Swedish and US regulators enter into cooperative agreement

31 Mar 2014

The Supervisory Board of Public Accountants of Sweden and the US PCAOB have announced a cooperative agreement related to the oversight of audit firms subject to the jurisdictions of both regulators. The agreement is effective immediately.

The arrangement, which includes a data protection agreement, provides a framework for joint inspections and allows for the exchange of confidential information in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

See the press release on the PCAOB's website for more information.

Latest IASB 'Investor Perspectives' published

31 Mar 2014

The International Accounting Standards Board (IASB) has released another edition in its 'Investor Perspectives' series. In this edition, Patricia McConnell (member of the IASB) provides her perspectives on the IASB’s changes to accounting for own credit.

The article discusses the benefits of excluding the own-credit gain or loss adjustment from profit or loss. The early adoption allowance of IFRS 9 permits companies to move own-credit gain or loss into other comprehensive income.

Click to view Investor Perspectives — One fewer non-GAAP adjustment to worry about: Improvements to the accounting for changes in own credit (link to IASB website). All Investor Perspectives are archived on the IASB's website.

Research paper on the IASB Conceptual Framework project

31 Mar 2014

A research paper showing discussions and views on a number of important issues that are raised in the IASB Conceptual Framework project from an academic and research perspective has recently been published in 'Abacus'.

The authors discuss (excerpts from their summary):

  • The role of the Conceptual Framework and the basic question whether a conceptual framework should serve as a basis for deductive reasoning or whether it is just an attempt to rationalize existing standards;
  • Objectives and uses of financial reporting with the revised Conceptual Framework defining decision usefulness to capital providers as the overarching objective, while stewardship is only a secondary objective and seemingly regarded as one that seems not to be able to conflict with decision usefulness;
  • Prudence and the controversial issue of removing the concept altogether in the 2010 revision of the Conceptual Framework;
  • Uncertainty in recognition of assets and liabilities and the proposal in the Discussion Paper DP/2013/1 A Review of the Conceptual Framework for Financial Reporting that the definitions of assets and liabilities should not include any particular probability thresholds;
  • Derecognition and the claim that from a conceptual perspective there is no need for special derecognition principles in a conceptual framework; and
  • Measurement issues and the distinction between recognition and measurement.

The aim of the paper is to contribute to the current debate on objectives of financial reporting and prudence. The paper was published in Abacus and can be downloaded through Wiley Online: Revisiting the Fundamental Concepts of IFRS. One of the authors (Professor Araceli Mora) has kindly also contributed an exclusive three-page summary of the paper for IAS Plus.

We thank the authors for allowing us to make the results of their research available on IAS Plus.

AASB calls for focus on sector neutral accounting in public sector governance review

31 Mar 2014

The Australian Accounting Standards Board (AASB) has responded to the International Public Sector Accounting Standards Board (IPSASB) Governance Review Group consultation paper on the future governance of the IPSASB. The AASB strongly supports sector neutral accounting standards and believes the option of extending the scope of the IFRS Foundation's Monitoring Board and IFRS Foundation Trustees to encompass the IPSASB is the best approach to limiting differences in accounting standards between sectors.

The AASB's letter puts forward the view that the improved governance and oversight arrangements should "instil confidence that financial reporting standards result from informed and expert consideration of users' needs by an independent standard-setting body". However, the AASB also believes "there is a need for good governance and oversight of standard-setting to encourage an appropriate degree of integration of standard-setting effort between sectors". The letter also questions the view that slow adoption of International Public Sector Accounting Standards (IPSAS) by governments is primarily due to a lack of appropriate governance, and instead "a fear of the consequences of adopting certain IPSASs, a perception that sovereignty may be eroded and a lack of capacity are among the factors that are more likely to influence non-adoption".

The AASB notes that it has had responsibility for setting accounting standards for all sectors - private sector, public sector and not-for-profits - for more than 30 years. Australia's accounting standards for all sectors are based on International Financial Reporting Standards (IFRSs), which in the case of for-profit entities, allows those entities to make an explicit and unreserved statement of compliance with IFRSs. Additional requirements are contained in Australian Accounting Standards for the public sector and not-for-profit entities, which in some cases departs from the requirements of IFRSs, and also achieve a good level of convergence with IPSAS. However, the AASB adheres as much as possible to a policy of the same transactions and other events being subject to the same accounting requirements to the extent feasible ("transaction neutrality"), for all entities preparing general purpose financial statements (a theme also recently put forward by the AASB to the IASB in response to its review of the IFRS for SMEs).

In this context, the AASB notes the following in its submission to the IPSASB review:

The AASB strongly believes that it is artificial to divide reporting issues between those seemingly relevant to (the private sector part of) the global capital markets and those seemingly only affecting the public sector (which is also part of the global capital markets). Thirty years of experience tells the AASB that there are only a few circumstances confined to any one sector and that the economic analyses needed when dealing with such circumstances are not unique.

Consistent with this analysis, the AASB notes that in its view, existing governance and oversight arrangements do not currently "encourage the IASB and IPSASB to come to timely and consistent answers, despite the fact that to do so would be logical given the commonality of their fundamental raison d'etre". The submission goes on to say the AASB "does not wish to see the seeds sown for future costly convergence programmes simply because the two organisations take a view of the role of financial reporting that is insufficiently broad".

In this light, the AASB strongly recommends 'Option 1' (i.e. bringing the IPSASB within the ambit of the IFRS Foundation Monitoring Board and Trustees) in the consultation paper is the right way forward. However, the AASB notes that an interim step of establishing separate monitoring and oversight bodies within the auspices of the International Federation of Accountants (IFAC) (called 'Option 2') may be necessary "if the judgement is made that the IFRS governance and oversight arrangements cannot be accessed in less than two to three years".  The third option (re-establishing the IPSASB outside IFAC) is not supported on the basis it is "very likely to engender unnecessary sector specific, uncoordinated financial reporting regimes".

The AASB's letter also makes specific mention that funding should not be the primary driver of the decision on the appropriate governance and oversight arrangements for the IPSASB, noting the following:

The task of funding Options 1 and 2 is quite small compared with the funding of the establishment of the entire IFRS arrangements. If even a relatively small number of governments supported leveraging those arrangements, the cost per government would be relatively small.

Click for access to the AASB's letter (link to the AASB website).

Agenda for the April 2014 IFRS Foundation Trustees meeting

31 Mar 2014

An agenda has been released for the upcoming meeting of the IFRS Foundation Trustees, which is to be held in Sydney on 10 April 2014.

The agenda for the meeting is summarised below:


IFRS Foundation Trustees meeting (11:30-13:00 AEST / 01:30-03:30 UTC)

  • Report of the Chair of the IFRS Foundation
  • Report of the Chair of the International Accounting Standards Board (IASB) and IASB technical staff
  • Report of the Due Process Oversight Committee (DPOC)


Agenda papers for the meetings will be made available on the IASB's website in due course.

March 2014 IASB meeting notes — Part 5 (concluded)

30 Mar 2014

The IASB's meeting was held on 13–21 March 2014, some of it having been a joint meeting with the FASB. We have now posted the remaining Deloitte observer notes from the IASB-only sessions on proposed amendments to IAS 1 as regards classification of financial liabilities, issues from the Interpretations Committee and the equity method in separate financial statements.

European Commission package of measures on long-term financing

28 Mar 2014

The European Commission has adopted a package of measures to stimulate new and different ways of unlocking long-term financing and support Europe's return to sustainable economic growth. The measures build on the responses to the Commission's Green Paper consultation on the long-term financing of the European economy of March 2013. They include measures in connection with accounting standards.

Much of the debate around the Green Paper had been focused on the question whether fair value accounting leads to short-termism in investor behaviour. Many respondents had pointed at the wide range of factors that contribute to short-termism and stated that fair value accounting principles of themselves do not lead to short-termism in investment behaviour (see comments by IASB, EFRAG, FEE). Respondents had also commented on the significance of the IASB Conceptual Framework for ensuring that future accounting standards are developed in a way that is not damaging to long-term investment. They also pointed to the ongoing work of the IASB to review the accounting of financial instruments.

In the communication describing the package of measures, the European Commission has widened the discussion again including the review of endorsement criteria in connection with the planned reform of EFRAG and the conditions around the continued EU co-financing of the IFRS Foundation and has also included considerations around SME accounting as SMEs are regarded as key contributors to sustainable growth.

The actions the Commission intends to take are the following (reproduced from the communication):

  • In the framework of its endorsement of the revised IFRS 9, the Commission will consider whether the use of fair value in that standard is appropriate, in particular regarding long term investing business models.
  • The Commission will invite the IASB to give due consideration to the effect of its decisions on the investment horizons of investors both in specific relevant projects and in its development of the Conceptual Framework, paying particular attention to the reintroduction of the concept of prudence.
  • The Commission services' evaluation of the IAS Regulation will explore with stakeholders in the course of 2014 the appropriateness of the endorsement criteria, taking account of Europe's long-term financing needs.
  • The Commission services will launch a consultation in 2014 to examine (i) the case for a simplified accounting standard for the consolidated financial statements of listed SMEs, and (ii) the usefulness of a complete self-standing accounting standard for non-listed SMEs to supplement the Accounting Directive.

Please click for the following information on the European Commission website:

EFRAG fears breach of IAS 1 principle

28 Mar 2014

The European Financial Reporting Advisory Group (EFRAG) has written to the IASB to express serious concerns about the forthcoming amendments to IAS 28 'Investments in Associates and Joint Ventures' in relation to other net asset changes when applying the equity method of accounting.

EFRAG states that the envisaged amendments would conflict with the fundamental IAS 1 principle that only transactions with equity holders impact equity directly. Moreover, economically similar transactions (direct and indirect acquisitions and disposals) would be accounted for differently. And lastly, EFRAG claims that the amendments would lead to a deferred recognition of losses as reductions in the carrying value of an investee due to dilution would only be recognised in profit or loss when the equity method is no longer applied. EFRAG also points out that the amendments would require modifying the prevailing practice in Europe.

In the letter, EFRAG mentions that the majority of respondents to the IASB's exposure draft ED/2012/3 Equity Method: Share of Other Net Asset Changes (Proposed amendments to IAS 28) did not support the proposals and that at the March 2014 meeting of the Accounting Standards Advisory Forum (ASAF), EFRAG and other ASAF members voiced concerns regarding the IASB's decision to continue with the proposals as exposed despite opposition from a significant majority of respondents to the due process.

The EFRAG letter contains an alternative accounting model largely based on the recommendations made by the IFRS Interpretations Committee to the IASB when the issue was separated out from the annual improvement process. This alternative approach does not have the problems described.

Please click for access to the following information on the EFRAG website:

FEE publishes issues paper on EPSAS

28 Mar 2014

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has published a paper discussing the issues emerging in the public debate on a possible future implementation of 'European Public Sector Accounting Standards' (EPSAS) in European Union (EU) member states.

The issues paper reflects many observation from the sceptical cover letter attached to the FEE response to the December 2013 EU consultation, but describes in more detail why better public sector financial information is needed, the existing international standards and their perceived shortcomings, and possible issues that may arise in the development of European standards.

The issues paper can be accessed on the FEE website.

EFRAG draft comment letter on the ESMA consultation on alternative performance measures

27 Mar 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the European Securities and Markets Authority (ESMA) consultation on 'Guidelines on Alternative Performance Measures'.

In the draft comment letter on the proposed guidelines, EFRAG comments that alternative performance measures (APMs) "can provide useful information to users when properly used and presented, and assist investors in gaining a better understanding of a company's financial performance". Therefore, EFRAG supports the idea of clearly defined and explained APMs that are presented consistently over time. However, EFRAG believes that the proposed definition of an APM is overly broad and does not work very well in the context of IFRS financial reporting.

EFRAG also believes that the scope of the proposed guidelines is much broader than appropriate and that the reference to 'all documents containing regulated information made publicly available' lacks a clear underlying principle. EFRAG especially recommends to keep prospectuses and part of prospectuses out of the scope as was the case with the CESR Recommendation the new ESMA guidelines are intended to replace.

Generally, EFRAG observes that ESMA "has not provided clear evidence on why the existing CESR Recommendation is no longer considered to provide adequate guidance and is in need of replacement". In some cases EFRAG even believes that the proposed guidelines could have negative effects. EFRAG states for example that the 'prominence' requirement regarding the presentation of APMs as currently drafted in the guidelines could result in imposing a form of 'ceiling' on the amount of voluntary information that an entity is allowed to disclose regardless of whether such information is beneficial to user. EFRAG also believes that ESMA is partly in danger of introducing requirements that may inadvertently result in clutter and boilerplate disclosures.

Comments on the EFRAG draft comment letter invited by 25 April 2014.

Please click for the following information on the EFRAG website:

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