In his speech, Mr Hoogervorst looked at the moral hazard that is always present wherever people work with other people's money and he explored the question of what the role of accounting standards is against this backdrop of moral hazard.

According to the IFRS Foundation Constitution, the goal behind accounting standard-setting is to require entities to provide high quality, transparent and comparable information in their financial statements so that investors can make informed decisions. Mr Hoogervorst claimed, however, that the mission of the IFRS Foundation was much more far reaching - according to him it was "building trust in financial markets" and one way to do so would be to minimise moral hazard through discipline and rigour and through eliminating information asymmetry.

In addition to some historical examples of what the IASB has achieved in this area, Mr Hoogervorst pointed at the current battle fought in the leases project. "Stripped bare, the leasing project is all about preventing the understatement of liabilities." He stated that there was huge resistance against bringing these liabilities to the balance sheet and yet he said he had no doubt that discussing leasing liabilities in the boardroom and with investors would soon be as much routine as discussing pension liabilities is now.

However, he also conceded, sometimes the IASB did not manage to do what it set out to do. He cited the incurred loss model for impaired financial assets that was designed to prevent earnings management by banks. However, the global financial crisis showed that that model could actually be used to delay showing the true financial situation of companies. Nevertheless, Mr Hoogervorst refused to connect the financial crisis with the current debate on reintroducing the concept of prudence into the Conceptual Framework:

But I also want to be clear about what Prudence as a concept cannot mean. It cannot mean a return to old-fashioned accounting with hidden reserves. It cannot lead to a systemic bias toward conservatism that is at odds with neutrality. Prudence should not be invoked to create a taboo on using current measurement. There is nothing more imprudent than to measure derivatives at cost or to measure an insurance liability at historic interest rates.

Speaking about governance and moral hazard, Mr Hoogervorst turned to the question of whether the fact that the IASB is privately organised does not make it vulnerable to pressure from private interests. Although he conceded that this question deserves a serious answer and should not be shrugged off lightly, he also pointed out that a public governance structure of standard-setting was in itself no guarantee for avoiding moral hazard. He cited as an example public sector accounting where in most jurisdictions the public accounting standards are set by the public authorities themselves. "Whether these standards always lead to a complete picture of a country's financial position is in doubt," he added. Therefore, he concluded that the key to successful standard-setting was its ability to fend off capture by special interests irrespective of its provenance and the key to preventing moral hazard in standard-setting was to find the right balance between independence and accountability.

Please click for access to the full text of Mr Hoogervorst's speech on the IASB website.

The Venezuelan Commission for the Administration of Foreign Exchange (CADIVI) until recently controlled the sale and purchase of foreign currency in Venezuela and set an official exchange rate. In 2013, the Venezuelan government authorised certain companies that operate in designated industry sectors to exchange a limited volume of bolivars for dollars at a bid rate established via weekly auctions under the Complementary System of Foreign Currency Acquirement (SICAD 1). In February 2014, the Venezuelan government announced plans for another currency exchange mechanism (SICAD 2), which is intended to more closely resemble a market-driven exchange rate than the rates provided by Venezuela's other regulated exchange mechanisms. All mechanisms lead to strikingly different results, ranging from  the official exchange rate set at 6.3 BsF to 1 USD to the SICAD 2 rate of 50.86 BsF to 1 USD on 31 March 2014.

The accounting considerations arising in this context include:

• Remeasurement in an environment with multiple exchange rates. Entities will be required to reevaluate the exchange rate previously used for remeasurement and determine the most appropriate exchange rate(s) for remeasurement. The ultimate selection of an exchange rate (or multiple rates) should be based on an entity's specific facts and circumstances and will require significant judgment. Accordingly, an entity should clearly document the facts and circumstances that it considered in its analysis of what exchange rate(s) to use for remeasurement.
• Classified balance sheet considerations. Entities with classified balance sheets should consider whether classifying certain BsF-denominated monetary assets as current is still appropriate in light of the present economic environment.
• Deconsolidation and impairment considerations. Volume restrictions on exchange activity in Venezuela (either explicit or in-substance), in conjunction with the uncertainties of obtaining approval for foreign exchange through the established exchange mechanisms, may indicate an other-than-temporary lack of exchangeability associated with its Venezuelan operations. Similarly, the operating and economic uncertainties in Venezuela may indicate an other-than-temporary impairment.
• Disclosure. There is a need for robust disclosure in the notes to the financial statements as well as in the description of business, the risk factors, and the management discussion and analysis. Entities should also clearly document their accounting conclusions and the underlying rationale.

Deloitte (United States) has published a Financial Reporting Alert that discusses considerations related to accounting and disclosure under U.S. GAAP in connection with the foreign currency exchange environment in Venezuela. Although U.S. GAAP focused, the publication contains many considerations that equally apply to accounting under IAS 29 Financial Reporting in Hyperinflationary Economies that applies where an entity's functional currency is that of a hyperinflationary economy and requires the financial statements (and corresponding figures for previous periods) of an entity with a functional currency that is hyperinflationary to be restated for the changes in the general pricing power of the functional currency. Many considerations can also be transferred to situations in Belarus, the Islamic Republic of Iran, South Sudan, Sudan, the Democratic Republic of Congo, and Ethiopia, all of which are also regarded as hyperinflationary according to the IPTF.

Please click for:

• Financial Reporting Alert 14-1 - Foreign currency exchange accounting implications of recent government actions in Venezuela
• Our summary of IAS 29 Financial Reporting in Hyperinflationary Economies
• Our summary of the IASB's research project on financial reporting in high inflationary economies
• Report from the IPTF meeting in November 2013 (link to AICPA website)
  

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, fifteenth in the series and covering the period from December 2012 to November 2013, include:

Click for access to the full report (link to ESMA website).

India originally intended to converge with IFRSs in a phased approach beginning in 2011, but transition to Ind AS was postponed and a transition date is yet to be formally announced by the Indian Ministry of Corporate Affairs (MCA).

The latest recommendations by the ICAI, which may or may not be accepted by the MCA, propose the following:

• Ind AS will be applied by the following classes of companies in preparing consolidated financial statements for accounting periods beginning on or after 1 April 2016, with comparatives for the year ending 31 March 2016 or later:
  • Entities with equity or debt securities listed, or in the process of listing, in or outside India
  • Companies having a net worth of Rs. 500 crore or more, with net worth calculated by reference to the stand alone audited balance sheet of companies as at 31 March 2014 (or the first balance sheet after that date)
  • Holding, subsidiary, joint venture or associate companies of the above two classes of entities
• Companies meeting the criteria for applying Ind AS would be required to continue applying Ind AS in subsequent consolidated financial statements even if they no longer meet the criteria for mandatory application
• Companies not required to apply Ind AS would apply existing notified Accounting Standards (AS) ('Indian GAAP'), which would also be used to prepare individual financial statements of the companies applying Ind AS in their consolidated financial statements
• Companies not required to apply Ind AS can optionally apply Ind AS instead of existing Indian GAAP on a voluntary basis, but the election would be irrevocable and consolidated financial statements would be consistently prepared in accordance with Ind AS in all subsequent periods.

The roadmap for financial institutions and insurance companies will be determined in a separate process, in consultation with the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA).

In preparation for adoption of Ind AS, the MCA initially notified 35 Indian Accounting Standards that are converged with, but not identical to, IFRSs. Subsequently, amendments and additions to Ind AS have been made as the IASB has issued pronouncements. As a result of this process, modifications made to IFRS in promulgating Ind AS may prevent an entity following Ind AS from making an explicit and unreserved statement of compliance with IFRSs (Ind AS 1 Presentation of Financial Statements requires a statement of compliance with Ind AS, not IFRSs).

IASB Chair Hans Hoogervorst recently gave a speech at an event hosted by the ICAI in New Delhi where he invited India to move to 'full' IFRS compliance soon due to his belief that only adoption of IFRSs can lead to a single set of high quality global accounting standards. In a recent blog post (link to ICAI website), K Raghu, President of the ICAI, noted in the following in response:

Here I must mention that we have very consciously decided to converge with IFRS and not fully adopt it, mainly because a resurgent India is very different from its peers in the West or elsewhere, with its own priorities and preferences. There is no change in that stand as of now. However, in the longer term we may consider his viewpoint, but only after sorting out some crucial issues and testing the impact of our converged Ind AS on [the] corporate sector.

Click for access to the ICAI recommendations (link to ICAI website).

Highlights were the adoption of:

The regulation forms the legal basis for the continuation of financing the IFRS Foundation and PIOB for the period 2014-2020 and of EFRAG for the period 2014-2016. The financing period of EFRAG is limited to three years in view of prospective reforms that might arise from the Maystadt Report.

Regarding the premises of continued financing, the regulation states:

The Commission, taking into account developments following the recommendations set out in the special advisor's report, should submit reports in March 2014 and on a yearly basis as of 2015, at the latest in June, on EFRAG's progress in the implementation of its governance reforms. The IASB has initiated the review of the Conceptual Framework. Following the issue of the revised Conceptual Framework, the Commission should report to the European Parliament and to the Council on any changes that have been introduced in the Conceptual Framework and reasons thereof, with a particular focus on the concepts of prudence and reliability ensuring that a ‘true and fair view’, as laid down in Directive 2013/34/EU, is respected.

Please click to access the full text of the regulation on the European Union website (available in all languages of the EU).

More information about the issues is set out below:

You can access all our comment letters to the IASB, IFRS Foundation, and IFRS Interpretations Committee here.

The topics discussed at the meeting included:

• Leases. The CMAC members discussed the alternative lessee accounting models. Most of the members supported the single model approach because it shows a link between the balance sheet and income statement. The few that supported the dual approach believed that it effectively reveals the economic differences between real estate leases and equipment leases.
• Post-implementation Review of IFRS 3. The CMAC provided feedback to certain questions within the Request for Information paper issued on 30 January 2014. Specifically, the members discussed:
  • Business combinations versus assets acquisitions.
  • Separate recognition of intangible assets from goodwill.
  • Goodwill: Non-amortisation versus amortisation.
• Integrated reporting. The CMAC members provided feedback on the IASB’s role concerning integrated reporting. There were a variety of views ranging from the IASB not focusing on integrated reporting to others believing the information is already present for investors.
• Debt disclosures. The CMAC supported the introduction of a project on debt disclosures and provided additional suggestions to the IASB staff.
• Equity method. The CMAC provided some considerations to the IASB staff on the scope of a project on equity method.
• Disclosure initiative — Materiality. The CMAC supported the IASB project on materiality. They believe that the goal should be to make disclosures more effective, but not reduce the amount of disclosures. They also suggested that the IASB research ways to clearly define the concept of materiality.

The next CMAC meeting is scheduled for 30 June 2014.

For more information, see the meeting page on the IASB website.