Background

The proposals in ED/2012/1 Annual Improvements to IFRSs: 2010-2012 Cycle included proposals to amend IAS 12 Income Taxes to clarify when a deferred tax asset should be recognised for unrealised losses. In response to constituent feedback on the proposals, the IASB decided that the accounting for deferred tax assets for unrealised losses on debt instruments should be clarified by a separate narrow-scope project to amend IAS 12.

Suggested changes

Based on the IFRS Interpretation Committee's identification of diversity in practice and the different views taken, the IASB proposes in ED/2014/3 Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12) amendments aimed at clarifying the following aspects:

• Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.
• The carrying amount of an asset does not limit the estimation of probable future taxable profits.
• Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.
• An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.

Transition requirements and effective date

The ED proposes limited retrospective application of the amendments for entities already applying IFRS. However, full retrospective application is proposed for first-time adopters of IFRS.

The ED does not contain a proposed effective date. The IASB will consider this point based on the comments that it receives.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• IFRS in Focus newsletter explaining the proposed amendments
  
• Our IAS Plus project page on IAS 12 — Recognition of deferred tax assets for unrealised losses

In summary, the review team came to the conclusions below; however, the report notes that some of the observations are more true for public than for private companies:

• Statement 123(R) "adequately resolved the issues underlying its need" by addressing user concerns, increasing comparability and simplifying the accounting requirements as well as by converging the requirements to a large degree with those in IFRS 2 Share-Based Payment.
• The standard leads to decision useful information.
• The standard is generally understandable, can be applied as intended, and leads to reliable information.
• Ongoing costs of complying with the standard are in totality not significant.
• The changes to financial and operating practices required by implementing the standard were significant but consistent with expectations.
• The review team did not find any significant unanticipated consequences of the standard.

Please click for the following information on the FAF and FASB websites:

• FAF press release
• final PIR report on Statement 123(R)
• FASB response to the PIR report

Our summary of IFRS 2 contains an overview of the differences that remained between the two standards when Statement 123(R) was issued in December 2004.

The Taylor & Francis research papers are sourced from Accounting and Business Research, Accounting Education, Accounting in Europe, China Journal of Accounting Studies, and European Accounting Review. Among the 25 articles are contributions on "A Multi-Issue/Multi-Period Analysis of the Geographic Diversity of IASB Comment Letter Participation", "Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research", and "The continued survival of international differences under IFRS". Access to all research papers is available here (link to Taylor & Francis Online).

The papers made freely available by SAGE include articles, editorials and book reviews sourced from Accounting History and are devoted to accounting topics from 800 AD to the financial crisis. Access to all research papers is available here (link to SAGE publishers online). Please note that free access to these papers expires on 31 August 2014.

The new EFRAG governance structure to which the new EFRAG Board belongs will become effective on 31 October 2014. 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.

Further information is available in the related EFRAG press release and in more detailed form in the full text of the call for applications (link to website of the EU Commission).

The exposure draft, Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client, proposes to amend the Code in a number of ways, including:

• Providing more guidance regarding the threats that may be created by long association of audit personnel with audit clients
• Increasing the mandatory "cooling off" periods for rotated audit engagement partners from two to five years on audits of public interest entities (all other key audit partners would continue to be subject to a two year cooling off period)
• Tighter restrictions on the type of activities that can be undertaken by former key audit partners during the cooling off period, whilst clarifying that the cooling off period does not prevent an individual from assuming a leadership role in the firm
• Explicitly requiring consideration of potential threats created by the long association of all members of the audit team on all audit engagements
• Requiring concurrence of those charged with governance when certain exceptions to the rotation requirements are applied.

In developing the proposals, the IESBA considered whether the existing seven year "time on" period for key audit partners before rotation is required should be reduced to five years or some other shorter period. After an analysis of existing time on periods in various jurisdictions and other factors, the IESBA concluded that a seven year time on period "seems to provide the right balance between addressing the familiarity and self-interest threats to independence created by long association and the need to maintain relevant knowledge and experience to support audit quality".

The proposals are open for comment until 12 November 2014. Click for press release (link to IFAC website).

The paper, EFRAG Short Discussion Series – Levies: what would have to be changed in IFRS for a different accounting outcome? responds to constituent concerns raised during the European Union endorsement of IFRIC 21 Levies. The paper does not reach conclusions on the best accounting treatment for such levies, but instead seeks to investigate alternatives to address the concerns raised.

In particular, concern was raised about the immediate expensing of some levies, which the paper expresses as follows:

Combined with the requirements in IAS 38 Intangible Assets, IFRIC 21 will often result in the immediate expense of levies charged on an periodic basis (i.e., annually), when the law indicates an activity that occurs at a point-in-time. Some have expressed concern with this outcome because they believe that the cost of a levy charged periodically should be recognised over the period it refers to. They believe the economic substance of a recurring levy is that the entity is paying to operate over an annual period, although the law may identify a different activity that triggers the payment (such as being in operation at a certain date).

In exploring these concerns, the paper revisits the amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets proposed in the exposure drafts issued in 2005 and 2010 in the IASB's project on non-financial liabilities, and concludes that in EFRAG's view, the proposals would not address the concerns. Other alternative approaches that could address the concerns are also explored:

• amending the definition and recognition of a liability
• developing guidance to assess if the entity is receiving an asset or a service in exchange for the payment of the levy
• considering if other features of the law could affect when the obligating event occurs, beyond the date specified in the law
• amending IAS 34 Interim Financial Reporting
• applying the IAS 12 Income Taxes model
• carrying out a research project for levies and other similar transactions.

The paper notes that a possible solution relies on the identification of an asset or a service when one or the other arises. When such identification is not possible, a progressive recognition might be achieved by requiring recognition as soon as the entity does not have a realistic alternative to payment and linking the obligation to an activity performed over time: either through modifying the definition of a liability or adding an illustrative example in IAS 34. EFRAG also believes that a research project focusing on all transactions with government authorities "holds promise to provide a robust solution for levies".

The discussion paper is open for comment until 15 December 2014. Click for press release and the full discussion paper on the EFRAG website.

A summary of the programme is set out below:

Papers for the meeting are expected to be made available in due course on the IASB's website.  The WSS meeting will be immediately followed by a meeting of the International Forum of Accounting Standard Setters (IFASS).

The IASB has also updated the meeting agenda for the Accounting Standards Advisory Forum (ASAF) meeting being held on 25-26 September 2014. We have updated our original article with the revised agenda.

Mr Mackintosh opened his speech reflecting on the lessons learned during the recent global financial crisis; he highlighted the interconnectedness and mutual dependence between economies, saying that "Post-crisis, policymakers are all too aware of how every national capital market in the world, even the largest, functions as little more than a satellite of the global financial system." Mr Mackintosh noted that one-third of all financial investments are international transactions.

After giving a brief history of the IASC and IASB, Mr Mackintosh discussed the recent progress towards achieving global accounting standards. He explained that 81% of countries surveyed mandate the use of IFRS for all or most public companies and that most of the remaining countries that have yet to require the use of IFRS for domestic purposes — including India, Japan, China and the United States—already allow its use in certain circumstances. Mr Mackintosh stressed that the IASB's high-quality Standards have been "validated" by more than a decade of use in various economies.

This evidence indicates that global standards are both desirable, achievable and in my view, inevitable. As economic globalisation continues apace, so too will the force of the arguments in favour of IFRS adoption within these remaining jurisdictions. That is why I believe that we should not fret too much about the timing by which we get every jurisdiction onto global standards. To quote Paul Volcker, legendary Chairman of the US Federal Reserve and the first Chairman of our Trustees, “Ultimately, this will get done”.

Mr Mackintosh went on to discuss the IASB's convergence efforts with the US FASB, and examined project successes and failures. He stressed that convergence cannot be a substitute for adoption and that the 'structural fault' of convergence is that independent boards have different imperatives—the FASB prioritises feedback from US constituents while the IASB weighs feedback from around the world including the US—leading the boards to reach incompatible conclusions. Mr Mackintosh also warned of the "many dangers of pretending" that converged national standards can substitute for global standards. He underscored that small differences in accounting requirements can have a substantial effect on reported performance. He said:

These are the reasons why full convergence can probably never be achieved, and why adoption of IFRS is the only viable approach to achieving global accounting standards. There really is no shortcut to meeting the challenges of economic globalisation, other than by providing a single set of high quality, global accounting standards. That is what IFRS does.

Mr Mackintosh concluded that globalisation will occur when countries have enough confidence in the IASB's processes, judgement and outreach activities. He reiterated his opinion that global standards are achievable and an inevitable consequence of continued economic globalisation.

Text of the full speech is available on the IASB's website.

The observations in the report are based on a review of 41 annual reports of FTSE 350 companies and provides an overview of what companies have been doing in the past year to improve the clarity and conciseness of their annual reports. The report is providing many illustrating examples.

Based on the results of the review and the observations, the report encourages companies to think about the following in relation to their annual reports:

• Communication channels and users' information needs. By taking steps to match communication channels to audiences, companies can improve the clarity and conciseness of what is presented.
• Content. The report encourages companies to report on actions rather than processes, to focus the level of reporting, to remove standing information, to remove information not required, and to reduce the actual detail presented in the financial review.
• Materiality. Examples of how clarity and conciseness of information can be improved include removing prior year disclosures that are no longer required in the current year, removing elements in the annual report that are no longer required, improving the quality of accounting policy disclosures, and removing immaterial notes to the financial statements.
• Layout. A logical layout and a minimum of duplication will contribute to the clarity of an annual report. Cross referencing and signposting of information within the annual report will also improve clarity.

The report contains a section to provide practical steps that companies can adopt when seeking to implement processes to improve their annual reports to make them clearer and more concise. It also includes examples of best practice with detailed case studies of two listed companies.

The full report is available from the FRC website.

In his article, Mr Cherry discusses whether there was an alternative to IFRS in Canada (for example adopting US GAAP), the common North American perception that the IASB is a European-dominated institution, the current regionalisation trend with the development of new regional infrastructures, and forward-thinking on issues likely to affect the evolution of financial reporting.

He also comments on the unlikeliness of the United States requiring IFRS for domestic issuers in the near future but concludes:

IFRS remains appropriate for Canada regardless of what the US decides. That said, the US is not immune to the economic reality of the global markets and so the pressure will continue unabated on it to adopt global financial reporting standards.

Mr Cherry believes that Canada's experience was positive. Although some people originally worried about the loss of control over standard-setting domestically when the decision was made to adopt IFRS, he states that Canada has gained rather than lost because it can now help shape the global accounting standards used not only in Canada but also in more than 100 other jurisdictions. He states:

The question is not whether Canada can influence IASB, but whether Canadians are prepared to continue to contribute as global citizens – to work with IASB and AcSB for the standards we believe will best serve the global capital markets.

Please click to access Mr Cherry's article Reflections on Canada’s changeover to IFRS on the CPA Canada website.