News

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Notes from 2 October 2008 IASB meeting

04 Oct 2008

On 2 October 2008, the International Accounting Standards Board held a special Board meeting at its offices in London.

That meeting was in addition to the Board's regular meeting that is set for 14-17 October 2008. Because the 2 October meeting was arranged at short notice, some Board members took part via video conferencing facilities. To make allowance for the different time zones involved, the meeting was held in two sessions, morning and afternoon, with the same topics discussed. Click to go to the combined preliminary and unofficial Notes Taken by Deloitte Observers at Both Sessions of the Meeting.

 

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IASB announces four planned 'credit crisis' steps

04 Oct 2008

The IASB has announced the current status of its response to the credit crisis and the next steps it expects to take.

In its announcement, the IASB indicated that it 'is closely monitoring developments in the United States and other jurisdictions to avoid unnecessary inconsistencies in accounting treatments under IFRSs and US generally accepted accounting principles (GAAP)'. The IASB's next steps will be in the following areas:
  1. Ensure consistency of fair value measurement guidance between IFRSs and US GAAP
  2. Consider the possible impact of the US Emergency Economic Stabilization Act of 2008 and other similar programmes internationally on the valuation of assets and liabilities
  3. Immediately consider the ability to reclassify financial instruments.

    US GAAP permits entities, in rare circumstances, to reclassify financial instruments that are in the form of securities from their trading portfolio (measured at fair value with changes through the income statement) to 'held to maturity' (measured at amortised cost and subject to testing for impairment). Also US GAAP permits some loans that are not securities to be transferred from Held for Sale (measured at lower of cost or market with changes through the income statement) to Held for Investment (measured at amortised cost and subject to testing for impairment). IAS 39 does not currently permit such transfers. The IASB intends to assess (at its October 2008 Board meeting) any inconsistencies in how IAS 39 and US GAAP practice address the issue of reclassifications and decide whether to eliminate any differences.
  4. Be willing to participate in any study on the impact of accounting in the credit crisis
Click for:
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Final 'bailout bill' includes two fair value measurement sections

04 Oct 2008

Yesterday, by vote of 263-171, the United States House of Representatives approved the version of the so-called 'Financial Institutions Bailout Bill' (officially the Emergency Economic Stabilization Act of 2008) previously approved by the Senate.

President Bush signed it into law. The final bill included the following two sections relating to fair value measurement issues that were noted in our News Story of 29 September 2008:
  • Sec. 132. Authority to suspend mark-to-market accounting
    Restates the Securities and Exchange Commission's authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.
  • Sec. 133. Study on mark-to-market accounting
    Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.
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IASB statement on joint SEC-FASB fair value guidance

04 Oct 2008

In our News Story of 1 October 2008, we reported that the US SEC's Office of the Chief Accountant and the FASB staff jointly issued a press release containing questions and answers aimed at clarifying fair value measurement practices in the current environment.

They issued this guidance pending the completion by FASB of additional interpretative guidance about the requirements of FASB Statement No. 157 Fair Value Measurements in illiquid markets. The news story has a link to the SEC-FASB release. The IASB has issued a Press Release (PDF 99k) stating that its staff has reviewed the SEC-FASB release and considers it consistent with IAS 39 Financial Instruments: Recognition and Measurement.
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EC will propose to exempt 'micros' from Accounting Directives

03 Oct 2008

Charlie McCreevy, European Commissioner for the Internal Market and Services, has announced that he will propose a Member State option to exempt micro entities from the Fourth and Seventh Council Directives (78/660/EC and 89/349) and also that the Commission will launch a review of the Accounting Directives for small businesses.

Click to view the announcement (PDF 83k).

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IASC Foundation publishes Guide through IFRSs

03 Oct 2008

The IASC Foundation has published A Guide through International Financial Reporting Standards.

This large volume (approximately 2,900 pages) provides the complete and up-to-date consolidated text of IFRSs with extensive cross-references and other annotations. It covers all IFRSs and IASs, IFRIC and SIC Interpretations, and IASB-issued supporting documents – illustrative examples, implementation guidance, bases for conclusions, and dissenting opinions – approved by the IASB at 1 July 2008. Other annotations to IFRSs in the Guide include IFRIC agenda decisions and clarifications.

This Guide identifies the interrelationship between paragraphs and sections of each IFRS and the IASB issued accompanying material. For instance, when reading a particular paragraph or section of IFRSs, the text answers the question: which paragraphs of this IFRS, other IFRSs and accompanying material help me understand this paragraph better? It also provides some explanatory annotations and includes the text of relevant IFRIC agenda decisions.
The price is £90 plus shipping, with discounts are available for multiple copies, students/academics, and residents of middle and low income countries. For more information and ordering details, go to the Guide Web Page.

 

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IFRS in Real Estate from Deloitte USA

03 Oct 2008

Deloitte (United States) has published IFRS in Real Estate: More Than Just Accounting and Reporting.

This publication provides practical industry insights on IFRS for real estate executives and includes useful sections on:
  • IFRS challenges and opportunities in the real estate industry
  • Implications of IFRS for financial reporting, tax, human resources, mergers and acquisitions, information technology, and treasury
  • Key action steps for real estate executives
  • Approaches to IFRS conversion
  • Key differences between IFRS and US Generally Accepted Accounting Principles for the real estate industry
Click to download IFRS in Real Estate: More than Just Accounting and Reporting (PDF 438k).

 

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IAASB issues seven revised International Standards on Auditing

03 Oct 2008

The International Auditing and Assurance Standards Board (IAASB) has issued seven revised International Standards on Auditing (ISAs).

Some of the standards released today have been substantively revised, while others have been redrafted to apply the IAASB's new 'clarity' drafting conventions.

The seven newly revised International Standards on Auditing (ISAs) are:

  • ISA 200 (Revised and Redrafted) Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing. This fundamental ISA:
    • contains an overview of an audit to aid in understanding its purpose and scope;
    • defines the respective authority of the requirements and guidance in ISAs;
    • contains the most fundamental requirements for auditors; and
    • emphasises the importance of sound and consistent professional judgment by the auditor, and the necessity for sufficient audit evidence to support the auditor's opinion.
  • ISA 320 (Revised and Redrafted) Materiality in Planning and Performing an Audit;
  • ISA 450 (Revised and Redrafted) Evaluation of Misstatements Identified during the Audit;
  • ISA 530 (Redrafted) Audit Sampling;
  • ISA 610 (Redrafted) Using the Work of Internal Auditors;
  • ISA 705 (Revised and Redrafted) Modifications to the Opinion in the Independent Auditor's Report; and
  • ISA 706 (Revised and Redrafted) Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report.
Click for IFAC Press Release (PDF 24k).

 

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CFAs in Europe vote against suspension of fair value standards

03 Oct 2008

In an overnight poll of CFA Institute members based in the European Union (EU), 79% of the 597 respondents do not support the suspension of fair value measurements for financial instruments under IFRSs.

85% also think that a suspension of fair value standards would further decrease confidence in the European banking system. The CFA Institute polled its EU based members in advance of the summit called by EU and French President Sarkozy to establish a common European position on regulation. Following the poll, the CFA Institute submitted a letter to President Sarkozy, who is seeking more flexibility in accounting rules. The letter affirms that any weakening of accounting rules will not improve market stability and will further undermine investor confidence. Click for CFA Institute Press Release (PDF 21k), which also includes a copy of the letter to President Sarkozy. Previously, the CFA Institute joint the Center for Audit Quality and the Council of Institutional Investors in issuing a Joint Statement (PDF 19k) "opposing suspension of mark-to-market accounting".

 

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FASB proposes fair value guidance in inactive markets

03 Oct 2008

The US Financial Accounting Standards Board has invited comment on a proposed FASB Staff Position (FSP) that addresses concerns regarding the determination of fair value in markets that are not active.

The objective of the guidance in proposed FSP FAS 157-d is to clarify how SFAS 157 applies to determining the fair value of assets and liabilities in inactive markets and to provide an example that illustrates several key principles, including the following:

FAS 157 principles that will be illustrated in the guidance:

  • In some cases an entity might determine that observable inputs to a market approach valuation technique require significant adjustment and thus are ultimately considered unobservable or Level 3 inputs. The entity might then conclude that an income approach valuation technique that uses management's internal assumptions about market participants' expectations of cash flows is equally or more representative of fair value. However, regardless of the valuation technique used, entities must include appropriate adjustments that market participants would make for risks, such as nonperformance and liquidity.
  • A fair value measurement represents the price at which a transaction would occur between market participants at the measurement date. As discussed in paragraph 30 of Statement 157, in situations in which there is little, if any, market activity for an asset or liability at the measurement date, the fair value measurement objective remains the same, that is, an exit price from the perspective of a market participant.
  • Broker quotes or pricing services may be a relevant input when measuring fair value, but not necessarily determinative if an active market does not exist for the security. In weighing a broker quote as an input to fair value, an entity should place less reliance on quotes that do not reflect the result of market transactions.
There is more information in the Handout for Observers at the FASB Meeting (PDF 46k) beginning on page 7. The proposed FSP is now posted on FASB's Website. The planned one-week comment period will end on 9 October 2008, and the FASB expects to meet on 10 October 2008 to discuss comments received and vote on final guidance. The guidance would be effective on issuance. Any resulting changes in fair value measurements would be reflected in current profit or loss rather than by restating prior period financial statements.

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