May

ASBJ begins publishing discussion paper series

26 May 2014

The Accounting Standards Board of Japan (ASBJ) has published the first issue of a new series of short discussion papers intended to contribute to the global discussion around financial reporting standards. Issue No.1 is entitled 'Is OCI Unnecessary?'.

The paper explores the possibility of abolishing or minimising the use of other comprehensive income (OCI) in the financial statements. It does so by considering the usefulness of financial information if the same measurement basis must be used for measuring an asset or a liability both from the perspective of the entity's financial performance and its financial position (abolishing the use of OCI would mean that it would be impossible to use two measurement bases to measure the same asset or liability).

The paper comes to the conclusion that always using the same measurement basis would be unrealistic as users have increasingly called for more information to measured at current value on the face of the balance sheet. Moreover, the ASBJ points out that the Conceptual Framework itself indicates that the purposes of balance sheets and income statements are not necessarily congruent with each other, and that the use of two different measurement bases could increase the usefulness of the financial information presented. Overall, the paper concludes setting the goal of abolishing or minimising the use of OCI "would be inappropriate or unfeasible", and that on the contrary the continued use of OCI is necessary to maintain the usefulness of financial information.

Please click for access to the paper on the ASBJ's website.

Agenda for May 2014 Emerging Economies Group meeting

26 May 2014

The agenda is available for the meeting of the Emerging Economies Group (EEG) and International Accounting Standards Board (IASB), which is being held in Moscow on 28-29 May 2014. The meeting will focus on the equity method of accounting (including a paper prepared by the Korean Accounting Standards Board (KASB)), the definition of "close members of the family of a person” in IAS 24 'Related Party Disclosures', and the recognition of elements of financial statements. The meeting will also discuss a number of the IASB's current projects and consider a number of other topics.

The full agenda is summarised below:

Wednesday 28 May 2014 (09:30-21:00)

  • Address by hosting country (Russia)
  • Address by the EEG Chair and Vice-Chair
  • Presentations on the equity method:
    • Korean Accounting Standards Board
    • International Accounting Standards Board
  • Group photo
  • Discussion on equity method
  • Administration issue - topics for next meeting
  • Welcome dinner

Thursday 29 May 2014 (09:30-14:30)

  • IASB updates - including agriculture accounting and rate-regulated activities
  • IAS 24 Related Party Disclosures - definition of "close members of the family of a person”
    • Group discussion of an issue raised by The Saudi Organization for Certified Public Accountants
  • Recognition in the Conceptual Framework
    • Consideration of an issues paper prepared by the National Organization for Financial Accounting and Reporting Standards, Russia
  • Discussion and approval of Communiqué
  • Meeting summary
  • Working lunch

 

Agenda papers from this meeting are available on the IASB's website.

Deloitte comment letter on IFAC supplementary financial measures proposals calls for global coordination

25 May 2014

Deloitte Touche Tohmatsu Limited has responded to the Professional Accountants in Business Committee (PAIB) of the International Federation of Accountants (IFAC) on its exposure draft for an International Good Practice Guidance (IGPG) on 'Developing and Reporting Supplementary Financial Measures—Definition, Principles, and Disclosures'. We support the objective of developing guidelines on supplementary financial measures, but call for greater global coordination between the various global and other initiatives in this area.

We support the objective of achieving a set of commonly shared guidelines on the presentation of, and information about, supplementary financial measures (SFMs), whose objective would be ensuring the quality, transparency and usefulness of the financial information provided to users, regardless of whether such supplementary financial measures are included within or outside of financial statements. We believe this objective is important given the widespread use of such measures and existing diversity in presentation and explanation of such measures around the world.

However, we note that there are various initiatives in the area of supplementary financial measures in addition to the IFAC PAIB proposals, including:

  • Existing guidance in some jurisdictions, e.g. Australia, New Zealand and Canada
  • Separate proposals on this topic from the European Securities and Markets Authority (ESMA)
  • Expected guidelines from the International Organization of Securities Commissions (IOSCO)
  • The International Accounting Standards Board's (IASB) indicated intention to research the presentation and disclosure of non-IFRS financial information as part of its disclosure initiative project.

In light of the above, our comment letter makes the following observations:

Therefore, due to the global nature of the subject and the varied placement of SFMs (i.e. inside/outside financial statements), care should be taken that actions or guidance targeted at a global audience do not conflict with global initiatives undertaken by global accounting standard-setters and regulators. We therefore strongly suggest that the IFAC PAIB liaises in particular with the IASB and IOSCO so as to coordinate its actions, as well as obtain input from them on any proposed IGPG on SFMs. In this way, we believe that the IFAC PAIB can most effectively contribute to the aim of high quality financial reporting applied without regional variation.

The full comment letter can be downloaded here.

May 2014 IASB meeting notes — Part 2

23 May 2014

The IASB's meeting was held on 20–22 May 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB's sessions on equity method of accounting (research project and other net asset changes) and insurance contracts.

Click through for direct access to the notes:

Wednesday, 21 May 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

The Bruce Column — Back on the SEC's agenda

23 May 2014

Mary Jo White, Chair of the SEC, has put IFRS back on the US agenda in a speech to FASB’s oversight body. Our regular resident columnist Robert Bruce reports.

We are on the verge of the publication of the new standard on revenue recognition, a joint project between the global standard-setter, the IASB, and the US standard-setter, FASB. And it has been praised by the Chair of the main US regulator, the SEC. Mary Jo White has said that: ‘this project on one of our most fundamental and critical standards is a true success for both FASB and the IASB’.

She was speaking the other evening at the annual dinner of the Financial Accounting Foundation Trustees, FASB’s oversight body. She talked of the position of International Financial Reporting Standards, (IFRS), in the US. She recalled that for the past seven years foreign private issuers have been able to report under IFRS without the need to reconcile to US GAAP. ‘Today’, she said, ‘over 500 companies representing trillions of dollars in aggregate market capitalization report to us under IFRS with no reconciliation. And the SEC staff enforces those standards’. Her conclusion was clear. ‘By any measure’, she said, ‘we have thus demonstrated a major commitment to the use of IFRS in our markets’.

She then turned to the question of domestic issuers. ‘Considering whether to further incorporate IFRS into the US financial reporting system has also been a priority to me’, she said. ‘And it continues to be’.

She referred to previous SEC pronouncements on the issue. And then said it was being pressed to answer other questions by ‘our international regulatory and accounting counterparts’. They wanted to know whether and, if so, when, and how the US and the SEC was going to incorporate or otherwise speak again ‘to the issue of further incorporation of IFRS into the US domestic capital markets’. She referred back to the SEC’s last thoughts on the subject. In February 2010 it had said that ‘a single set of high-quality globally accepted accounting standards will benefit US investors and that goal is consistent with our mission’.

‘That’, she said, ‘remains true today and I have made it a priority for the Commission to position itself to make a further statement on this very important subject, now that we have six years of experience working on the priority convergence projects with the IASB and over six years of experience with foreign private issuers filing IFRS-prepared financial statements without a US GAAP reconciliation’.

The questions, she said: ‘are important to answer and I hope to be able to say more in the relatively near future’. And in the meantime next week there is the publication of a converged revenue recognition standard to look forward to.

'International accounting standards essential for growth'

23 May 2014

The Japanese IASB member Takatsugu Ochi has published an article in the 'Nikkei Asian Review' arguing that Japan would profit from adopting IFRSs.

Mr Ochi points to the fast-growing number of countries have incorporated IFRSs into their accounting systems (some of them just recently) because adoption of the internationally recognised Standards "deepens the understanding of financial information and enhances the possibility of comparing such information, thereby increasing business choices". As Japanese accounting standards are not widely understood in international markets Japanese companies are put at a competitive disadvantage and are left with low share prices - Mr Ochi calls this a 'Japanese standards discount'.

According to Mr Ochi, adopting IFRSs would free Japanese companies from these disadvantages and help them gain various options, such as cross-border fund procurement, capital tie-ups and business collaborations. He also points at standardised management processes and uniform control within multinational companies that would come with the adoption of IFRSs.

The fact that Japan tends to look to the United States and possible IFRS adoption there does not help, Mr Ochi claims. US-GAAP and IFRSs are already aligned in some important aspects (he especially mentions the forthcoming standard on revenue recognition) and common accounting practice is developing. A delay in adopting IFRSs does not only preclude Japan from partaking of the advantages that globally accepted accounting standards offer, it also prevents Japanese accountants from accumulating business experience and of being a part of developing common accounting practice. He states: "Once business practice is established, it would be impossible for auditors and corporations, and late-comer countries, to modify these with ease."

Mr Ochi admits that adopting a new accounting framework requires preparation time and costs money. However, he points out that this is a one-time only effect and the costs can be handled. Therefore he concludes that this one-time effect should be weighed carefully against the advantages that Japan might have from adopting IFRSs and the disadvantages it might have from not adopting - especially given that the positive effects of adopting IFRSs would be indispensable for Japan's medium- to long-term growth strategy. He concludes: "Japan cannot afford to waste any more time."

Please click for access to the full text of the article on the IASB website.

IASB to host live web presentation on the disclosure initiative ED

23 May 2014

On 10 June 2014, the staff of the International Accounting Standards Board (IASB) will give a live web presentation on the IASB's Exposure Draft (ED) of proposed amendments to IAS 1 'Presentation of Financial Statements'.

The presentation will include an overview of the proposed amendments and a question and answer session. It will start at 11:30 UK time and will last approximately 30 minutes. Please click for more information and for registering on the IASB's website.

ESMA publishes IFRS enforcement report

23 May 2014

The European Securities and Markets Authority (ESMA) has published to its website a report on 'Activities of the IFRS Enforcers in Europe in 2013'. The report provides a description of the existing enforcement system in Europe, the main activities that were coordinated at European level during 2013, information on enforcement activities and ESMA's contribution to the standard-setting process.

ESMA discharges of the responsibility of monitoring of compliance of financial information with International Financial Reporting Standards (IFRS) and taking of appropriate enforcement action mainly through the European Enforcers Co-ordination Sessions (EECS) which co-ordinate the enforcement activities of Member States in order to increase convergence amongst European enforcer’s activities. The EECS also provide feedback to the International Accounting Standard Board (IASB) on issues related to the application of IFRSs identified as part of the enforcement process.

In 2013, European enforcers performed full reviews of around 1050 interim and annual IFRS financial statements covering around 14 % of listed entities accounts in Europe. In addition, around 850 financial statements were subject to partial review, representing coverage of 11 % of the population of listed entities.

During 2013, ESMA also considered the application of the 2012 European Common Enforcement Priorities in the 2012 annual IFRS financial statements. In order to ensure a relevant assessment at European level, ESMA selected a sample of 185 issuers from 25 European countries for review by national enforcers. The 2012 priorities related to recognition, measurement and disclosure of impairment of non-financial assets, measurement of defined benefit obligations, and disclosures related to provisions for non-financial liabilities. (An analysis of issues related to financial instruments was performed separately as part of ESMA's review of accounting practices of financial institutions and resulted in the publication a separate report in November 2013.)

As a result of review of the sample of 185 financial statements, national enforcers took 46 enforcement actions (either required public corrective notes or a different form of public announcement or required corrections in future financial statements). 43% of those enforcement actions related to the disclosure of operational assumptions, growth and discount rates (IAS 36), 20% to sensitivity analyses (IAS 36), and 13% to provisions (IAS 37). Nevertheless, ESMA and the national enforcers identified improvement in the quality of elements of disclosure in 2012 IFRS financial statements in comparison with the results of their enforcement activities in the prior year.

Please click for access to the full report on the ESMA website.

UNCTAD report on human capacity development in accounting and corporate reporting

23 May 2014

The United Nations Conference on Trade and Development (UNCTAD) has publicly released 'International Accounting and Reporting Issues - 2013 Review'. The document provides a review of trends, recent developments and challenges, as well as country case studies, on human capacity development in the areas of accounting and corporate reporting.

The release of the report follows papers and discussions considered at the thirtieth session of the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) which has held in Geneva on 6-8 November 2013 and also focused on the human resource development challenges that arise in high-quality corporate reporting. The report builds on the ISAR discussion and also includes the outcomes of country case studies conducted by the UNCTAD secretariat studies in Chile, Denmark, Malaysia, the Russian Federation and the United Republic of Tanzania.

The report considers the benefits and human resource development challenges of globally recognised corporate reporting standards, including International Financial Reporting Standards (IFRS), International Standards on Auditing (ISAs) and various codes on environmental, social and corporate governance such as the Global Reporting Initiative (GRI) 'G4' guidelines and earlier ISAR guidance. It provides the following introduction:

There are a number of human capacity related challenges that countries face when implementing corporate reporting standards and codes developed at a global level. These challenges occur to a varying extent in all countries regardless of their level of economic development. Reorientation of existing national education systems to integrate globally developed standards and codes could take a considerable amount of time – in some cases an entire generation. Transition to a new accounting framework is challenging and a critical integral component of managing such a transition period is developing the necessary competencies in relation to implementation of the global standards. Thus, developing human resources capacity for corporate reporting in a sustainable manner requires regulatory and institutional support as well as reliable sources of funding.

The report includes many observations and recommendations, including the following:

  • The benefits of global corporate reporting standards can only be realised if they are properly implemented, which in turn depends on properly trained human resources developed through education, training and experience
  • There is an increasing need for the harmonisation of internationally accepted qualifications for accountants and auditors, through the International Education Standards (IESs) published by the International Accounting Education Standards Board (IAESB) and programmes such as the IFRS Foundation education initiative and various regional programmes
  • The development of professional accounting organisations (POAs) operating at full capacity is critical to train qualified professional accountants, with problems cited including a lack of capacity and shortage of accountants, excessive numbers of professional associations in some countries, regulatory framework hurdles, and a need to constantly update programmes in light of rapid and continuous changes in international standards - regional collaboration is seen a critical response in addressing these areas
  • High-quality education relies on courses taught by qualified professors in the context of an increasingly complex content of teaching materials, growing numbers of accountants to train, language barriers and lack of English proficiency, an ageing academic population in some countries, and a lack of coordination and harmonisation of curricula
  • Challenges are often more difficult in the public sector than the private sector, with low adherence to relevant IFAC Statements of Membership Obligations (SMOs) by many professional organisations, low adoption of International Public Sector Accounting Standards (IPSAS) worldwide, and more severe shortages of professional accountants
  • The case studies provide various indications that efforts towards full convergence with IFRSs have been hampered by insufficient knowledge of international standards and difficulties in adjusting the national system of accounting to adapt international standards. Language barriers and the need for collaboration with universities to introduce international accounting aspects into curricula were also evident.

The full report is available on the UNCTAD website.

Revised agenda for June 2014 ASAF meeting

23 May 2014

The agenda has been revised for the upcoming meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held at the IASB's offices in London on 2-3 June 2014. The topics to be discussed have not changed, but topics have been swapped between the two days of the meeting.

The revised agenda for the meeting is summarised below:

Monday, 2 June 2014 (10:30-17:45)

  • Disclosure initiative*
  • Equity method of accounting
  • Insurance contracts
  • Financial instruments - Macro hedge accounting
  • Conceptual framework


Tuesday, 3 June 2014 (09:00-13:15)

  • Research update*
  • Business combinations under common control*
  • Conceptual framework
  • IASB project update and agenda planning
  • Debrief

* Indicates a change in order from the initial agenda.

Agenda papers for the meeting are available on the IASB's website.

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