July

The Bruce Column — Europe transformed: The long-term effect of IFRS

15 Jul 2015

The European Commission has underlined the transformation of financial reporting brought about since the historic 2002 decision to make IFRS mandatory in Europe. Our regular, resident columnist, Robert Bruce explains the significance of the decision and looks at how the world is changing.

Back in 2002 the EU was the first major group of nations to adopt IFRS, and its aim was straightforward. The objective of the adoption was: ‘to harmonise the financial reporting of listed companies by ensuring a high degree of transparency and comparability of their financial statements in order to enhance the efficient functioning of EU capital markets and of the internal market’. And now an extensive process of assessing whether IFRS has indeed done what Europe had hoped it would do back in 2002 has resulted in a comprehensive thumbs-up. The gamble has paid off. This decision, as one insider to the process remarked, was ‘a game-changer for IFRS around the world’. Michel Prada, the chairman of the IFRS Foundation Trustees, speaking at a Paris conference just a few days after the EC decision said that: ‘Europe’s leadership in international finance reporting has been fully vindicated’.

And at another conference following on from the publication of the report Valérie Ledure, EC acting head of the financial reporting unit, DGFISMA, reported in Riga that the use of IFRS had brought greater transparency, had been successful at creating a common accounting language, had improved accounting quality and disclosure and had led to greater comparability between financial statements. Her conclusion was that: ‘By and large the experience of IFRS has been a positive one for Europe’.

The report itself emphasised the linkage between the use of IFRSs and other initiatives, including the Transparency Directive and better enforcement, the long-term effects of the IFRS regime, and the resulting change. It found that the regulation adopted back in 2002 ‘has increased the transparency of financial statements through improved accounting quality and disclosure and greater value-relevance of reporting, leading to more accurate market expectations including analysts’ forecasts’. It said that: ‘It also led to greater comparability between financial statements’. There were ‘improved capital market outcomes’, including ‘higher liquidity, lower costs of capital, increased cross-border transactions, easier access to capital at EU and global level, improved investor protection and maintenance of investor confidence’.

But the report, while drawing attention to the long-term value and the effect of IFRS across Europe has highlighted that US is yet to join with Europe and much of the rest of the world in global harmony. The original goal of achieving a level playing field with the US has not happened, although much convergence has been achieved. The “equivalence” arrangement whereby the US Securities and Exchange Commission accepts without reconciliation to US GAAP financial statements prepared under IFRS for foreign companies is seen as ‘an important benefit for around 90 large EU issuers with US listings’. The EC report recalls that the European initiative in 2002 to make IFRS mandatory across Europe ‘envisaged IFRS becoming global standards which would benefit EU companies’. And Valérie Ledure made it very clear in Riga that they ‘continue to urge the US SEC to adopt IFRS for use by its domestic companies.’

James Schnurr, the SEC’s chief accountant, recently stressed that ‘there is continued support for the objectives of a single set of high-quality, globally accepted accounting standards’, but it is clear there is no appetite amongst ordinary domestic US companies for IFRS.

Realistically, as the EC report and other developments around the world show, the SEC’s position is less central to the work of the IASB than it once was. It was the rest of the world that Michel Prada chose to focus on in his Paris speech. ‘India has recently decided to adopt standards that are very close to IFRS and is on the right track’, he said, ‘while in Japan we have seen an ever-increasing number of Japanese companies choose to adopt IFRS’. In fact over 100 have chosen to do so, encouraged, as he pointed out, ‘by Japanese authorities’. Chinese accounting standards, he said, ‘are substantially converged with IFRS, while Hong Kong has been fully IFRS-compliant for as long as Europe has been’. The fact that the IFRS Foundation trustees are meeting in Beijing this autumn is expected to maintain the momentum.

But, as Prada said: ‘The situation in the US is more complex, and somewhat unique to the US’. By this he meant that although there was little sign of practical progress the theory was all in place. ‘It is easy to forget that the US Securities and Exchange Commission has been a long-time supporter of our work’, he said, ‘and today oversees the IFRS-compliant financial statements of almost 500 Foreign Private Issuers, foreign companies listed in the US, making it one of the largest IFRS overseers in the world’.

His conclusion was that the US would eventually join up. ‘In the meantime’, he said, we will keep the door open and continue to work with the relevant stakeholders in the US’. With so much rapid progress to deal with around the globe that is a sensible strategy. Europe and the rest of the world are making the running. And the European Commission report makes the foundations firmer. No wonder that Michel Prada was singing its praises in Paris. ‘This is a very important report’, he said, ‘because it makes clear, without ambiguity and in an evidence-based manner, that IFRS has been a good thing for Europe, for European companies and for European investors’.

Summary of the June 2015 ITCG meeting

14 Jul 2015

The IASB's IFRS Taxonomy Consultative Group (ITCG) held its meeting on 17 June 2015. The IASB has now published on its website meeting notes from that meeting.

Topics discussed include:

  • ITCG taxonomy review: IFRS for SMEs — The ITCG was updated on recent developments involving the review of the IFRS for SMEs and was provided a description of the main data modelling decisions related to investment property.
  • Regulator’s Guide to using the IFRS Taxonomy — The ITCG was notified that the guide is now publicly available and will be updated whenever new best practices emerge. In addition, the ITCG expressed concern for modifications to the IFRS Taxonomy by regulators and plan to prohibit modification in the future revised Terms and Conditions.
  • IFRS Taxonomy Due Process: Analysis of comments — The ITCG received an update on the current status and outlook of planned ac­tiv­i­ties. It anticipates formal recommendations and the Invitation to Comment on the IFRS Taxonomy due process to occur in October 2015.

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

EFRAG issues conceptual framework bulletin on profit or loss versus OCI

14 Jul 2015

The European Financial Reporting Advisory Group (EFRAG) has published the latest issue of their publication series on the IASB's Conceptual Framework project. This bulletin explores what additional guidance should be included when reporting for profit or loss and other comprehensive income (OCI).

The bulletin includes discussions on:

  • Various business models.
  • How income and expenses are reported in profit or loss or OCI based on the business model.
  • Potential effects to current IFRS if EFRAG’s suggestions were to be applied.

Con­stituents wishing to comment on the views in the bulletins are invited to do so by 26 October 2015.

Please click to access the conceptual framework bulletin on profit or loss versus OCI.

UK study reveals investment professionals see further scope for improvement in annual reports

14 Jul 2015

The CFA Society of the UK (CFA UK), part of the worldwide network of member societies of CFA Institute, has released the results of a recent survey of more than 290 investment professionals seeking member views on the importance of the annual report and other forms of company reporting, as well as perspectives on adjustments to IFRS numbers and issues with IFRS accounts.

On general results the survey revealed:

  • Most respondents (60%) believe that financial reports contain too much irrelevant information.
  • However, many (55%) state that at the same time financial reports omit important information.
  • A third of the respondents (36%) said that the statutory accounts were their main source of financial information for analysing companies.
  • Half (47%) of the respondents state that the area of the annual report that shows greatest need for improvement is the disclosure of principal risks and uncertainties.
  • Over all, most respondents (71%) agreed that the quality of financial reporting has improved over the last 10 years.

The questions on non-GAAP reporting showed that this remains a contentious issue:

  • Over half (61%) of respondents said they use IFRS adjusted numbers in their analysis.
  • However, only a third (33%) say that they prefer non-IFRS measures over IFRS, with over half (56%) trusting the IFRS numbers more.
  • When asked to consider which items should be excluded from IFRS figures to arrive at a measure of underlying earnings, the majority of respondents (65%) were against exclusion of any of the items suggested.
  • Two-thirds of respondents favour looking at both IFRS and adjusted numbers as the combination of the two offers greater insights into the company and its management.

The biggest concerns that respondents raised with regard to financial reporting related to the abuse of non-GAAP/IFRS adjusted earnings measures; excessive and redundant information in financial reporting; fair value movements obscuring underlying earnings measures; excessive focus on the income statement and not good enough disclosure of cash flows; and poor disclosure of off-balance sheet exposures.

CFA UK has also published a position paper on non-IFRS earnings and alternative performance measures, which includes findings from the survey.

Please click to access the following documents on the CFA UK website:

July 2015 IASB meeting agenda posted

10 Jul 2015

The agenda has been posted for the IASB’s next meeting, which will be held at its offices in London on 20 and 22–23 July 2015. The IASB will discuss insurance contracts, the IFRS taxonomy, IFRS implementation issues, rate-regulated activities, dynamic risk management, revenue, provisions and contingent liabilities, fair value measurement, financial instruments with characteristics of equity, and the agenda consultation.

The full agenda for the meeting can be found here. We will post any updates to the agenda, as well as our De­loitte ob­server notes from the meeting, on this page as they become avail­able.

International IFRS conference with panel on the future of global standards

10 Jul 2015

On 25 June 2015, an international conference on the evaluation of the IAS Regulation was held in Riga, Latvia. It focused on potential impacts of the regulation on business development and globalisation. One of the panels, which featured Michel Prada, Chairman of the IFRS Foundation Trustees, Russ Golden, Chairman of the Financial Accounting Standards Board (FASB), and Yukio Ono, Chairman of the Accounting Standards Board of Japan (ASBJ) discussed "The future course of global quality standards. Are truly global standards achievable?".

On 19 June 2015, the European Commission published a final report on the evaluation of its Regulation on the application of International Financial Reporting Standards (IFRS). The conference on the impact of the findings featured in the report was organised by the Latvian Ministry of Finance within the framework of the Latvian Presidency of the Council of the European Union.

After an opening address, an introduction to the topic and a presentation of the main findings, the conference featured three panels:

  • Evaluation of the IAS Regulation
  • Implementation of the Maystadt Recommendations one year after the EFRAG reform
  • The future course of global quality standards. Are truly global standards achievable?

The Latvian Ministry of Finance has made recordings of the conference available on YouTube:

The conference programme offers an overview of all speakers and panelists.

United Arab Emirates to require use of IFRS

10 Jul 2015

On 25 March 2015, the new UAE Commercial Companies Law (UAE Federal Law No. 2 of 2015) was issued. The new law (“New CCL”) was published in the Official Gazette on 31 March 2015 (issue number 577) and came into force three months later, on 1 July 2015. The new CCL requires all companies with public accountability to use full IFRS as issued by the IASB. In addition, the new law permits small and medium-sized entities to use either the IFRS for SMEs or full IFRS. Compliance to the new law is required no later than 1 July 2016.

Click to access the Official Gazette on the Abu Dhabi government website (please note that English translation of the entries lag Arabic language entries by some months).

Deloitte releases e-learning module on impairment requirements of IFRS 9

10 Jul 2015

Deloitte’s Global Audit Learning group has released an e-learning module on the impairment requirements of IFRS 9. This new module is an addition to the extensive catalogue of IFRS e-learning content made freely available by Deloitte.

The new IFRS 9 module provides training in the background, scope and principles relating to the impairment of financial instruments under IFRS 9 Financial Instruments.

Deloitte also offers e-learning modules on

The IFRS e-learning modules are available free of charge and may be used and distributed freely, without alteration from the original form and subject to the terms of the Deloitte copyright over the material.

For details on the full range of e-learning modules go to Deloitte’s IFRS e-learning website. A listing of available e-learning modules is also available on our IAS Plus IFRS e-learning page.

Joint outreach event on the Conceptual Framework

10 Jul 2015

On 16 September 2015, the European Financial Reporting Advisory Group (EFRAG), the Norwegian Accounting Standards Board (NRS), and the IASB will host a joint outreach event on the Conceptual Framework in Oslo.

The event is designed to offer an opportunity to discuss the proposals in the IASB Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting. The event will start with an introduction and an explanation of the key issues in the paper and will be followed by an open debate from the floor.

Please click to access the formal invitation on the EFRAG website.

FASB votes to defer the effective date of new revenue standard

09 Jul 2015

At its meeting today, the FASB affirmed its proposal to defer for one year the effective date of the new revenue standard (ASU 2014-09, "Revenue From Contracts With Customers") for public and nonpublic entities reporting under U.S. GAAP. In addition, the FASB affirmed that all entities would be permitted to early adopt the standard as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016).

The FASB has directed its staff to prepare a final Accounting Standards Update for vote by written ballot. For more in­for­ma­tion, see Deloitte's related Heads Up as well as the ten­ta­tive board de­ci­sions on the FASB's website.

The IASB has recently concluded the comment period on its proposed deferral and will discuss the feedback at a future meeting. Comments received so far seem to support the proposal.

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