We comment on IFRS for SMEs ED

28 Feb 2014

We have published our comment letter on the IASB’s Exposure Draft ED/2013/9 ‘Proposed amendments to International Financial Reporting Standard for Small and Medium-sized Entities’.

We agree that the review cycle of the IFRS for SMEs should be extended to five years and support the removal of all requirements for IFRS for SMEs preparers to recognise deferred tax. Further, we recommend that certain criteria be introduced in order to determine when an issue is deemed urgent and should be acted upon before the start of the overall review of the Standards.

In addition, we believe that local authorities are best suited to determine how the IFRS for SMEs should be applied in their jurisdiction.

Click for the full comment letter.

AASB paper on materiality in disclosure

28 Feb 2014

The Australian Accounting Standard Board (AASB) has published a staff paper on materiality in the context of disclosure. The paper considers the 'disclosure overload' criticism often levelled at International Financial Reporting Standards, and provides a series of recommendations for preparers to consider in the short-term.

The AASB staff paper, To Disclose or Not to Disclose: Materiality is the Question, begins by providing a summary of the debate around 'disclosure overload' in recent times, including some of the publications that have analysed the issue. Publications cited include the Managing Complexity in Financial Reporting document released by the Australian Financial Reporting Council, and the Louder than Words and Cutting Clutter publications of the United Kingdom Financial Reporting Council.

The paper goes on to analyse the reasons why 'disclosure overload' is a problem, considering the requirements of standards, an increasingly litigious environment, time pressures, the views of auditors, difficulties in making judgements, a tendency to follow disclosures made by industry peers, and fear of regulators.

In considering accounting standards, the paper notes the following in the context of Australia's transition to IFRSs in 2005:

The obvious scapegoat is the move to IFRSs; but is this really a fair call? Prior to the move to IFRSs in 2005, much of Australian GAAP was already converged with International Accounting Standards, so whilst IFRSs perhaps should shoulder some of the blame, they should not be held responsible for it all.

The paper welcomes the IASB's disclosure initiative projects, but notes they may take some time to be finalised. Accordingly, the paper puts forward a number of immediate "substantive things not to do when making an assessment about what information should be included in the financial statements". These are summarised below:

  • Do not include every disclosure illustrated in model financial statements, as these are a 'cater for all possible scenarios' tool
  • Do not blindly copy what other entities have disclosed, instead exercise judgement in deciding on appropriate disclosure
  • Do not repeat information from prior financial years, but adapt to changed circumstances
  • Do not disclose accounting policy choices made under accounting standards unless they are relevant and necessary to understanding information provided - this includes not disclosing accounting policies for transaction types not in the financial statements
  • Do not assume auditors will require every disclosure required by accounting standards
  • Do not fear regulators, which are increasingly confirming they will not pursue immaterial disclosures.

The staff paper is available on the AASB website.

Draft guide on supplementary financial measures

27 Feb 2014

The Professional Accountants in Business Committee (PAIB) of the International Federation of Accountants (IFAC) has released a draft guide on the use of supplementary financial measures, such as earnings before interest, tax, depreciation and amortisation (EBITDA), underlying profit and free cash flow. The guide provides principles regarding the qualities a measure should have and disclosures that should accompany externally reported measures.

The proposed guide, Developing and Reporting Supplementary Financial Measures — Definition, Principles, and Disclosures, is the latest in a series of International Good Practice Guidance (IGPG) publications developed by the PAIB. The PAIB Committee develops the IGPG as part of its objective of serving IFAC member bodies and professional accountants worldwide who work in commerce, industry, financial services, education, and the public and not-for-profit sectors.

The draft guide notes that supplementary financial measures are often designed to assist management, investors and other stakeholders in understanding performance. Such measures are used in internal and external reporting, are also used outside of financial reporting, such as in the measurement of debt covenants contained in debt agreements.

'Supplementary financial measures' are defined in the draft guide as "those financial measures not specifically identified by a GAAP framework" - also referred to other contexts as 'non-GAAP information' or 'alternate performance measures'. Such measures characteristically do not have accepted definitions and use selected information, including adding or omitting amounts from GAAP measures. Adjustments to GAAP measures might be made on the basis of management assumptions, judgements and estimates, with or without reference to GAAP.

The guide proposes to use the concepts in the Conceptual Framework developed by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), particularly the qualitative characteristics of useful financial information, as the basis of principles that should be used to determine whether a supplementary financial measure has sufficient attributes to be reported. These principles are that supplementary financial measures should be:

  • Relevant. For a supplementary financial measure to be reported, it should either be used by management in assessing performance or should be employed by knowledgeable users of the external report.
  • Complete. A supplementary financial measure should provide all the information necessary for a user to understand the phenomenon being depicted. Completeness is achieved when the measure is not in need of adjustment or additional complementary information.
  • Neutral. A supplementary financial measure should not be slanted, weighted, or manipulated to obtain a desired result. This requires the addressing of all relevant positive and negative items.
  • Transparent. The description of a supplementary financial measure should align with its components. Additionally, a supplementary financial measure should be accompanied by sufficient explanation to render it as free as is practicable from uncertainty and estimation error.
  • Understandable and verifiable. Knowledgeable users need to understand a supplementary financial measure’s construction and limitations and see that it is verifiable by being able to reach consensus that a measure faithfully represents what it purports to depict.
  • Comparable. Users need to be able to compare supplementary financial measures between entities in the same industry and between periods.
  • Timely. A supplementary financial measure needs to be reported at the same time as the related financial statements.

The guide proposes that measures meeting these characteristics should be capable of being reported as a supplementary financial measure. Where such measures are reported externally, additional guidance is proposed about the disclosures that should be made:

  • Definition and purpose of the measure - including labelling supplementary financial measures and distinguishing them from GAAP measures
  • Change in composition of a supplementary financial measure - reasons for the change and restatement of comparative information
  • Quantitative reconciliation to GAAP measure - supplementary financial measures should be reconciled to any directly comparable reported GAAP measure, showing each adjustment made, or a basis of computation provided
  • Accompanying contextual disclosure - information about additional or eliminated items in a measure, and other information to understand a measure's limitations
  • Location - supplementary financial information reported externally should complement but not overshadow GAAP measures, and may be best presented outside of financial statements.

The disclosure of non-GAAP information is a contentious topic and has seen regulatory guidance issued or proposed in many jurisdictions, including Australia, New Zealand and the European Union. The proposals in the guide share many recommendations with these regulatory developments.

Comments on the draft guide close on 26 May 2014. Click for more information (link to IFAC website).

CCAB study highlights demand for international standards for financial reporting in the not-for-profit sector

26 Feb 2014

The Consultative Committee of Accountancy Bodies (CCAB) has published the results of a study to establish whether there is a demand for the development of an international financial reporting framework, guidance or standards for use by not-for-profit organisations (NPO) in the not-for-profit-sector. Results indicate that there is a demand for an international standard for financial reporting in the not-for-profit sector.

The “comprehensive international study” which was launched in November 2013, is the first of its kind and was based upon a literature review (to “identify specific financial reporting issues in the not-for-profit sector internationally") and an online survey of 605 people involved with not-for-profit financial reporting in over 179 countries. 

It was conducted on behalf of the 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.     

Although there were a number of mixed responses (by stakeholder group and world regions) to the survey, 72 per-cent of those surveyed did agree that international standards for financial reporting in the not-for-profit sector would be useful with 14 per-cent not in agreeing and 7 per-cent strongly disagreeing.  Of those that did not agree, the study finds that “the strongest objections appear to come from countries such as the UK, which already have well developed frameworks for NPO accounting”.  

The study notes that “this report is the first step towards establishing whether or not there is a case for developing harmonised international standards for NPO reporting” and identifies four possible ways forward, with option 4 commanding “a good deal of interest” based upon the survey results: 

  1. Do nothing;
  2. Press for improvements to existing national NPO financial reporting frameworks to address concerns identified in the study (no creation of an international standard);
  3. Seek to develop international guidance on NPO reporting but not a formal accounting standard;
  4. Development of international standards for NPO financial reporting, prepared by an international standard setting body, and (eventually) endorsed by appropriate regulatory regimes in jurisdictions across the globe. 

In understanding further the demand for an international standard for the not-for-profit sector and what such a standard may look like, the study highlights that “much more analysis and discussion will be needed between interested parties” including on areas such as: 

  • the extent to which a formal international standard for NPO reporting would be welcomed and adopted;
  • the form (content and scope) that any new standard should take;
  • whether the new standard would apply to all NPOs;
  • how a new standard would be developed and whether this would require a new standard-setting body for the not-for-profit sector; and
  • the basis (for example International Financial Reporting Standards (IFRSs)) for an international standard for financial reporting in the not-for-profit sector. 

The press release and full report can be obtained from the CCAB website.

Notes from the February 2014 IFRS Advisory Council meeting

25 Feb 2014

The IFRS Advisory Council met in London on 24-25 February 2014. We have posted the Deloitte observer notes for the sessions on the IASB and Trustees activities, IPSASB governance review, the future of corporate reporting, the IFRS Foundation education initiative, and the investor outreach strategy.

Click through for direct access to the notes:

Monday, 24 February 2014

Tuesday, 25 February 2014

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

IASB work plan update for February 2014

25 Feb 2014

Following its recent meeting, the International Accounting Standards Board (IASB) has updated its work plan. The final IFRS on revenue recognition is now expected in the second quarter of 2014. The Exposure Drafts (EDs) on the elimination of gains arising from ‘downstream’ transactions and on the unit of account have been delayed to the second quarter of 2014, as has been the final IFRS on sale or contribution of assets between an investor and its associate or joint venture. The expected redeliberation periods in a number of projects have been clarified (among the conceptual framework) and a public consultation on the post implementation review of IFRS 3 has been added to the agenda.

Current status

The revised time table for the major projects is now as follows:

Project Current status Next project step Expected timing

Conceptual Framework — Comprehensive IASB project

Discussion paper


Q1 2014*

Financial instruments — Impairment


Finalised IFRS

Q2 2014

Financial instruments — Macro hedge accounting


Discussion paper

Q1 2014

Financial instruments — Limited reconsideration of IFRS 9 (classification and measurement)


Finalised IFRS

Q2 2014

Insurance contracts



Q1 2014




Q1 2014

Rate-regulated activities — Comprehensive project


Discussion paper

Q2 2014

Revenue recognition


Finalised IFRS

Q2 2014*

* Indicates a change since the prior work plan update.

Changes concerning narrow scope projects are:

Click for the IASB work plan dated 25 February 2014 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

EFRAG and the European National Standard Setters invite companies to share their experience with applying IFRS 3

25 Feb 2014

The European Financial Reporting Advisory Group (EFRAG) and the standard-setters of France, Germany, Italy and the UK invite European companies to share their practical experiences with IFRS 3 'Business Combinations' (and any consequential amendments to other Standards) in order to learn whether IFRS 3 is working as intended for European companies applying IFRS.

The objective of the outreach is to obtain evidence about any aspect of the application of IFRS 3 but will focus especially on the questions whether there are areas of IFRS 3 that represent implementation challenges and whether unexpected costs have arisen when meeting the requirements of the Standard. These questions are also the focus of the Request for Information Post-implementation Review: IFRS 3 Business Combinations published by the IASB on 30 January 2014 but they have been supplemented with additional questions on areas that EFRAG and the standard-setters believe call for more detailed insight.

Preparer-companies that wish to participate in this outreach should have recent experience (since 2009) in applying IFRS 3 to business combinations. Participants will be asked for their written input, which will form the basis for a follow-up discussion with EFRAG staff and/or staff of the National Standard Setters. The field work is expected to conclude by 15 April 2014.

The feedback received will assist EFRAG and its partners to prepare a response to the Request for Information. However, IASB staff will also participate directly in the process to learn about the detailed responses and to avoid creating overlap with the outreach activities the IASB is organising.

More information about how the outreach activities will be conducted and contact information for companies wishing to participate is available in the press release on the EFRAG website. A copy of the questionnaire can be obtained from the FRC website.

February 2014 IASB meeting notes — Part 3 (concluded)

25 Feb 2014

The IASB's meeting was held in London on 19-20 February 2014. We have posted Deloitte observer notes from Wednesday's session on IFRS Interpretations Committee issue.

Click through for direct access to the notes:

Wednesday, 19 February 2014

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

Trustees announce membership update and upcoming review of IASB size

24 Feb 2014

The Trustees of the IFRS Foundation (1) reappointed Amaro Gomes and Pat Finnegan to serve as IASB members for another five years and (2) deferred any appointments of IASB members that replace retiring members until the completion of its 2015 Constitution Review.

In 2015, the Trustees will conduct a review of the overall structure and effectiveness of the IFRS Foundation, in particular, the review will seek public input on the appropriate size of the IASB. The Trustees have deferred the replacement of retiring board members (occurring in June 2014), in an effort to reduce any prejudgment when considering the size of the IASB and its geographical diversity.

In June 2014, Jan Engström and Patricia McConnell will be leaving the IASB. Mr Engström will have completed his second full term and will no longer be eligible for reappointment. Ms McConnell has decided not to seek a second term.

For more information, see the press release on the IASB website.

Update to the EFRAG TEG composition

24 Feb 2014

The European Financial Reporting Advisory Group (EFRAG) has announced the composition of the EFRAG Technical Expert Group (TEG) to take effect as of 1 April 2014.

This composition update consists of the reappointments of current members Mike Ashley (EFRAG TEG Vice-Chairman), Joanna Frykowska, Nicklas Grip, Serge Pattyn and Andrea Toselli; and includes the new appointment of Christian Chiarasini. Outgoing members include Nicolas de Paillerets, Marios Cosma, and Bill Hicks.

It is through the TEG that the EFRAG operates. TEG makes its decisions independently of the EFRAG Supervisory Board and all other interests. The 12 voting members are selected from a range of professional and geographical backgrounds from throughout Europe. Members of the EFRAG Technical Expert Group are required to act in the public interest and not to consider themselves as representing sectoral or national interests.

EFRAG's goals pursued through the TEG are:

  • to provide technical expertise to the European Commission concerning the use of IAS/IFRS within Europe,
  • to participate in IASB's standard setting process,
  • to coordinate within the EU the development of views concerning international accounting standards.

For more information, see the press release on the EFRAG website.

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