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Notes from the first day of the IASB April 2006 meeting

25 Apr 2006

The International Accounting Standards Board held its April 2006 Board meeting at its offices in London on Monday 24 April 2006 (afternoon only), Tuesday 25 April 2006 (afternoon only), and Wednesday 26 April 2006. Click here for the preliminary and unofficial Notes Taken by Deloitte Observers at the Meeting.

The IASB will also meet with the US Financial Accounting Standards Board at the Crowne Plaza St. James Hotel in London on Thursday and Friday 27 and 28 April 2006.
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UK will not apply IAS 39 equivalent to unlisted entities

25 Apr 2006

The United Kingdom Accounting Standards Board (ASB) has decided not to finalise its proposal to extend the scope of Financial Reporting Standard (FRS) 26 Financial Instruments: Measurement to all entities other than SMEs that apply the Financial Reporting Standard for Smaller Entities (FRSSE).

FRS 26 is essentially equivalent to IAS 39. Currently, FRS 26 applies to all listed entities still following UK standards and a small group of unlisted entities whose financial statements are prepared in accordance with the fair value accounting rules set out in the Companies Act. In April 2005, the ASB had proposed to extend the applicability of FRS 26. Click for (PDF 25k).
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IFAC 2006 audit and ethics handbook is published

25 Apr 2006

The International Federation of Accountants (IFAC) has published its 2006 Handbook of International Auditing, Assurance, and Ethics Pronouncements in print and in two electronic formats.

The Handbook includes all pronouncements issued by the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants through 31 December 2005. One of the electronic formats is a free PDF version (1,098 pages, 5.3mb) downloadable from IFAC's Website. The other is eComPress version, usable on-line and off-line, that has features designed to make accessing the pronouncements more user-friendly.
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Details of China's new IFRS-based accounting standards

24 Apr 2006

On 15 February 2006, the Ministry of Finance of the People's Republic of China (the 'MoF') formally announced the issuance of the long awaited Accounting Standard for Business Enterprises ('ASBE'). The ASBE consists of the Basic ASBE and 38 Specific ASBEs.

These ASBEs cover nearly all topics under the current IFRS literature. These standards, which are effective from 1 January 2007, will become mandatory for all listed Chinese enterprises. Other Chinese enterprises are also encouraged to apply these standards. The ASBE replaces the existing Chinese Accounting Standards (CASs) and an earlier version of the ASBE. The applicability of the CASs and the older version of the ASBE is not changed except for those entities required or electing to adopt the new ASBEs.

The new ASBEs are substantially in line with IFRSs, except for certain modifications that reflect China's unique circumstances and environment.

During the formulation of these standards, as mentioned in the Joint Statement of the CASC and the Chairman of the IASB (PDF 11k) in November 2005, the MoF identified a number of accounting issues that might help to provide an insight for the IASB in finding high quality solutions for IFRSs. They include disclosure of related party transactions (particularly the 'state controlled enterprises exemption'), business combinations of entities under common control, and fair value measurement.

The ASBEs change the primary basis of accounting in Mainland China. It is not simply an expansion of the disclosure requirements. These ASBEs may have a significant effect on how the an entity's financial position and performance are presented in the financial statements. For example:

  • Share-based payment transactions for employee services are recognised as expenses in the income statement.
  • A business combination not involving entities under common control is accounted for by the acquisition method. Under that method, assets and liabilities of the acquired entity are measured at fair value.
  • Goodwill (referred to as the "debit balance of equity investment difference" in current CASs) and indefinite life intangible assets are no longer amortised but, instead, must be tested at least annually for impairment.
  • Discount on acquisition of a business (referred to as "credit balance of equity investment difference" in current CASs) is credited to income immediately.
  • Minority interest is presented within equity.
  • Non-monetary asset-related grants are presented as deferred income and recognised as income evenly over the useful life of the asset.
  • Development costs are capitalised if certain criteria are met.
  • Reversal of all impairment losses is prohibited.
  • All derivatives are recognised on the balance sheet, with changes in fair value taken to the income statement, unless they are designated and effective hedging instruments.
  • Investment property may be measured at fair value with changes in fair value recognised in the income statement. The cost-depreciation-impairment model is also allowed.
  • Non-monetary transactions are measured at fair value if commercial substance can be substantiated.
  • Gains on debt restructuring, as well as losses, are recognised in the income statement.
  • Finance lease assets are recognised by the lessee at the lower of fair value of the leased asset and the present value of minimum lease payments.
  • The tax effect of all temporary differences between the tax basis and the carrying amount of assets and liabilities is recognised, other than differences arising on initial recognition.
  • When an instrument that has both liability and equity components (such as a convertible bond) is issued, the debt and equity components are accounted for separately.
Accounting Standards for Business Enterprises
No. Title
Basic Standard
1 Inventories
2 Long-term equity investments
3 Investment properties
4 Fixed assets
5 Biological assets
6 Intangible assets
7 Exchange of non-monetary assets
8 Impairment of assets
9 Employee compensation
10 Enterprise annuity fund
11 Share-based payment
12 Debt restructurings
13 Contingencies
14 Revenue
15 Construction contracts
16 Government grants
17 Borrowing costs
18 Income taxes
19 Foreign currency translation
20 Business combinations
21 Leases
22 Recognition and measurement of financial instruments
23 Transfer of financial assets
24 Hedging
25 Direct insurance contracts
26 Re-insurance contracts
27 Extraction of petroleum and natural gas
28 Changes in accounting policies and estimates and correction of errors
29 Events occurring after the balance sheet date
30 Presentation of financial statements
31 Cash flow statements
32 Interim financial reporting
33 Consolidated financial statements
34 Earnings per share
35 Segment reporting
36 Related party disclosure
37 Presentation of financial instruments
38 First time adoption of Accounting Standards for Business Enterprises
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Update on Indian GAAP: Revised Accounting Standard (AS) 15 on Employee Benefits

24 Apr 2006

The Institute of Chartered Accountants of India (ICAI) has specified that the Revised AS 15 Employee Benefits will become mandatory for accounting periods commencing on or after 1 April, 2006.

The Revised AS 15 reflects limited revisions to the existing standard, including the following:


The revised AS 15 is applicable in its entirety to all Level I enterprises (see the January 2004 Update for definition of Levels I, II, and III). For Levels II and III enterprises whose average number of persons employed is more than 50 during the year (referred as category B), AS 15 will apply in its entirety, except for the following:

  • Recognition and measurement of short-term accumulating compensated absences which are non-vesting.
  • Discounting of the amount of defined contribution and termination benefits which fall due for a period of more than 12 months after the balance sheet date.
  • The elaborate recognition and measurement principles and disclosures relating to defined benefit plans and other long-term employee benefits. However, such enterprises should actuarially determine and provide for such liability based on the Projected Unit Credit Method for which the discount rate should be determined with reference to market yields at the balance sheet date on government bonds. Further, disclosure should be made in respect of the actuarial assumptions as provided in AS 15.

In respect of enterprises which employed less than 50 people during the year (referred as category C), they may calculate and account for the accrued liability under defined benefit plans and other long-term benefit plans by some other rational method on the assumption that such benefits are payable to all employees at the end of the year. Accordingly, it is not necessary to determine the liability based on the actuarial method.

In case of a change in the status of an enterprise from category A to B/C or from category B to C, the respective exemptions as specified above would not apply for a period of two consecutive years. Further, in the first year in respect of which the change becomes applicable, the corresponding previous year's figures need not be given for the disclosures.

Termination Benefits

Where an enterprise incurs expenditure in respect of termination benefits on or before 31 March, 2009, the enterprise may choose to follow the accounting policy of deferring such expenditure over its pay-back period. However, expenditure so deferred cannot be carried forward beyond accounting period commencing on or before 31 March, 2010.


AS 15 has a now mandated additional disclosure to enable users to evaluate the nature of defined benefit plans and the financial effects thereof during the period. Further, disclosure is also required of the reconciliation of the opening and closing balances of the present value of defined benefit obligations and the fair value of the plan assets. Finally, specific assertions are also required with regard to actuarial assumptions which are made and other related matters. An enterprise availing exemption as category B or C, as the case may be, should disclose the fact. An enterprise under category C should additionally disclose the method used to calculate and provide for the accrued liability.


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US, Japanese life insurers propose accounting standard

24 Apr 2006

An international accounting standard for life insurance developed jointly by a group of eleven large life insurance companies in the United States and the four largest life insurance companies in Japan has been submitted for consideration by the International Accounting Standards Board.

The proposal, which includes 16 principles and related guidance, is presented in a paper titled (PDF 92k), accompanied by a (PDF 54k). The paper focuses on the measurement of life insurance, annuity contracts that qualify as insurance, long-term care insurance, disability insurance, and other types of noncancelable or guaranteed renewable health insurance contracts issued by either a life or nonlife company. The 16 proposed principles are as follows:

Principles Proposed by US and Japanese Insurers

  • Principle 1: The Net Insurance Liability (or Liability) should be based on the present value of all future cash flows associated with the portfolio of insurance contracts being valued.
  • Principle 2: The Net Insurance Liability at all times must be sufficient to provide for payment of all expected future obligations with adequate provision for risk and uncertainty.
  • Principle 3: Profit should be recognized in line with the release from risk.
  • Principle 4: On initial issue there should be no accounting gain or loss.
  • Principle 5: A policyholder intangible (or Deferred Acquisition Cost) asset should be established when a policy (or block of policies) is issued and amortized over time into earnings in line with the policy's profit profile.
  • Principle 6: Insurance liabilities should reflect the inherent risk and uncertainty of future cash flows.
  • Principle 7: Assumptions underlying the measurement of insurance liabilities and intangible assets should be periodically reviewed and changed, if appropriate.
  • Principle 8: Liabilities should reflect the value of all financial options and guarantees.
  • Principle 9: Measurement should be based on a portfolio of exposures.
  • Principle 10: Policyholder behavior should be reflected in the measurement of all liabilities.
  • Principle 11: Renewal options or provisions that obligate the insurer to continue to provide coverages should be recognized to the extent they are included in the contract or required by law or regulation.
  • Principle 12: The credit standing of an entity should not be considered in the valuation of insurance liabilities.
  • Principle 13: Entities should have the ability to measure assets and liabilities on a consistent basis to reflect the way companies manage risk.
  • Principle 14: Liabilities supported by a separate account, a unit-linked fund or a similar dedicated portfolio should reflect the expected returns on that portfolio.
  • Principle 15: Liabilities for participating contracts must include provision for the expected payout of policyholder dividends, additional benefits provided or any other result of the participating mechanism.
  • Principle 16: Insurance policies with flexible premiums should only be unbundled in the event that the separation would result in material differences in the overall value of the contract and either
    • a. The deposit and insurance components of the contract are separately priced and separately managed by the insurer; or
    • b. Separate measurement of a deposit component is necessary to recognize rights and obligations of the insurer and the policyholder.
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CGA-Canada concerned about IASB's SME direction

23 Apr 2006

While expressing strong support for a global set of financial reporting standards for small and medium-sized entities (SMEs), Canada's Certified General Accountants has issued a Press Release (PDF 18k) expressing concern that the decisions made to date by the IASB in its Project to Develop Standards for SMEs do not go far enough toward achieving the goal of simplification.

CGA-Canada chairman Dany Girard, who serves on the IASB's SME Working Group, said:

There has been broad agreement in recent years that a set of stringent standards tailored to the unique needs of SMEs is necessary. Progress has been made by international standard setters toward reaching that goal. But recently, the International Accounting Standards Board (IASB) has wavered in its commitment to address the needs of the SME sector. The IASB's current direction is not acceptable to the users of SME financial statements.

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New PCAOB ethics and independence rules

22 Apr 2006

On 19 April 2006, the US Securities and Exchange Commission approved the rules on auditor ethics, independence, and tax services that had been adopted by the Public Company Accounting Oversight Board (PCAOB).

The rules establish a general obligation requiring a registered public accounting firm and its associated persons to be independent of the firm's audit clients throughout the audit and professional engagement period. The rules identify circumstances in which the provision of tax services impairs an auditor's independence, including services related to marketing, planning, or opining in favor of the tax treatment of, among other things, transactions that are based on aggressive interpretations of applicable tax laws and regulations. Click for:
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Public Sector Accounting Standards Board update

21 Apr 2006

We have posted the April 2006 issue of IPSASB Update.

The newsletter reports the decisions made at the meeting of the International Public Sector Accounting Standards Board (IPSASB) in late March 2006. The IPSASB develops standards for accounting and financial reporting by national, regional, and local governments and related governmental agencies. Those standards are generally based on IFRSs, and profit-oriented government business enterprises are required to comply directly with IFRSs. The IPSASB's current work programme includes an ongoing project on 'Convergence with International Financial Reporting Standards (IFRSs) issued by the IASB':
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New IASB Due Process Handbook

20 Apr 2006

The Trustees of the International Accounting Standards Committee Foundation have published a new Due Process Handbook for the IASB.

The Handbook describes the IASB's consultative procedures. Those procedures require that all decisions are made in public meetings and that proposals receive appropriate public scrutiny. The Due Process Handbook does not mark a significant change in existing IASB practice and is meant to provide interested parties and the general public with a better understanding of the IASB's operations. The Trustees had finalised the handbook at their March 2006 meeting. Click for Press Release (PDF 57k). Click here to download the Due Process Handbook from IASCF Website.

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