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2014

First meeting of the newly created Accounting Committee in Japan

17 Dec 2014

On 15 December 2014, the newly created Accounting Committee of Japan's Business Accounting Council (BAC) held its first meeting. The Committee role is to deliberate accounting matters in order to promote further use of IFRSs in Japan and to strengthen the Japanese voice in the future development of IFRSs.

The first meeting was dedicated to assessing the current situation regarding the use of IFRSs in Japan and to discussing related activities by the Japanese standard-setter ASBJ and by Japanese stock exchanges. No decisions were made at the meeting and a future direction of the activities of the Committee did not emerge. However, during the meeting, the representative of the Financial Services Agency of Japan (FSA) confirmed the intention of expanding the use of IFRSs in Japan, reiterated support of the current direction of promoting further voluntary use of IFRSs (this is backed by a decision of the National Cabinet), and hinted that Japanese GAAP may be a topic for future discussions.

More information including the access to the meeting papers is available on the FSA website (in Japanese).

Communiqué from latest China-Japan-Korea accounting standard-setters meeting

17 Dec 2014

A communiqué has been issued from a meeting of the standard-setters from China, Japan and the Republic of Korea held in Shenzhen on 23 November 2014.

Representatives were present from the China Accounting Standard Committee (CASC), Accounting Standards Board of Japan (ASBJ), Korea Accounting Standards Board (KASB), and the International Accounting Standards Board (IASB), together with guests from Hong Kong and Macao and a number of other delegates.

The meeting saw discussion on the current major projects of the IASB and standard-setting activities in the jurisdictions of the respective attendants as well as prospective initiatives of the Asian-Oceanian Standard Setters Group (AOSSG). Delegates at this meeting reached the following consensus:

  1. To continue to follow major ongoing projects of the IASB, including the Conceptual Framework, insurance contracts and leases, and to remain committed to jointly contributing to a single set of high quality global financial reporting standards;
  2. to play a leading role among standard setters in the Asia-Oceania region in the development of the future strategy of the AOSSG; and
  3. to enhance the communication and cooperation among the three countries in relation to the future governance review of the IFRS Foundation, so as to further improve the involvement in the standard-setting process of IFRSs.

The next meeting will be held in Korea on 23 November 2015.

Click for the full communiqué (link to ASBJ website).

Summary of the discussions at the December ITCG meeting

16 Dec 2014

The IASB's IFRS Taxonomy Consultative Group (ITCG) held its meeting on 11 December 2014. The IASB has now published on its website meeting notes from that meeting.

Topics discussed were:

  • Staff proposal for the IASB to approve IFRS Taxonomy common practice (‘CP’)
    ITCG members agreed with the staff’s presentation on the benefits of CP. In addition, some members believe that a clear definition of the scope of the IASB’s involvement is needed to reduce risks where the IFRS Taxonomy may be perceived as authoritative.
  • ITCG reviews in progress or upcoming
    The staff summarised the ITCG with the status of the Proposed Interim Release 3 and the upcoming publication of the disclosure initiative exposure draft.
  • Outstanding actions from the October ITCG face-to-face meeting
    The ITCG were updated on the status of (1) the completion of the review of the EBA and EIOPA data model for credit risk disclosures, (2) integration of the ITCG review comments for the ‘Draft Regulator’s Guide to Using the IFRS Taxonomy’, and (3) the potential research paper on entity-specific disclosures.

Please click for access to the meeting notes on the IASB website.

The Bruce Column — New Year's resolution

16 Dec 2014

As 2014 comes to a close our regular resident columnist Robert Bruce, takes an overview of IFRS around the world and the expectations for 2015.

The year-end is a time for taking stock. The world of IFRS is steadily developing, as events in Washington, London, and the Far East, have recently shown.

What Ian Mackintosh, the IASB’s deputy-chairman, recently called ‘the maturing of IFRS’ came as a bit of a surprise. Those close to the process tend to see it as more of a constant technical give-and-take, a world of roundtables, of exchanges of views, as long-running arguments around contentious points. But a series of speeches, by Mackintosh in London and by Michel Prada, chairman of the trustees of the IFRS foundation, around the cities of eastern Asia, put things into context.

At the turn of the new year it will be a decade since the EU adopted IFRS. ‘Perhaps’, suggested Mackintosh, ‘we are moving from the build-out phase of global standards, to a period where the focus is on the maintenance of those standards and working with others to encourage their consistent implementation’. Certainly that is where the work of the future lies. The Financial Stability Board, as one of Prada’s speeches emphasised, summed up the global view in its consistent mantra of ‘the continuing relevance of a single set of high quality global accounting standards’.

And that is what continues to happen around the world. As Prada pointed out in Tokyo, support for global accounting standards there is part of the government’s growth strategy. The speed with which domestic Japanese companies are voluntarily transitioning to IFRS and the reasons they gave for doing so of comparability with global competitors, spreading the shareholder base, and management efficiency, are far from narrow domestic concerns. The same goes for China, as Prada made clear in Shanghai. The modernised Chinese accounting standards are close to those of IFRS and are being updated in step with the new standards produced by the IASB. And as Prada said: ‘It is often overlooked that Chinese companies representing more than 30% of the total domestic market capitalisation in China also report using full IFRS for the purpose of their dual listings in Hong Kong, while Hong Kong has itself been fully on board with IFRS since the beginning’. So China has modernised its accounting standards, and is a few modifications away from full IFRS, and Hong Kong, its international financial centre, has adopted IFRS, as Prada put it ‘in full and without modification’.

Onward to Seoul in Korea, one of the major beneficiaries of economic globalisation, and here Prada extolled the virtues of Korea having switched to IFRS. ‘As a result of that decision’, he said, ‘investors around the world are entirely familiar with the financial statements of Korean companies. Korean multinational conglomerates such as Hyundai, LG, POSCO, and Samsung are now able to use the same reporting framework across tens if not hundreds of international subsidiaries and joint ventures’.

The broader world is shifting. IFRS has become the overwhelming language of financial statements and investors’ choice around the world. As Prada said in Tokyo the use of IFRS in the US is far more advanced than many realise. ‘US investors are already prolific users of IFRS financial statements’, he said, ‘holding more than eight trillion dollars of foreign holdings, most of which are denominated in IFRS’. And, if that was not enough evidence of how IFRS has crept in, he pointed out that ‘the SEC oversees the IFRS-compliant financial statements of nearly 500 international companies listed in the US’.  It is the simple, and inevitable, effect of the demand-side of globalisation and international business being satisfied by the supply-side of IFRS.

So all eyes were on Washington in December when James Schnurr, the recently appointed Chief Accountant at the US regulatory body, the SEC, was due to speak at the annual AICPA gathering. Earlier in the year the SEC Chair, Mary Jo White, had put IFRS back into play. In May she had reiterated the SEC’s view from back in 2010 that ‘a single set of high-quality globally accepted accounting standards will benefit US investors and that this goal is consistent with our mission’. She had then said that it was a priority for the SEC to make a further statement on ‘this very important subject’.

Hence the keen anticipation of Schnurr’s views. What he said was that he was open-minded, but there were legal difficulties. While full adoption for domestic issuers appeared impractical he said that: ‘We understand that some domestic issuers may, now or in the near future, prepare IFRS-based financial information in addition to the U.S. GAAP based information that they use for purposes of SEC filings’. So a voluntary filing of IFRS information by those US companies who wished to could become a reality. But, as Ian Mackintosh pointed out later in the conference, there could be some doubt over how many companies would volunteer.

But as Schnurr concluded: ‘Based on the progress of our collective efforts, I am hopeful to be in a position in the coming months to commence discussions with the Chair and the Commissioners about the different alternatives for potential further incorporation of IFRS and the related issues and concerns of each alternative with the objective of reaching a recommendation on what, if any, further incorporation or use of IFRS by US registrants would be permitted or required’. It is slow, but encouraging, progress.

EFRAG draft comment letter on the IASB's Exposure Draft of amendments to IFRS 2

16 Dec 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB Exposure Draft (ED) proposing amendments that would clarify the classification and measurement of share-based payment transactions.

ED/2014/5 Classification and measurement of share-based payment transactions considers the following the issues:

  • accounting for cash-settled share-based payment transactions that include a performance condition;
  • classification of share-based payment transactions with net settlement features; and
  • accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

In its draft comment letter, EFRAG generally agrees with the IASB's assessment of the issues and with its proposed amendments to address them, although EFRAG believes that in relation to the second amendment, the proposed classification reflects the economic substance of the plan, and therefore should not be characterised as an exception.

On a broader note, EFRAG is concerned that addressing more and more specific terms and conditions of different share-based plans is resulting in ever-increasing complexity in the requirements of IFRS 2. EFRAG believes that the IASB should envisage a more general review of IFRS 2 to consider all implementation issues in a principle-based way.

Comments on the draft comment letter were originally due by 30 January 2015; but has been extended to 9 March 2015. It is available on the EFRAG website.

EFRAG appoints new TEG members under the new governance structure

15 Dec 2014

The Board of the European Financial Reporting Advisory Group (EFRAG) has announced the appointment of six new members of its Technical Experts Group (TEG). The appointments are a consequence of EFRAG's new governance structure and of three current TEG members stepping down from their roles.

Under the new structure, EFRAG TEG consists of a maximum of 16 members of which at least four members are nominated by the standard-setters of France, Germany, Italy and the UK. Its new role is to provide technical advice to the EFRAG Board who will be responsible for all EFRAG positions.

The standard-setter representatives will provide a direct liaison with, and the facility of obtaining input from, the standard-setters and their constituents in four main countries in Europe. So far Anthony Appleton (FRC, UK), Tommaso Fabi (OIC, Italy) and Dr. Sven Morich (ASCG, Germany) have been appointed.

The other three newly appointed members (Phil Aspin (UK), Geert Ewalts (Netherlands), Prof. Dr. Günther Gebhardt (Germany)) will replace three TEG members who are stepping down from their role - among them Deloitte Partner Prof. Dr. Andreas Barckow who has been appointed as future President of the Accounting Standards Committee of Germany (ASCG).

Please click for the press release on the EFRAG website.

We comment on the proposed amendments regarding the recognition of deferred tax assets for unrealised losses

15 Dec 2014

We have published our comment letter on the International Accounting Standards Board’s (IASB) Exposure Draft ED/2014/3 'Recognition of Deferred Tax Assets for Unrealised Losses'.

The IASB's proposed amendments aim 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.

In general, we agree with the proposed amendments; however, we suggest some enhancements to the wording to better clarify the proposals.

Click for the full comment letter.       

Short survey on accounting changes

12 Dec 2014

The Italian standard-setter Organismo Italiano di Contabilità (OIC) is helping the IASB to understand investor views on accounting changes by conducting a short survey.

The requirements in IFRSs, in particular in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, make a distinction between how an entity should present and disclose different types of accounting changes in its financial statements. Changes in accounting policies must be applied retrospectively while changes in accounting estimates are accounted for prospectively. Companies sometimes struggle to apply changes in accounting policies retrospectively and also find it sometimes difficult to distinguish between accounting policies and accounting estimates.

The OIC is now conducting a survey to help the IASB understand investor views on the following aspects:

  • the type of financial statement information that is needed when a company makes an accounting change;
  • whether the type of the change affects information needs; and
  • whether there is more than one way companies could provide information about accounting changes that would still satisfy all needs.

More information about the online survey is available on the OIC website. It should take approximately 15 minutes to complete and can be completed until 15 February 2015.

IFRS Foundation announces new Vice-Chairs of the Trustees

10 Dec 2014

The Trustees of the IFRS Foundation have announced that the Monitoring Board has confirmed the appointments of Ronald Arculli and Harvey Goldschmid to serve as Vice-Chairs of the Trustees. The new Vice-Chairs will replace from 1 January 2015 Tsuguoki Fujinuma and Robert Glauber, who are stepping down at the end of their terms.

Mr Arculli is a former Chairman of Hong Kong Exchanges and Clearing Limited and a former Chairman of the World Federation of Exchanges. Mr Goldschmid is Dwight Professor of Law at Columbia University and a former Commissioner of the US Securities and Exchange Commission. Please click for the corresponding press release on the IASB website.

FASB chairman discusses post-convergence priorities

09 Dec 2014

Russell Golden, the Chairman of the US Financial Accounting Standards Board (FASB), gave a speech at this year's American Institute of Certified Public Accountants (AICPA) Conference on Current SEC and PCAOB Developments on the FASB's post-convergence project agenda.

Mr Golden stressed that the FASB's first priority is to improve US GAAP; he spoke about the FASB's simplification initiative and reducing complexity within US GAAP. He also admitted the need for a complete conceptual framework to bridge gaps and minimise inconsistencies. These priorities have helped align some areas of US GAAP and IFRS (i.e., inventory balance sheets, development stage enterprises, and extraordinary items), although sometimes the simplification of US GAAP has resulted in differing conclusions than those of the IASB (i.e., leases, impairment, classification and measurement, and insurance).

On the subject of international cooperation, Mr Golden said:

I believe that continuing to work toward the development of more comparable global accounting standards is an important way to help reduce complexity. That’s why we continue to collaborate and cooperate with the IASB and national standards setters with an eye toward agreeing on and adopting standards that either are converged or that have the fewest possible differences.

The full text of Mr Golden's speech is available on the FASB's website.

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