November

EU Transparency Directive published, disclosure on non-financial information moving along

13 Nov 2013

The new European Transparency Directive has been published in the Official Journal and enters into force on the twentieth day following its publication. Additionally, a draft report on the proposal for disclosure of non-financial and diversity information by certain large companies and groups was presented to the European Parliament committee on legal affairs (JURI).

The new 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. Finally country-by-country reporting disclosure requirements have been incorporated in the new Transparency Directive. Please click for access to the full text of the Directive in the Official Journal.

The draft report on amendments to the European accounting legislation proposed by the European Commission (EC) in order to require certain large companies to provide additional information on social and environmental matters shows the amendments proposed by the EC next to suggested additional changes suggested by JURI. Also available is the draft opinion of the Committee on Economic and Monetary Affairs (ECON) commending the EC in seeking to improve transparency in the information provided by large companies in the EU and suggesting further improvements to the Commission's text. Please click for the drafts on the European Parliament website:

Commissioner Barnier comments on the publication of the Maystadt report

13 Nov 2013

EU Commissioner Michel Barnier has commented on the publication of the report regarding preliminary recommendations for enhancing the EU’s role in promoting high quality accounting standards that his special advisor, Mr Philippe Maystadt, compiled on his behalf.

The final report had become available on 11 November and will be presented at a meeting of the European Union's Economic and Financial Affairs Council (ECOFIN) on 15 November 2013.

In a press release published on the EU Commission website, Commissioner Barnier states that he is well pleased with the report and concludes:

I am particularly keen that Mr Maystadt's recommendations should be implemented swiftly so that our undertakings and the users of their financial statements can as soon as possible benefit from high-quality international accounting standards. This work will allow the EU to better organise itself to ensure that the needs of its markets are fully taken into account in the international accounting debate.

Please click for access to the full press release.

Survey on reporting in the not-for-profit sector

13 Nov 2013

A number of accounting bodies in the United Kingdom and Ireland have launched a survey in order to understand international accounting practices in the not-for-profit sector. The survey is part of a wider research project to establish whether there is a demand for the development of an international financial reporting framework, guidance or standards for the not-for-profit-sector.

The survey is being conducted on behalf of the Consultative Committee of Accountancy Bodies (CCAB), which comprises The Institute of Chartered Accountants in England and Wales (ICAEW), The Institute of Chartered Accountants of Scotland (ICAS), The Institute of Chartered Accountants in Ireland (ICAI), The Association of Chartered Certified Accountants (ACCA) and The Chartered Institute of Public Finance and Accountancy (CIPFA).  The CCAB appointed Sheffield Hallam University (SHU) to co-lead the project with colleagues from the University of Dundee, and with further support from University College, Dublin and Victoria University of Wellington, New Zealand.

The survey is a further step in meeting the objectives of the wider research project, which aims to:

  • Identify what is meant by the not-for-profit sector internationally and the nature and scale of issues
  • Identify current accounting framework, standards and guidance applied to the various specialisms in the not-for-profit sector, e.g. the United Kingdom Statements of Recommended Practice (SORPS) dealing with charities
  • Focus on specific accounting issues relating to charities
  • Consider whether there is a need or not for the development of some form of international financial reporting framework, guidance or standard(s) for the not-for-profit sector.

The background paper on the research project notes the following:

The development of International Financial Reporting Standards (IFRS) has been an important facilitation factor for global business – enabling investors and other users of accounts to have confidence that the accounts have been prepared on a consistent basis. The potential role for International Public Sector Accounting Standards (IPSAS) is also being increasingly recognised in the debate around how to improve government reporting in the wake of the Sovereign Debt Crisis. However, the unique issues present in the non-profit sector – primarily the treatment of gifts, definition of a liability (recognition of constructive obligations) and an asset (valuation on the basis of service potential) and responsibility to the donor – are not covered by international standards.

The paper also notes that many countries "appear to use for-profit business standards when accounting for not-for-profit entities", that charities and other organisations are increasingly adopting a global approach to their work, and that issues arising in the not-for-profit sector are relevant to parts of the public and private sectors as well due to "boundaries between sectors [becoming] increasingly blurred".

Responses to the survey are requested by 9 December 2013, and the findings of the survey are expected to be published in the first quarter of 2014.

Click for press release with links to the survey on the CCAB website.

IASB publishes additional editorial corrections

12 Nov 2013

The International Accounting Standards Board (IASB) has published its next scheduled batch of editorial corrections for 2013. The corrections impact the IASB's “A Guide Through IFRS 2013”, “2013 IFRS (Blue Book)”, and “2013 IFRS (Red Book)”.

The editorial corrections affect the following individual pronouncements:

  • IFRS 1 First-time Adoption of International Financial Reporting Standards
  • IFRS 2 Share-based Payment
  • IFRS 9 Financial Instruments
  • IAS 1 Presentation of Financial Statements
  • IAS 24 Related Party Disclosures
  • IAS 33 Earnings per Share
  • IAS 36 Impairment of Assets
  • IAS 39 Financial Instruments: Recognition and Measurement

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors.  Full details of the editorial corrections are available on the IASB website.

EFRAG issues feedback statement on their draft comment paper on accounting for Emission Trading Schemes

12 Nov 2013

The European Financial Reporting Advisory Group (EFRAG) has released a feedback statement on their draft comment paper on accounting for Emission Trading Schemes. Eleven comment letters were received with most respondents agreeing that specific accounting guidance is needed for emission trading schemes.

The EFRAG draft comment paper, issued in December 2012, recognised that since the withdrawal of IFRIC 3 Emission Rights, this has resulted in diverging practices on the accounting of assets and liabilities arising from participation in an Emission Trading Scheme.  The expected result of the draft comment paper was to help shape an EFRAG recommendation to the International Accounting Standard Board (IASB) on specific accounting guidance for emission rights.  

The key points from the responses to the comment paper are: 

  • Almost all respondents agreed that specific accounting guidance for Emission Trading Schemes was required.  Many of the respondents agreed that although Emission Trading Schemes exhibit similar characteristics to inventory and intangible assets, “no perfect analogy can be drawn from existing IFRSs”.  Many agreed that due to the existence of diverging accounting practices, reducing comparability of information disclosed, specific guidance would be required.
  • Other respondents noted that the practices currently being applied, are considered “best practice” and “robust” and have already been “accepted by users” so questioned the requirement for additional guidance.
  • Most respondents agreed that any accounting guidance should consider the way in which emission rights are being consumed (either through sale or to discharge the entity’s obligation).
  • Most respondents agreed that any rights held for trading should be measured at fair value.
  • There were split views on the initial measurement of rights allocated for free.  Some respondents favoured initial measurement at fair value based upon a market price at the date of acquisition, some disagreed and others believed that there should be an initial recognition value of nil. 
  • For those who agreed with initial recognition at fair value some respondents supported crediting the other side of the entry to deferred income rather than other comprehensive income (OCI) and some favoured OCI.
  • Views were also split about whether an entity should present separately its emission rights and its obligation or present the balance net. 

At the same time as the EFRAG draft comment paper, the IASB reactivated its project on emission trading schemes as an IASB-only research project.  EFRAG does not consider that a research project is required and this is supported by some respondents who feel that the IASB should just develop a standard. 

Click for:

Chairman Michel Prada speaks in Japan on globally consistent standards

12 Nov 2013

The Chairman of the Trustees, Michel Prada, gave a speech in Tokyo during the Financial Accounting Standards Foundation conference to discuss the importance of a single set of global accounting standards.

In his speech, Mr Prada expressed his concerns with jurisdictions using the ‘à la carte’ approach when adopting IFRS. He explained the ‘à la carte’ approach as jurisdictions choosing certain aspects of an IFRS standard and altering others to meet local preferences. It is his belief that everyone should fully adopt a single set of global standards in order to offer ‘true international comparability’ to investors.

In addition, Mr Prada commented on the progress towards IFRSs as global standards, which included an increase of 25 nations that required IFRS for all or most listed companies in the past five years. However, he mentioned that additional work still needs to be done concerning the adoption of a single set of standards for several large economies, such as:

  • United States — no decision by SEC on endorsing the adoption of IFRS.
  • China — convergence efforts to make its standards comparable to IFRS.
  • Japan — no mandate to full transition to IFRS.

Regarding Japan, Mr Prada noticed the positive signals of the recent months, including the final BAC report recommending a wider use of IFRS in Japan and the ordinances that were published as a result, the strong backing for IFRS by the Liberal Democratic Party, and the the new equity index the stock exchange of Tokyo and the Nikkei announced. He expressed a hope that these might lead to the adoption of full IFRSs in Japan:

We are of course, delighted to see such a number of positive steps being made to increase the number of companies using IFRS in Japan. We still hope, however, that these are seen in Japan as steps towards a full transition to IFRS as the single set of global accounting standards.

Further, Mr Prada noted the important role Japan has in the development of IFRS. Japanese officials hold important positions within the IFRS Foundation. Japan also has a voice in the Accounting Standards Advisory Forum (ASAF), where standard-setting activities are discussed with the IASB and other national standard setters.

Lastly, he emphasised the key role the IASB’s Asia-Oceania office had in linking the region into the global accounting standard-setting process.

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

Final Maystadt report available

11 Nov 2013

In preparation for a meeting of the European Union's Economic and Financial Affairs Council (ECOFIN) next Friday where the special advisor to EU Commissioner Michel Barnier, Mr Philippe Maystadt, will present his report setting out his preliminary recommendations for enhancing the EU’s role in promoting high quality accounting standards, the report has been made available on the website of the Council of the European Union. The report is at a very high level, and many implementation issues will have to be resolved when and if the proposals are implemented.

As in the draft report released in September 2013 Mr Maystadt proposes three options to consider of which he recommends the first: Transforming EFRAG with the aims of reinforcing its structure and giving it a legitimate voice to represent European positions to the IASB when the IASB's standards are being developed. Details of the recommendations in this connection are:

  • Remit: EFRAG should focus on its remit regarding the IFRS standards, in accordance with the IAS Regulation.
  • Funding: Analyse the legal possibility of establishing a system of compulsory contributions/ levies paid by listed companies that use and benefit from IFRS.
  • Structure:
    • General Assembly: Extend the current General Assembly membership (Business Europe, FEE, Insurance Europe, EBF, ESBG, EACB, EFAA) to include National Funding Mechanisms and other private and/or public organisations that are contributing financially or in kind and invite the European Commission to attend the meetings of the General Assembly.
    • Supervisory Board: Replace the current Supervisory Board with a high-level Board, which would approve the comment letters addressed to the IASB and the endorsement advice letters to the Commission, relying on the work of a technical group.
    • TEG: Change the role of the Technical Experts Group (TEG) to preparing the projects submitted for the approval of the Board while receiving more guidance and feedback from the Board turning it into an advisor to the Board instead of having full authority to determine the positions of EFRAG.

The role and the composition of the high-level board is intended to embed the public policy voice into the decision-making process already before recommendations are made to the Commission. According to Mr Maystadt's recommendations, it would be composed of 16 members belonging to three pillars plus a president:

  • European public institutions (4 members proposed by ESMA, EBA, EIOPA and ECB, respectively),
  • Stakeholders (5 members: industrial and trading companies; financial institutions; accounting professionals; users)
    • Industrial and trading companies: one member proposed by Business Europe.
    • Banks: one member proposed jointly (or, failing that, in turns) by the European Banking Federation, the European Association of Cooperative Banks, the European Group of Savings Banks, the European Association of Public Banks.
    • Insurance companies: one member proposed by Insurance Europe
    • Accounting professionals: one member proposed jointly by the FEE ("Federation of European Accountants") and the EFAA ("European Federation of Accountants and Auditors")
    • Users: one member proposed jointly by the associations representing private investors (“end users") and financial analysts.
  • National Standards Setters (NSS) (7 members, with the implicit agreement that the NSS of the four largest Member States will always be represented, as is also the case for the Executive Board of the ECB or the Management Committee of the EIB).

Besides the internal management functions of the current Supervisory Board, the new Board would approve letters prepared by TEG, in particular, comment letters addressed to the IASB and endorsement advice letters addressed to the Commission. The Board is expected to act by consensus. Mr Maystadt also suggests that the role of President, who would be the public spokesperson of EFRAG, could be separated out from the role of a Chief Executive Officer, who would be responsible for the daily management of the organisation, including the chairmanship of the TEG.

Of note is the also the timescale: "The European Union needs an effective structure, capable of offering the Commission pertinent advice on the endorsement of the important standards that will be finalised in the short term by the IASB, as soon as possible."

Apart from recommending the changes concerning EFRAG, the report states that IFRSs remain the ‘best choice’ at present for financial reporting in public capital markets. It also advises that the current ‘standard-by-standard’ endorsement process remains appropriate. And it cautions that any change to the current binary 'yes/no' endorsement decision must be considered very carefully; Maystadt does not make any recommendation, but makes a strong statement that 'caution is essential' before considering any possibility of 'carve outs' or 'carve ins'.

Please click for access to the full report on the website of the Council of the European Union.

Communiqué from latest China-Japan-Korea meeting

11 Nov 2013

A communiqué has been issued from a meeting of the standard-setters from China, Japan and the Republic of Korea held in Tokyo on 6 November 2013.

Representatives were present from the China Accounting Standard Committee (CASC), Accounting Standards Board of Japan (ASBJ), Korea Accounting Standards Board (KASB), and the International Accounting Standards Board (IASB), together with guests from Hong Kong and Macau and a number of other delegates.

The meeting saw discussion on the current major projects of the IASB and standard-setting activities in the jurisdictions of the respective attendants. Delegates at this meeting reached the following consensus:

 

  1. To have more frequent communication through face-to-face meetings and/or the use of technology, such that views from China, Japan, and Korea would become closer or common; thereby these views would be better reflected in the International Financial Reporting Standards (IFRSs);
  2. To play a leading role to promote enhanced cooperation among standards setters from the Asia-Oceania region, and to increase the prominence of the Asian-Oceanian Standard Setters Group (AOSSG) in the global accounting standards setting community; and
  3. To collaborate, to the extent possible, on research projects commissioned by national accounting standards setters and the IFRS Foundation Asia-Oceania office.

The next meeting will be held in China in 2014.

Click for the full communiqué (link to ASBJ website).

Recent GRI developments

11 Nov 2013

The Global Reporting Initiative (GRI) has announced several new developments on the “G4 Online” tool, monitoring program, G4 XBRL taxonomy, and sustainability.

The GRI has announced the launch of “G4 Online”, an Internet- based tool that aims to help companies create sustainability reports which follow the G4 guidelines. On the free-access website, the GRI guidelines are comprehensively presented in a dynamic and easy-to-navigate structure. The tool is tailored for users who are directly involved in a G4 reporting process.

Also, the GRI has launched a monitoring program which aims to gather feedback on the implementation of the G4 guidelines as companies transition from G3/G3.1 to G4. The G4 Monitoring Program has many ways for organisations to provide their feedback, in particular, a general feedback questionnaire.

In addition, the GRI has announced the launch of a fully developed XBRL taxonomy for the G4 guidelines. The G4 Taxonomy 2013 provides more reliability and consistency of information in sustainability reporting. It also increases the rate of data collection, aggregation, and analysis.

Further, the GRI has created a publication on unique sustainability issues for various sectors. It provides a list of topics for 52 business activities groups. Organisations can use the information gathered by the publication to analyse what information may be included in their reports.

For additional information, please see the following press releases (links to GRI website):

FSB discusses accounting and convergence

11 Nov 2013

The Financial Stability Board (FSB) met on 8 November in Moscow. At the meeting, the FSB discussed vulnerabilities in the global financial system and reviewed work plans for completing core financial reforms.

On accounting, the FSB heard updates from the Chairs of the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) on their continuing work to improve and converge accounting standards. Two areas were considered to be especially important for financial stability: loan loss provisioning and insurance contracts. Members of the FSB stressed that they are expecting finalisation of these projects soon and urged the standard-setters to make further efforts to coordinate in that regard in the interest of convergence.

The FSB also discussed proposals from the International Valuation Standards Council (IVSC) to develop valuation standards for financial instruments that could help to augment the valuation rules within accounting standards.

Please click for access to the press release on the results of the meeting on the FSB website.

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