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European Union (old) Image

A global regulatory agenda

19 Feb 2006

EC Internal Markets Commissioner Charlie McCreevy outlined (PDF 79k) in remarks before the Council on Foreign Relations in Washington.

He identified what he called the four A-B-C-D issues that are of concern with regard to the transatlantic capital market: Accounting, Basel II, Collateral and Deregistration. Regarding accounting, Mr. McCreevy said: "In my view, full convergence of standards cannot be a prerequisite for the elimination of the reconciliation requirement. Instead, we should make sure that our standards are understandable to investors on both sides of the Atlantic." More broadly, he spoke of the need for the EU and the US to lead the way worldwide, including in the area of standard setting:

Jointly, we have a window of opportunity to facilitate the smooth integration of China, India, Brazil and others on the world economic stage. The EU and the US should lead by example and show how open and competitive markets with sound standards of investor and consumer protection can deliver a thriving transatlantic financial market place. In accounting, in auditing, in our securities and other markets the EU and the US can make a special contribution to the emerging global regulatory system. If we cannot resolve our differences, what sort of example are we giving to the others? This is a question of mutual interest and leadership.

United States (old) Image

SEC, PCAOB to review internal control reporting

18 Feb 2006

The US Securities and Exchange Commission and Public Company Accounting Oversight Board will conduct a joint public roundtable on 10 May 2006 in Washington to discuss second-year experiences with the reporting and auditing requirements of the Sarbanes-Oxley Act of 2002 related to companies' internal control over financial reporting (SOx Section 404).

Additionally they are seeking written feedback, via email or an Internet submission form, from registrants, auditors, investors and others on their experiences with complying with the Section 404 requirements. Click for (PDF 36k).
FASB (old) Image

FASB response to SEC on off-balance-sheet items

17 Feb 2006

The US Financial Accounting Standards Board has submitted its response to the SEC Staff Report on Off-Balance Sheet Arrangements, Special Purpose Entities, and Related Issues released by the US Securities and Exchange Commission in June 2005. The SEC report was prepared pursuant to the Sarbanes-Oxley Act of 2002 and was submitted to the President and several Congressional committees.

The SEC staff report includes an analysis of the filings of issuers as well as an analysis of pertinent US generally accepted accounting principles and Commission disclosure rules. The report contains several recommendations for potentially sweeping changes in current accounting and reporting requirements for pensions, leases, financial instruments, and consolidation:

  • Pensions: The staff recommends the accounting guidance for defined-benefit pension plans and other post-retirement benefit plans be reconsidered. The trusts that administer these plans are currently exempt from consolidation by the issuers that sponsor them, effectively resulting in the netting of assets and liabilities in the balance sheet. In addition, issuers have the option to delay recognition of certain gains and losses related to the retirement obligations and the assets used to fund these obligations.
  • Leases: The staff recommends that the accounting guidance for leases be reconsidered. The current accounting for leases takes an 'all or nothing' approach to recognizing leases on the balance sheet. This results in a clustering of lease arrangements such that their terms approach, but do not cross, the 'bright lines' in the accounting guidance that would require a liability to be recognized. As a consequence, arrangements with similar economic outcomes are accounted for very differently.
  • Financial instruments: The staff recommends the continued exploration of the feasibility of reporting all financial instruments at fair value.
  • Consolidation: The staff recommends that the Financial Accounting Standards Board continue its work on the accounting guidance that determines whether an issuer would consolidate other entities – including SPEs – in which the issuer has an ownership or other interest.
  • Disclosures: The staff believes that, in general, certain disclosures in the filings of issuers could be better organized and integrated.
FASB's response discusses a number of "fundamental structural, institutional, cultural, and behavioral forces" that it believes cause complexity and impede transparent financial reporting. FASB provides an update on its activities and projects intended to address and improve outdated, overly complex accounting standards. These areas include accounting for leases; accounting for pensions and other post employment benefits; consolidation policies; accounting for financial instruments; accounting for intangible assets; and conceptual and disclosure frameworks. The FASB also identifies several other initiatives aimed at improving the understandability, consistency, and overall usability of existing accounting literature, through codification, by attempting to stem the proliferation of new pronouncements emanating from multiple sources, and by developing new standards in a 'principles-based' or 'objectives-oriented' approach. Click to download:
News default Image

Changes to IASB February meeting agenda

17 Feb 2006

The IASB has made two changes to the agenda for its meeting next week, which we had announced in our News Story of 3 February 2006, which we have revised.

Fair Value Measurement has been moved to Thursday afternoon, and Government Grants has been added to the Tuesday afternoon agenda.

The government grants project had started as part of the IASB's short-term convergence project with FASB. However, it has evolved into a stand-alone (non-convergence) IASB project to reconsider IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. The stated objective of the project is to amend IAS 20 by applying the accounting model for government grants contained in IAS 41 Agriculture to all government grants. The IAS 41 model establishes the following principles for recognising grants related to assets measured at fair value through profit and loss:

  • If the grant is unconditional, recognise income when the grant becomes receivable.
  • If conditional, recognise income when conditions attached to the grant have been met.
Also, in June 2005, the Board withdrew IFRIC Interpretation 3 Emission Rights. At that time, it indicated that it intended to address emission rights in a separate exposure draft early in 2006. Subsequently, the Board has determined that since emission rights are a form of government grant, they should be addressed in the project to reconsider IAS 20.
China Image

China adopts 38 new accounting standards

16 Feb 2006

The Ministry of Finance (MOF) of the People's Republic of China has announced that it has adopted a new basic standard and 38 new Chinese Accounting Standards that are substantially in line with IFRSs, though a few exceptions are acknowledged.

The basic standard is akin to a conceptual framework, and the 38 standards address nearly all over the issues covered in IFRSs. The MOF has also adopted 48 new Chinese Auditing Standards that are similar to International Standards on Auditing issued by the International Auditing and Assurance Standards Board. Click for a (PDF 123k English and Chinese). The new accounting and auditing standards will become effective for listed enterprises from 1 January 2007. Other enterprises are encouraged to adopt them. Deloitte Touche Tohmatsu (China) has served as consultants to the MOF in developing Chinese Accounting Standards since 1993. The MOF announced the new standards in a ceremony in the Great Hall of the People, in Beijing. IASB Chairman David Tweedie participated, saying that he expected China's speedy move toward international standards is likely to spur some other countries in the Asia-Pacific region to do the same.
European Union (old) Image

CESR studies public access to IFRS reports

16 Feb 2006

The Committee of European Securities Regulators (CESR) is studying the appropriate mechanism for making the financial reports of European listed companies available electronically throughout the European Union.

Such reports would include annual, semi-annual, and other interim reports (which include IFRS financial statements), as well as reports of major holdings and insider information. Adoption of such a pan-European storage and retrieval mechanism is part of the process for implementing the 'Transparency Directive'. CESR will make a recommendation to the European Commission, with a goal of having an interim system in place by January 2007. CESR has issued: Responses to the Consultation Document are due by 31 March 2006 via CESR's Website. CESR will hold an open hearing on the issues on 2 March 2006 at CESR's office in Paris.
United Kingdom Image

Review of UK interim reporting

15 Feb 2006

The United Kingdom Financial Reporting Review Panel has reviewed the interim accounts of 70 UK listed companies for 2005, including 35 FTSE 350 companies.

"The Panel found the level of disclosure and compliance in the first reports prepared under IFRSs to be good". The Panel's report noted that:

In the interim reports reviewed, most issues arose on matters where there had been changes as a result of the implementation of IFRS. These largely related to the presentation of items within the primary financial statements and to narrative descriptions of new or revised accounting policies.

Click to download:
European Union (old) Image

EU will require foreign audit firms to register

15 Feb 2006

In a (PDF 93k) to the US Chamber of Commerce in Washington last week, EU Internal Market Commissioner Charlie McCreevy cited eliminating the SEC's accounting reconciliation requirement between IFRSs and US GAAP as one of the four most pressing Transatlantic regulatory matters.

He also outlined the progress that has been made in capital market reforms in the EU. He indicated that the EU shortly will adopt regulations requiring registration of foreign audit firms that perform audits in the EU. An excerpt:

Take auditing for example. The EU has just put the finishing touches to its new directive on Statutory Audit (the 8th Directive). During its implementation one of the key challenges will be the question of registration of third country audit firms in the EU by 2008. All third country audit firms, including US ones, auditing foreign companies listed in the EU will have to be registered with EU oversight bodies - unless their home country oversight bodies can be considered as equivalent.

Similarly, EU firms auditing SEC registrants will face inspections from the PCAOB in 2006 and 2007. The new EU directive provides for cooperation with the PCAOB on access to audit working papers. These are tricky issues where the EU and the US must have close and pragmatic cooperation or willingness to 'agree to agree' as Bill McDonough, former chairman of the PCAOB, put it. Both sides have to deliver. And both sides must be willing to respect each other's rules and limitations. Deepening cooperation is the name of the game.

EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG recommends IAS 21 amendments

14 Feb 2006

EFRAG has recommended that the European Commission endorse, for use in Europe, the recent Amendments to IAS 21 The Effect Of Changes in Foreign Exchange Rates - Net Investment in a Foreign Operation.

Click for EFRAG Letter (PDF 18k).
EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG letter to IASB on SME project

14 Feb 2006

The European Financial Reporting Advisory Group (EFRAG) has written to IASB Board Vice Chairman Tom Jones, who chairs the Board's SME Working Group, recommending that the Board change its approach to developing an exposure draft of an IFRS for Small and Medium-sized Entities (SMEs).

Here is an excerpt from EFRAG's Letter (PDF 33k):

EFRAG wants to express its full support for the comments you made in your introduction to the Board's deliberations at the January meeting where you indicated that:

  • (a) the direction in which the project is presently heading under Board members' guidance is leading to a standard which appears far too lengthy and complex; and
  • (b) more simplifications are needed than decided up to date in order to meet constituents' expectations.

We agree with this view. We think it is important that the IFRS for SMEs is easy to understand and comprehensive on a stand-alone basis.

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