history of the FASB’s role towards convergence. He highlighted the 2002 Norwalk Agreement, which brought the IASB and FASB together to converge US GAAP and IFRS. He also stated the FASB’s top priority for the remainder of this year and next will be to complete the major convergence projects. The FASB expects to issue final standards on revenue recognition in early 2014, classification and measurement; and impairment in 2014, and leases in late 2014. The standard on insurance contracts is expected sometime after the leasing standard has been issued.

Mr Golden mentioned that while the FASB has been concentrating on the convergence effort, the SEC is still evaluating whether to endorse the use of IFRS in the United States. In July 2012, the SEC issued a staff report describing the positive and negative aspects of IFRS, but has not provided a recommendation on how the US should proceed.

Mr Golden then provided several steps the FASB is taking to improve financial reporting in the US while also seeking to improve and converge financial reporting internationally. These steps are to (1) make improvements to US GAAP when necessary, (2) actively participate in the development of IFRS, and (3) enhance relationships and communications with national standard setters.

Lastly, Mr Golden reiterated that the “best path forward for standard setters is to work cooperatively with the goal of ultimately agreeing on and adopting standards that have the fewest possible differences.”

Full text of the speech is available on the FASB website.

Opening her speech, Ms. White explained that one of the most meaningful powers that the SEC has to wield on behalf of investors is its authority to require companies to provide investors with the information they need to make informed investment and voting decisions. However, she raised the question as to whether investors need and are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in their reports. Therefore, Ms. White maintained, it was important to ask a few questions that could lead to finding the right angle for tackling the problem.

• To her mind the SEC should ask itself whether there are specific disclosure requirements that are simply not necessary for investors or that investors do not want. Some disclosure requirements may have been appropriate in the past, but may no longer reflect the reality of how businesses operate now or how investors use information and where they can obtain it.
• It might also be worthwhile for the SEC to consider whether investors would benefit from disclosures that are more tailored to the industry in which a company operates.
• Ms. White also asked whether there is a way to avoid repetition in a document which often results from one set of disclosure requirements overlapping with another set of requirements. In this context the SEC might look at line item disclosures for certain topics or a principles-based approach.
• She also brought up the question of timeframes and whether investors are getting the information they need when they need it. She warned though that it is important to consider whether shorter timeframes would impose an undue burden on companies and whether requiring more frequent updates could lead to a decrease in the quality of the information.
• However, Ms. White not only talked about questions the SEC (or any standard-setter or regulator) should ask itself, she also said that there are many sources that contribute to the information overload. She specifically commented on disclosure overload that results from company's decision to disclose more information rather than less in order to be on the safe side. In this context she mentioned a 1976 US Supreme Court ruling that a fact is not  'material' if an investor 'might' find it important but rather if 'there is a substantial likelihood that a reasonable shareholder would consider it important'.

The the topic of disclosure is widely discussed and many standard-setters and regulators have taken the topic onto their agenda. The FASB has a disclosure framework on its agenda and just recently published a fact sheet covering frequently asked questions about the project. The IASB has started a short term disclosure initiative and also has a long term research project on a disclosure framework. In a June 2013 speech introducing the IASB's disclosure initiative, IASB Chairman Hans Hoogervorst conceded, that there are many sources for the disclosure overload and each can only tackle the part of the problem that is within his reach. However, he maintained, beginning somewhere "will certainly help to ignite the much‑needed change in mind set that is so sorely needed".

Please click for access to the full text of the speech of Mary Jo White on the SEC website.

The provisional report of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament was made available earlier this month. It recommended an annual assessment of the EU's funding for the IASB and suggested making the outcome of the assessment dependent on certain conditions.

Those funding arrangements depend on whether the IFRS Foundation and IASB implement the proposals of the Union regarding their governance; whether the Union accounting concepts, in particular with regard to 'prudence' and the requirement for the 'true and fair view' are appropriately considered in the revision of the Conceptual Framework; whether the IASB decides not to include those concepts in the revised Conceptual Framework; and whether the IASB provides reasons for its decision, including publishing the details of the jurisdictions, non-governmental organisations, undertakings or other stakeholders, which objected to those concepts.

When updating the Advisory Committee members about the IASB's activities, Mr Hoogervorst referred in passing to the provisional ECON report and the technical issues that are suggested as criteria for the funding assessment when he spoke about the IASB's conceptual framework project. In the course of the project there have been calls from various sides to reintroduce the concept of 'prudence' and Mr Hoogervorst acknowledged the discussion in his September 2012 speech on prudence. Referring to the provisional ECON report he commented though that he found it "very difficult to discuss the concept as long as it is tied in to a political discussion". He called tying funding to the outcomes of standard-setting "something we cannot accept" and "a threat to our independence" and also warned "if Europe is going to do this, other parts of the world might be encouraged to do so". The IASB Chairman added, however, that he had the impression that the European Commission has also realised that the current situation is "not something to be wished for" and he expressed the hope that the official trialogue now beginning and involving the European Parliament, the Council and the Commission would have a "positive outcome".

Mr Hoogervorst's remarks were recorded as part of his update on the IASB's activities and can be listened to on the IASB's website (recording ACM – Session1/3).

The AASB Occasional Paper series is published by the AASB Research Centre and is designed to provide an avenue for in-depth consideration of financial reporting issues to facilitate debate and provide thought leadership in accounting standard-setting. The inaugural paper in the series, AASB Occasional Paper No. 1 Liabilities – the neglected element: a conceptual analysis of the financial reporting of liabilities was written by Warren McGregor, an independent financial reporting consultant and member of the International Accounting Standards Board from its initial formation until 2011.

The paper argues that there has been a historical focus on assets by accounting standard-setters and others, which may be due to the nature of some liabilities and the sometimes counter-intuitive effects of measuring liabilities on a current value basis (e.g. higher discount rates resulting in lower recognised liabilities, and the impacts of adjusting for changes in credit risk). In particular, the paper makes the following observations regarding 'non-exchange' liabilities:

Unlike most assets, liabilities will often arise without an exchange transaction having taken place; for example, litigation liabilities, asset retirement liabilities, taxation liabilities, social policy liabilities and liabilities arising from the receipt of government grants. There is no commensurate inflow (or more precisely ‘exchange proceeds’) relating to these liabilities... Assessing whether, and identifying when, an obligation arises in relation to ‘non-exchange’ liabilities and consequently measuring them is sometimes highly problematic.

Because of the various difficulties arising, the paper argues that many issues remain unresolved and conclusions reached are often inconsistent and "lack conceptual rigour". Accordingly, the paper endeavours to address the main issues concerning the definition, recognition and measurement of liabilities, and also deals with specific disclosure issues arising.In terms of the definition of a liability, the paper settles on a preference for the IASB and FASB's recent definition of "a liability of an entity is a present economic burden for which the entity is obligated", which is considered to be a 'mirror image' of the definition of an asset which is "a present economic resource to which the entity has a right or other access that others do not have". The paper explores various liability-related projects of the IASB, FASB and IPSASB, and considers some of the issues surrounding the nature of obligations and when an entity becomes obligations, the concepts of legal and constructive obligations and the additional difficulties in determining the existence or otherwise of an obligation in the case of non-exchange transactions in both the for-profit and public sectors. It provides the author's view on topics such as accounting for levies, government grants, emissions trading schemes, rate regulation, litigation liabilities and unvested employee benefits, and the interaction of liability existence with asset recognition and impairment, the introduction of the 'performance obligation' concept in the revenue recognition project, and the unconditional nature of options.

In discussion the recognition of liabilities, the paper again explores existing literature, focusing on the the probable recognition and reliable measurement criteria currently adopted in many conceptual frameworks. The author concludes that the probable recognition criteria creates 'cliff-edge' accounting that has no conceptual rationale, whilst seeing the reliable measurement criterion as 'less egregious'. Nonetheless, the paper concludes that additional recognition criteria are unnecessary:

... concerns about reliable measurement or faithful representation arise from uncertainties relating to the amount and timing of future resource transfers, and I believe these concerns can be overcome by selection of an appropriate measurement basis and disclosure of appropriate information related to the measurement process, rather than by not recognising a liability at all.

In turning to measurement, the paper explores what the correct characterisation of an obligation should be, and the correct basis for measuring that obligation. It contrasts the notions of 'liability' and 'deferred income', arguing the latter is conceptually insupportable and that "transactions that are revenue (or income) generating should be accounted for on initial recognition consistent with the definition of liabilities", whilst relying on measurement to ensure an appropriate margin for risk is recognised in the period in which entity performs its obligations. It then asserts that the measurement basis for the initial recognition of a liability must be a current value basis, considers exit price (fair value), 'historical proceeds' (entry price) and entity-specific values as possible approaches to determine that current value, before recommending exit price (fair value) as "the most comprehensive and objective measure of a liability".

Moving to the subsequent measurement of liabilities, the author notes a preference for "a current measurement basis for all liabilities both at initial recognition and subsequently", before acknowledging a cost-based measurement may be appropriate on cost-benefit grounds for some liabilities and that "there is a great deal of resistance to the use of exit price in measuring liabilities subsequent to initial recognition", citing concerns about the use of a transfer value and the inclusion of non-performance risk. Furthermore, the author notes he does not support a 'fulfilment value' concept, but instead argues that an entity-specific value should be used where an exit price is considered unsuitable or unacceptable for subsequent measurement, and explores in detail the 'building blocks' of measurement for each of the concepts.

In closing, the paper considers the various disclosures that should be considered in the content of the recommendations and preferences outlined in the paper. It focuses on the topics of existence uncertainty, conditional obligations and estimation uncertainty, before recommending "standard setters should exercise extreme caution in modifying required disclosures on the grounds that the disclosures might be prejudicial to a reporting entity".

Click for access to the paper (link to the AASB website).

Disclosure

The ASAF explored the IASB's Disclosure Initiative project and an approach to rethinking a disclosure and presentation framework. The IASB staff provided an overview of the project including the five short- and medium-term strategies. ASAF members supported the project; however, some members felt the timeline was over-ambitious and noted that the IASB should include input from regulators and auditors. Also, the IASB staff provided an overview on the proposed amendments to IAS 1. The ASAF members generally supported the proposals, but suggested some drafting changes. They suggested that the IASB should investigate ways to make accounting policies more entity-specific and whether the policies should be presented with detailed notes. In addition, ASAF members expressed mixed views on the issue of 'net debt', since 'net debt' is not a feature of financial reporting in some jurisdictions. To wrap up the disclosure discussion, the ASAF members viewed a presentation by Kevin Stevenson, Chair of the AASB, on his paper, 'Rethinking the Path from an Objective of Economic Decision Making to a Disclosure and Presentation Framework'. 

Insurance Contracts

The ASAF discussed the IASB's exposure draft on insurance contracts. Members supported the IASB's direction regarding insurance contract revenue and transition, but had concerns about the accounting mismatches that would arise as a result of applying the proposals relating to contracts with cash flows that vary with underlying items, and those relating to the use of other comprehensive income.

Leases

The ASAF reviewed the IASB's exposure draft on leases. Members had mixed comments on the proposals. While most members supported the direction of the proposals in the exposure draft, some had concerns about the complexity of having dual approaches. The ASAF members also suggested specific points for the IASB and FASB to consider regarding the measurement of lease assets and liabilities, the definition of a lease, disclosure, and transition.

Financial Instruments

Macro-hedge accounting

The IASB staff presented a summary of the macro-hedge accounting portfolio revaluation approach to solicit feedback by the ASAF. The ASAF members suggested the model should (1) be extended to include risks other than interest rate, (2) clarify how the model handles financial products managed on the basis of expected maturity, and (3) carefully consider the scope of the model. The ASAF suggested an extended comment period of six months for the discussion paper that is expected to be issued later this year.

Impairment

The ASAF discussed the proposals in the IASB's exposure draft on expected credit losses. The IASB staff presented some clarifications and enhancements to the proposals on the responsiveness of the general model, the measurement objective for Stage 1, and the definition of 'default'. Some ASAF members commented that the proposals should be finalised. They also stressed that it is important that the objectives and principles remain clear and do not become too prescriptive. Further, some members needed additional clarification on the definition of 12 months' expected credit losses and that the IASB should consider divergence that exists in IFRSs when measuring impairment losses.

Conceptual framework

ASAF members discussed the EFRAG's bulletin on prudence. Many ASAF members felt the IASB should consider reintroducing the concept of prudence in the conceptual framework. They emphasised the importance of providing a clear definition for 'prudence' so it is not used differently by different groups of people and suggested that it should be described as the exercise of caution under conditions of uncertainty.

Future meetings

The ASAF will next meet on 5 and 6 December 2013 in London. Also, the date of its September 2014 meeting has been changed from 8 and 9 September to 25 and 26 September.

A full summary is available on the IASB website.