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Deloitte views on initial measurement paper

20 Mar 2006

On 17 November 2005, the IASB published for public comment a Discussion Paper Measurement Bases for Financial Reporting - Measurement on Initial Recognition.

The Discussion Paper, prepared by staff of the Canadian Accounting Standards Board (AcSB), analyses possible bases for measuring assets and liabilities on initial recognition. These include: historical cost, current cost, fair value, net realisable value, value in use, and deprival value. We have posted the Deloitte (PDF 30k). This project is currently on the Board's research agenda. The main points of our comments:

It is not clear to us how this discussion paper fits into the current agenda of the International Accounting Standards Board (IASB). The IASB should have indicated how it believes this discussion paper is intended to complement its work on the fair value measurement and concepts projects, if at all. It appears that the discussion paper has been overtaken by events elsewhere in the IASB's agenda. In addition, the discussion paper deals with the narrow issue of measurement on initial recognition after making the presumption that assets and liabilities should be measured as of the date they are initially recognised (paragraph 415). The issue of when initial recognition should take place is deferred to a different analysis that is yet to be undertaken. Given the interdependencies between the question of 'when' initial recognition should take place and 'what' should be recognised with the initial measurement issue discussed in the paper, we are of the view that the issues related to 'when' and 'what' should have been thoroughly researched first. The issue of 'how' to measure assets and liabilities follows from there. This approach may have highlighted issues that could have lead to less uncertainty about the discussions and proposals in the discussion paper. We imagine that when the IASB deals with the 'when' and 'what' issues, some parts of the discussion paper may become irrelevant....

We are of the view that existing measurement guidance within various International Financial Reporting Standards (IFRS) is inconsistent and that a project to address these issues is overdue in light of the developments in theory and practice. However, as the IASB is in the process of finalising an exposure draft on fair value measurement, we reserve our comments on the specific questions set out in the discussion paper.

Furthermore, we have not responded to the request for comments on the differences between the proposed measurement hierarchy in the discussion paper and the equivalent guidance in the Financial Accounting Standards Board's (FASB) exposure draft as set out in the third paragraph of the Introduction (on page 6 of the discussion paper). The discussion paper fails to identify which version of the FASB exposure draft constituents should base their comments. In addition, no effort has been made to highlight the significant areas of difference between the two documents.

All past Deloitte letters of comment to the IASC and the IASB are
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Deloitte views on management commentary proposals

20 Mar 2006

On 27 October 2005, the IASB published a discussion paper on Management Commentary – information presented outside the financial statements in the form of management's explanation of the enterprise's financial condition, changes in financial condition, results of operations, and causes of changes in material line items.

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SEC Commissioner discusses the 'roadmap'

19 Mar 2006

In her remarks before the Institute for International Bankers Annual Conference in Washington on 13 March 2006, US SEC Commissioner Annette L.

Nazareth discussed "the prospect of convergence of US and EU accounting standards". Her comments addressed the adoption of International Financial Reporting Standards as the single accounting standard in the EU and the principles underlying the 'roadmap' by which the Commission is considering accepting IFRS as a primary accounting system without requiring reconciliation to US GAAP. Click to download (PDF 53k). An excerpt:

How the Commission arrived at a reconciliation requirement is rooted in two fundamental policy considerations. One is consistency, that is, the investing public in the United States needs the same type of basic information disclosed for an investment decision regardless of whether the issuer is foreign or domestic. This view suggests that foreign registrants be subject to exactly the same requirements as domestic ones. The other policy consideration is that it is in the public interest to permit US investors the opportunity to invest in a broad array of securities, including foreign securities. This suggests that the Commission avoid overly burdensome requirements on foreign issuers. According to this reasoning, the public interest would be better served by encouraging foreign issuers to register their securities with the Commission.

These same considerations are at the heart of the determination of a reconciliation requirement. Thus the roadmap focuses on whether foreign private issuer financials prepared under IFRS, without reconciliation to US GAAP, will achieve the goal of opening our markets further while remaining consistent with the objective of providing disclosure of comparable quality, transparency, and usefulness.

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Auditor independence reforms in the EU

18 Mar 2006

A survey by the European Federation of Accountants (FEE) has found that EU Auditor independence reforms are taking hold in EU Member States.

The FEE survey Implementation of the EU Recommendation on Independence found that the principles-based approach to auditor independence as set out in the EU Recommendation on Independence has been adopted by three-fourths of the EU member states and Norway. The EU Recommendation on Independence has recently been given legal underpinning by the new Statutory Audit Directive. In addition, European auditors, as members of IFAC, have to apply the IFAC Code of Ethics, which is currently being strengthened, and there has also been new legislation in many European countries and in the US. In announcing the survey report, FEE called for a regulatory pause to allow this new approach to auditor independence time to prove its worth to users of audit reports. Click to download the (PDF 408k).
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New US-UK regulatory cooperation agreement

17 Mar 2006

The United States Securities and Exchange Commission and the United Kingdom Financial Services Authority have signed a comprehensive arrangement to increase cooperation in market oversight and supervision.

Both agencies described it as a "landmark arrangement" that will facilitate the exchange of confidential supervisory information currently collected by both regulators about regulated entities and investment banking groups that operate both in the United States and the United Kingdom. Click for (PDF 34k).
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IASB March 2006 meeting agenda

17 Mar 2006

The International Accounting Standards Board will meet at its offices in London on Tuesday through Friday, 28-31 March 2006. Presented below is the preliminary agenda for the meeting. .

The International Accounting Standards Board will meet at its offices in London on Tuesday through Friday, 28-31 March 2006. Presented below is the preliminary agenda for the meeting.


28-31 March 2006, London

Tuesday 28 March 2006 (afternoon only)

  • Performance Reporting - Segment B: project objectives and planning.
  • Leases - Preliminary discussion of a project on leases and possible agenda decision
  • IFRIC Update

Wednesday 29 March 2006

Thursday 30 March 2006

Friday 31 March 2006 (morning only)

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IASB proposes to amend IAS 1

16 Mar 2006

As part of its Performance Reporting Project, the IASB has issued an Exposure Draft of proposed amendments to IAS 1 'Presentation of Financial Statements'.

The Exposure Draft results from the first stage (known as 'Segment A') of the IASB's project on performance reporting and, if adopted, would bring IAS 1 largely into line with the equivalent US standard.

The second stage of the project is being undertaken jointly with the US Financial Accounting Standards Board (FASB), and includes a reconsideration of the presentation and display of information in the financial statements.

Under the proposals an entity would present all income and expenses separately from changes in its equity that arise from transactions with its owners. Entities would have a choice of presenting income and expenses in a single statement or in two statements. An entity would also be required to include in its set of financial statements a statement showing its financial position (or balance sheet) at the beginning of the previous period.

Comment deadline is 17 July 2006. Click for Press Release (PDF 68k).

The Exposure Draft:

  • specifies that entities should present all income and expenses in one or two statements, separately from changes in equity arising from transactions with owners in their capacity as owners (ie owner changes in equity). Consequently, all owner changes in equity are presented separately from non-owner changes in equity. Accordingly, entities are not permitted to present income and expenses (ie non-owner changes in equity), as defined in the Framework, in the statement of changes in equity. The purpose of this amendment is to provide better information to users by requiring aggregation of items with shared characteristics.
  • specifies that a statement of financial position as at the beginning of the period is included in financial statements. Accordingly, in addition to notes, entities presenting comparative information for the previous period are required to include, as a minimum, three statements of financial position and two of each of the other financial statements. IAS 1 requires the presentation of a minimum of two of each financial statement. The extra statement shows the financial position at the beginning of the previous period.
  • replaces the term 'balance sheet' with 'statement of financial position' to reflect the function of that statement more closely.



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FASB updates its derivatives and hedging guidance

16 Mar 2006

The staff of the US Financial Accounting Standards Board has posted on the FASB Website revisions to the Statement 133 Implementation Issues that were affected by the issuance of FASB Statement No.

155 Accounting for Certain Hybrid Financial Instruments. The 'all issues' and 'tentative guidance' files on the website have also been updated for the release of those Implementation Issues. A marked draft reflecting the revised Implementation Issues is also available in PDF format.
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EFRAG seeks members for performance reporting group

16 Mar 2006

The European Financial Reporting Advisory Group, together with the Spanish accounting standard-setter ICAC, is initiating a project on Performance Reporting.

ICAC and EFRAG are seeking nominees for a new a pan-European Advisory group by 7 April 2006. Click for More Information (PDF 51k).
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IAASB advisory group meetings are now open

16 Mar 2006

Meetings of the Consultative Advisory Group (CAG) of the International Auditing and Assurance Standards Board (IAASB) are being opened to public observation.

The CAG's next meeting is scheduled for May 11-12 in Paris. The IAASB CAG comprises representatives of 35 organisations. Its role is to provide input to and assist the IAASB by advising on its work program, including project priorities, and offering technical advice on projects as items evolve and on other matters of relevance to the IAASB's activities. Click for Announcement (PDF 89k).

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