June

IVSC policy paper on global regulatory convergence

20 Jun 2014

The International Valuation Standards Council (IVSC) has published a policy paper dealing with the role of valuation in global regulatory convergence.

The policy paper, Global Regulatory Convergence and the Valuation Profession, includes the following summary:

With many corporations and financial institutions now operating globally, convergence of the diverse systems of national regulation of the financial markets is essential for both effective regulation and to facilitate economic growth. Consistent and effective regulation is important in promoting the comparability of financial information, minimising the effects of systemic economic risks, and helping to create a level playing field for international competition. For the valuation profession, regulatory convergence includes the global adoption and implementation of high-quality internationally accepted standards for the undertaking and reporting of those valuations that are relied upon by investors and regulators of the global financial markets.

The paper outlines:

  • the role of valuation in meeting the public interest in areas such as financial reporting, solvency of financial institutions, lending and investment decisions and unit pricing of collective investment schemes, noting that a 'one size fits all' approach may not always be suitable
  • an overview of how the valuation profession can contribute to global regulatory convergence through standards development, promoting consistent adoption and implementation, and developing regulatory arrangements
  • the key benefits of global regulatory convergence, including the comparability of financial information, improving the auditability of financial statements, reducing the effects of systemic risks, reducing information costs, decreasing opportunities for regulatory arbitrage, underpinning the global regulatory system, and providing benefits to developing and emerging economies
  • impediments and challenges to achieving global regulatory convergence
  • the role and work of the IVSC, including the setting of valuation standards and professional standards for valuers, providing adoption and implementation support and the promotion of consistent competency and ethical standards by IVSC member bodies.

The full policy paper can be obtained from the IVSC website.

Membership of the Expert Group on the evaluation of the European IAS Regulation announced

19 Jun 2014

The European Commission (EC) has announced the membership of the informal 'Expert Group on the evaluation of the IAS Regulation'.

The following organisations were appointed:

  • European Securities and Markets Authority (ESMA),
  • Business Europe,
  • VMEBF (German family-owned business group),
  • European Banking Federation (EBF),
  • Insurance Europe,
  • European Federation of Financial Analysts Societies (EFFAS),
  • Investment Management Association (IMA),
  • Federation of European Accountants (FEE),
  • Association of Chartered Certified Accountants (ACCA),
  • Bruegel,
  • European Accounting Association (EAA).

In addition, the following Member States authorities were appointed:

  • Accounting Standards Board, Estonia,
  • Autorité des Normes Comptables, France,
  • Accounting Standard Setter Committee, DRSC, Germany,
  • CONSOB, regulator of the financial market, Italy,
  • Bank of Spain, Spain,
  • Accounting Standards Board BFN, Sweden,
  • Financial Reporting Council, UK.

The European Commission's expert group is intended to advise and assist the EC in conducting the retrospective evaluation of the IAS Regulation. The Commission currently envisages that it would have a public consultation and possibly targeted workshops. It will seek to draw on the expertise of the group to advise it in respect of such activities and others as required by the Commission.

Please click for the announcement of members on the EC website.

New EFRAG governance structure will become effective 31 October 2014

19 Jun 2014

On 16 June 2014, in an EFRAG General Assembly meeting, EFRAG's existing 7 Member Organisations have approved the revised EFRAG Statutes and Internal Rules and admitted 8 new members. The effective date of 31 October 2014 was chosen because the European Commission will only be able to nominate the President of the EFRAG Board after having heard the European Parliament and the Council of Ministers, which is expected to to take place in early autumn.

The revised EFRAG Statutes and EFRAG Internal Rules that reflect the recommendations of the Maystadt report will establish a new EFRAG Board that will be responsible for all EFRAG positions with the objective of Europe speaking with one voice, facilitated by a consensus-based decision-making process in the EFRAG Board.

According to the revised EFRAG Internal Rules, the EFRAG Board is responsible for all positions of EFRAG, after having considered the technical advice provided by EFRAG TEG and reflecting the results of EFRAG's due process and must ensure that EFRAG has an open and transparent due process including a public consultation process with European constituents on draft EFRAG positions such as discussion papers, draft comment letters, draft consultation documents and draft endorsement advices. Specifically, the Internal Rules list the following responsibilities:

  • To set the strategic direction of EFRAG taking into account the priorities defined by the European Commission in respect of developments in international financial reporting standards (IFRS);
  • To provide directions to and request technical advice from EFRAG TEG on issues relevant for the EFRAG Board's positions, oversee the work of the EFRAG TEG, and provide guidance and feedback to the EFRAG TEG on its work;
  • To provide directions on the field work of EFRAG where specific consultations or investigations are deemed necessary to provide an economic assessment;
  • To ensure the optimal use of European resources;
  • To advise the European Commission on the strategic direction in relation to financial reporting;
  • To consider and comment upon proposed developments to European regulations, directives, guidelines and guidance as requested by the European Commission;
  • To decide on the agenda of EFRAG's research activities, after consultation with the European Commission and after public consultation on possible projects to be included in the research agenda, when deemed necessary, so as to stimulate the accounting debate in Europe and influence the IASB; and
  • To provide input to the IASB’s agenda consultations after consultation with the European Commission and after public consultation.

EFRAG TEG, which is expected to have at least ten physical meetings every year lasting for an average of three days, provides technical advice to the EFRAG Board, however, the latter has sole responsibility for all EFRAG positions. EFRAG TEG provides its own professional judgment, arguments and technical analysis based on its technical expertise and on EFRAG's due process. EFRAG TEG's advice then forms part of the EFRAG Board agenda papers for the Board’s finalisation and approval. EFRAG TEG will also provide input for the EFRAG research activities in the financial reporting arena in active projects launched by the EFRAG Board. It is expected that EFRAG TEG will deliver sound technical judgments supported by reasoned opinions without regard to the particular interests of member or nominating organisations.

Please click for the following information on the EFRAG website:

IFRS Foundation appoints Trustee

19 Jun 2014

The IFRS Foundation has announced the appointment of Jin Liqun as Trustee of the IFRS Foundation. The appointment will begin on 1 July 2014 and will expire on 31 December 2016.

Mr Liqun is currently the Chairman of China International Capital Corporation Limited, as well as a member of the foreign policy advisory committee of the Chinese Foreign Ministry. He has a background in investments and capital markets related to public and private sectors.

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

Agenda for June 2014 joint CMAC-GPF meeting

19 Jun 2014

Representatives from the International Accounting Standards Board (IASB) will meet with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on Monday, 30 June 2014. The agenda for the joint meeting has been released. The meeting will consist of a series of presentations and breakout sessions on the Conceptual Framework, disclosure initiative, leases and the post-implementation review of IFRS 3 'Business Combinations'.

The full agenda for the meeting (as of 16 June 2014) is summarised below:

 

Monday, 30 June 2014 (9:00-16:30)

  • Welcome and general IASB update
  • Conceptual Framework - presentation and breakout sessions
    • Distinction between liabilities and equity
    • Distinction between profit or loss and other comprehensive income (OCI)
  • Disclosure initiative - presentation and breakout sessions
    • Debt reconciliation
    • Principles of disclosure project
  • Leases - presentation and breakout sessions
    • Lease accounting disclosures
  • Post-implementation review of IFRS 3 Business Combinations - presentation and breakout sessions
    • Accounting for goodwill and intangible assets - the purchase price adjustment, impairment and amortisation
    • Other issues related to accounting for business combinations (e.g. step acquisitions, additional pay-outs and acquisition costs)

 

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

June 2014 IASB meeting notes — Part 1

19 Jun 2014

The IASB's meeting is being held on 17–19 June 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB session on insurance contracts.

Click through for direct access to the notes:

Tuesday, 17 June 2014

  • Insurance contracts
    • Determining discount rates when there is lack of observable data
    • Asymmetrical treatment of gains from reinsurance contracts
    • Level of aggregation
    • The identification of underlying items

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.

Report from the latest meeting of the IFRS Foundation Monitoring Board

18 Jun 2014

The IFRS Foundation Monitoring Board, the body responsible for the oversight of the IFRS Foundation, met on 13 June 2014 in Madrid. A short report from the meeting has been posted to the Monitoring Board's website.

The Monitoring Board's Final Report on the Review of the IFRS Foundation's Governance published in February 2012 identified a number of enhancements, among them expanding the membership, developing criteria for membership and beginning periodic assessments of the members against membership criteria. With regard to the selection of new members, the Monitoring Board discussed applications for the remaining two permanent seats primarily from major emerging markets to make the Monitoring Board more inclusive. Regarding the review of existing members based on the agreed membership criteria, the Board concluded its first review and found that no member was  non-compliant with the membership criteria.

At the meeting, the Monitoring Board also discussed the IFRS Foundation's governance and control developments and expressed support for the efforts made by the Foundation. However, the Monitoring Board encourages the Foundation to ensure that appropriate compliance requirements are fully implemented and to continue its efforts around transparency. As an additional topic, the European Commission raised the issue of long-term investors and accounting.

Please click for access to the full report on the Monitoring Board's website.

Corporate Reporting Dialogue launched

17 Jun 2014

The International Integrated Reporting Council (IIRC) today has introduced the Corporate Reporting Dialogue (CRD) which brings together organisations that have significant international influence on the corporate reporting landscape, among them the IASB and the FASB.

Participants in the CDR are the CDP, the Climate Disclosure Standards Board (CDSB), the Financial Accounting Standards Board (FASB), the Global Reporting Initiative (GRI), the International Accounting Standards Board (IASB), the International Integrated Reporting Council (IIRC), the International Public Sector Accounting Standards Board (IPSASB), the International Organization for Standardization (ISO), and the Sustainability Accounting Standards Board (SASB).

The participants aim to work together to respond to market calls for better alignment and reduced burden in corporate reporting by promoting proactive engagement between the key organisations. The principle aims of the CRD include:

  • To communicate about the direction, content and ongoing development of reporting frameworks, standards and related requirements;
  • to identify practical ways and means by which respective frameworks, standards and related requirements can be aligned and rationalised;
  • to share information and express a common voice on areas of mutual interest, and where possible, will engage key regulators.

According to the press release, the initial deliverable will be "to develop a 'Corporate Reporting Landscape' highlighting the connectivity of the various reporting frameworks and standards and their relevance to Integrated Reporting".

Please click for additional information on the IIRC website:

EFRAG updates its endorsement status report once more

17 Jun 2014

After publishing endorsement status reports reflecting the adoption of IFRIC 21 'Levies' for use in the EU and the issuance of a draft endorsement advice letter on amendments to IFRS 11, the European Financial Reporting Advisory Group (EFRAG) has updated its Endorsement Status Report for the third time in two days - this time to reflect the issuance of a draft endorsement advice letter on amendments to IAS 16 and IAS 38.

On 12 May 2014, the IASB published Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) providing additional guidance on how the depreciation or amortisation of property, plant and equipment and intangible assets should be calculated. EFRAG currently expects that the amendments will be endorsed for use in the EU in the first quarter of 2015.

The new endorsement status report, dated 17 June 2014, is available here.

ESMA report on accounting for business combinations

16 Jun 2014

The European Securities and Markets Authority (ESMA) has published a report 'Review on the application of accounting requirements for business combinations in IFRS financial statements'. The report finds that some good business combination disclosures are provided in the annual financial statements of European companies but that there are also certain areas where improvements are needed.

The report is based on the review of IFRS 3 disclosures in the 2012 annual IFRS financial statements of a sample of 56 issuers in the European Union, covering 66 businesses combinations reported in these statements.

For the review ESMA selected the following topics that according to ESMA's experience most frequently result in enforcement issues or lead to diversity in practice:

  • intangible assets and contingent liabilities;
  • disclosure of fair value measurement techniques;
  • recognition and measurement of goodwill and bargain purchases;
  • mandatory tender offers;
  • contingent consideration;
  • definition of a business; and
  • adjustments to fair value amounts during the measurement period.

The report details the findings on each item and concludes each point with recommendations for issuers. Although ESMA found that some good business combination disclosures were provided, there were also areas where improvement is needed. Most significantly this was the case regarding the following items:

  • Recognition and measurement of goodwill and bargain purchase gains. Descriptions of the factors making up goodwill were often 'boiler plate', and in 24% of the business combinations analysed no intangibles were recognised separately from goodwill. One third of the issuers reporting a bargain purchase did not disclose an explanation of why the transaction resulted in a gain.
  • Intangible assets and contingent liabilities. In the summaries of the fair values of major assets and liabilities acquired, the level of aggregation of certain assets and liabilities often limited the usefulness of the information provided. Only 11% of the issuers reviewed recognised contingent liabilities arising from business combinations. Of these, very few gave the required IFRS 3 disclosures.
  • Disclosure of fair value measurement techniques. Some issuers referred to external valuations of intangible assets without providing details of the techniques and assumptions used to determine their fair value. Only 35% of the issuers reviewed disclosed how fair values were determined but even of these most disclosed the valuation technique but not the key assumptions.
  • General observations on disclosures. While IFRS 3 disclosures were generally provided, in some cases their understandability was impaired as the disclosures were not tailored to the specific circumstances of a transaction or were insubstantial. Some disclosures were also presented outside the financial statements.

ESMA urges national competent authorities to take action where material breaches of the IFRS requirements were identified during the review. In addition, ESMA hopes that the IASB will consider the findings of the report in its post-implementation review of IFRS 3 Business Combinations as ESMA believes that it will assist the IASB in identifying areas where the standard leads to divergence in practice or lack of comparability and where additional clarification or guidance would be helpful. ESMA has sent the IASB a letter to this effect.

Please click for access to the full report and a corresponding press release on the ESMA website.

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