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CESR report on auditor oversight in the EU

04 Dec 2006

The Committee of European Securities Regulators (CESR) has published a The Committee of European Securities Regulators (CESR) has published a Report on the Role of Securities Regulators in Auditor Oversight in the European Union.

The report examines the relationship between the securities regulators, the auditors, and their oversight system. The report generally reflects the auditor oversight structure in the EU/EEA member states as of 1 October 2005, with two exceptions. In the Netherlands, on 1 October 2006, the Dutch securities regulator took over the oversight of auditors and increased its powers in this area. Also, in Italy, in December 2005, a new law was passed that strengthened the powers of CONSOB (Italian securities regulator) in respect of auditor oversight. The report notes that "with the enactment of the 8th Directive on Statutory Audit which will be implemented in member states by mid-2008, each member state has to establish an auditor oversight body. Some member states are still in the process of establishing these auditor oversight bodies, so the situation as set out in this report is likely to change over the next two years."
Click for Full Report (PDF 117k).
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Report on implementation of IFRSs in the United Kingdom

04 Dec 2006

The United Kingdom Financial Reporting Review Panel has published a report on its preliminary findings in respect of IFRS implementation by UK listed companies in their annual accounts.

The Panel found 'a good level of compliance with IFRSs' but also identified a number of recurring issues that are highlighted in the report, including the following:
  • There is "a tendency to use 'boiler-plate' descriptions for disclosure of accounting policies, irrespective of whether those policies had been applied in the accounts. IFRS accounts have been said to be too long and too complicated. More focused and thoughtful approaches to these areas might reduce their length and increase understanding of the complexities which are inevitable in sophisticated commercial operations."
  • IAS 1 disclosures relating to subjective or complex judgements made by management were sometimes bland and uninformative.
  • Not all companies complied with the requirement to disclose the possible impact on their financial statements of published Standards and Interpretations not yet effective at their reporting date.
  • Disclosures relating to intangible assets and goodwill acquired in business combinations needed improvement in some cases.
  • Similarly, disclosures relating to impairment testing of goodwill and indefinite-life intangible assets were inadequate in some cases.
  • The report reminds companies that all key management personnel are related parties under IAS 24 (even if they are not directors) and IAS 24 requires disclosure of remuneration.
Click to download:
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Updated EFRAG endorsement status report

04 Dec 2006

The European Financial Reporting Advisory Group has updated its report showing the status of endorsement, under the EU Accounting Regulation, of each IFRS, including standards, interpretations, and amendments.

Click to download the Endorsement Status Report as of 30 November 2006 (PDF 28k). You can always find it on our EFRAG Page. Currently, the following IASB pronouncements have not yet been endorsed for use in Europe:
  • IFRS 8 Operating Segments
  • IFRIC 12 Service Concession Arrangements
  • IFRIC 11 Group and Treasury Share Transactions
  • IFRIC 10 Interim Financial Reporting and Impairment
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Australia proposes to undo changes it made to IFRSs

02 Dec 2006

On 30 November 2006, the Australian Accounting Standards Board (AASB) issued Exposure Draft ED 151 Australian Additions to, and Deletions from, IFRSs for comment.

ED 151 can be downloaded from the AASB Website (PDF 100kb). ED 151 reflects the AASB's recent decision to make Australian accounting requirements the same as IFRSs in respect of for-profit entities. To this end, the exposure draft proposes reinstating various accounting policy options that were previously deleted in making the existing suite of A-IFRS, and removing certain Australian-specific disclosures.

Options in accounting and disclosure

ED 151 proposes to allow entities the option to:

  • prepare cash flow statements using the 'indirect' method. Whichever method adopted, the reconciliation between profit and operating cash flows will no longer be required
  • use proportionate consolidation to account for their jointly controlled entities
  • account for government grants as deferred income or as a deduction from the related asset. The choice affects the timing of recognition of the grant as income
  • account for government grants in the form of a transfer of a non-monetary asset for use by the recipient at fair value or nominal amount
  • disclose government grants related to income as a credit in profit and loss or as a deduction from the related expense
  • disclose a reconciliation between the average effective tax rate and the applicable tax rate instead of a reconciliation between tax expense and accounting profit multiplied by the tax rate. Also, the ED proposes eliminating the additional disclosures related to the treatment of exchange differences on deferred taxes

 Reducing the magnitude of additional disclosures

ED 151 also proposes that entities no longer be required to make Australian specific disclosures relating to:

  • defined benefit plans, including the surplus or deficit determined under AAS 25 Accounting for Superannuation Plans and details about funding
  • associates and joint ventures
  • earnings per share calculations, including disclosure of an additional EPS number where there has been a major capital restructuring.
  • the reason and justification for not using the Australian currency as the presentation currency
  • the financial effect of a change in accounting policy made in the second half of the financial year on the previously reported half-year results/position
  • interim financial reporting – including the financial effect of subsequent events, details about dividends proposed or declared, and labelling of the interim financial report
  • for biological assets, their nature, estimate of physical quantity and details of restrictions on their use or sale
  • disclosure of credit standby arrangements and a summary of used and unused loan facilities as required by AASB 132 Financial Instruments: Disclosure and Presentation
  • for financial institutions, disclosures including interest analysis, contractual maturities, impairment losses and fiduciary duties.
Click for Deloitte Accounting Alert (PDF 41k).

 

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Agenda for December 2006 IASB meeting

02 Dec 2006

The International Accounting Standards Board will hold its December 2006 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 12-14 December 2006. Presented below is the preliminary agenda for the meeting.

The International Accounting Standards Board will hold its December 2006 Board meeting at its offices, 30 Cannon Street, London, on Tuesday through Thursday 12-14 December 2006. Presented below is the preliminary agenda for the meeting.

Board Meeting Agenda

12-14 December 2006, London

Tuesday 12 December 2006

Wednesday 13 December 2006

  • Financial Instruments – Interest margin hedging [Education Session]
    • Representatives from the European Banking Federation will hold an education session for the Board, at which they will present a proposed alternative hedge accounting model.
  • Annual Improvements - 2006 [Please note this session may be moved to Tuesday 12 December if other sessions on that day take less time than anticipated]
    • 1. Should IAS 1 Presentation of Financial Statements be amended to provide guidance on situations where the financial statements of an entity are based on, but not in full compliance with, IFRSs?
    • 2. Should the term 'point-of-sale costs' in IAS 41 Agriculture be replaced with 'costs to sell' to improve consistency with other IFRSs?
    • 3. Should IAS 38 Intangible Assets permit the use of the unit of production method of amortisation when it results in a lower amount of accumulated amortisation than the straight-line method?
  • Financial Instruments – Hedging of portions of cash flow or fair value exposure
  • Financial Instruments – Due Process Document: Recognition and Measurement

Thursday 14 December 2006

  • Technical plan
  • Financial Statement Presentation phase A – Exposure Draft of Proposed Amendments to IAS 1 Presentation of Financial Statements: Comment letter analysis.
  • Financial Statement Presentation phase B:
    • Other comprehensive income
    • The statement of cash flows
    • Application of the working format to financial institutions
    • Tentative decisions to date and comprehensive illustration
  • Business Combinations Phase II– Redeliberations of the proposed revised IFRS 3:
    • Non-controlling interests and goodwill: Questions and answers
    • Combinations between mutual entities
    • Accounting for business combinations achieved by contract alone or in the absence of a transaction involving the acquirer
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IFRIC 12 on service concession arrangements

01 Dec 2006

The International Financial Reporting Interpretations Committee (IFRIC) has issued Interpretation IFRIC 12 'Service Concession Arrangements'.

Service concessions are arrangements whereby a government or other public sector entity grants contracts for the supply of public services – such as roads, airports, prisons and energy and water supply and distribution facilities – to private sector operators. Control of the assets remains in public hands, but the private sector operator is responsible for construction activities, as well as for operating and maintaining the public sector infrastructure.

IFRIC 12 addresses how service concession operators should apply existing IFRSs to account for the obligations they undertake and rights they receive in service concession arrangements.

Click for Press Release (PDF 52k). IFRIC 12 is effective for annual periods beginning on or after 1 January 2008.

 

A brief summary of IFRIC 12

IFRIC 12 draws a distinction between two types of service concession arrangement:

  • In one, the operator receives a financial asset, specifically an unconditional contractual right to receive cash or another financial asset from the government in return for constructing or upgrading the public sector asset.
    • The operator recognises the financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services
    • The operator measures the financial asset at fair value
  • In the other, the operator receives an intangible asset – a right to charge for use of the public sector asset that it constructs or upgrades. A right to charge users is not an unconditional right to receive cash because the amounts are contingent on the extent to which the public uses the service.
    • The operator recognises the intangible asset to the extent that it receives a right (a licence) to charge users of the public service
    • The operator measures the intangible asset at fair value.

 

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US PCAOB proposes $136 million 2007 budget

01 Dec 2006

The US Public Company Accounting Oversight Board has approved a budget of US$136.4 million for calendar year 2007, compared to $130.9 for 2006. The majority of the Board's outlays will be for personnel and related expenses to conduct inspections of registered public accounting firms.

To date, more than 1,700 public accounting firms have been registered by the Board, including approximately 750 firms based outside the United States. Firms with more than 100 public company audit clients must be inspected annually; firms with one to 100 public company audit clients must be inspected at least once every three years. The PCAOB expects to grow to a total headcount of 519 employees by year-end 2007, including approximately 250 inspections staff. This compares to an estimated 480 total and 230 inspections staff by the end of 2006. The budget is subject to US SEC approval. Click for:
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Nearly 900,000 e-learning downloads from IAS Plus

01 Dec 2006

As of 30 November 2006, 878,254 Deloitte IFRS e-learning modules have been downloaded from IAS Plus by 228,600 visitors from 156 jurisdictions.

Deloitte's IFRS e-learning was launched at the end of January 2004. Many of the downloaded modules have multiple users because organisations are permitted to install them on their own servers for the internal use of their employees or students. In addition, hundreds of thousands of additional modules have been completed online and offline by Deloitte staff. You can always access IFRS e-learning without charge by clicking on the light bulb icon on the IAS Plus home page. Thirty-five modules are now available covering virtually all IFRSs. Because of the complexity of accounting for financial instruments, there are three modules on IAS 32 and IAS 39 (a general introduction and special modules on hedge accounting and derecognition). Deloitte is committed to maintaining the quality of our learning materials, and the IFRS e-learning modules are regularly updated to reflect changes and updates to the underlying standards. To check that you have the most up-to-date versions of the e-learning visit the version history page on the IFRS e-learning site.
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IASB issues convergence standard on segment reporting

30 Nov 2006

The IASB has issued IFRS 8 'Operating Segments' as part of joint project with the US Financial Accounting Standards Board to reduce differences between IFRSs and US GAAP.

IFRS 8 replaces IAS 14 Segment Reporting and aligns the IASB's standards with the requirements of SFAS 131.

IFRS 8 requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.

Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.

 IFRS 8 Operating Segments:

  • applies only to listed entities
  • requires identification of operating segments based on internal reports that are regularly reviewed by the entity's chief operating decision maker in order to allocate resources to the segment and assess its performance
  • includes a component of an entity that sells primarily or exclusively to other operating segments of the entity in the definition of an operating segment if the entity is managed that way
  • requires the amount of each operating segment item reported to be the measure reported to the chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance
  • requires reconciliations of total reportable segment revenues, total profit or loss, total assets, total liabilities and other amounts disclosed for reportable segments to corresponding amounts in the entity's financial statements
  • requires an explanation of how segment profit or loss and segment assets and liabilities are measured for each reportable segment.
  • requires an entity to report information about the revenues derived from its products or services (or groups of similar products and services), about the countries in which it earns revenues and holds assets, and about major customers, regardless of whether that information is used by management in making operating decisions
  • requires an entity to give descriptive information about the way in which operating segments were determined, the products and services provided by the segments, differences between the measurements used in reporting segment information and those used in the entity's financial statements, and changes in the measurement of segment amounts from period to period
  • applies to the annual financial statements for periods beginning on or after 1 January 2009. Earlier application is permitted.

 Click for Press Release (PDF 68k).

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IASB discussion paper on fair value measurements

30 Nov 2006

The IASB has published for public comment a Discussion Paper on Fair Value Measurements.

The Discussion Paper sets out the IASB's preliminary views on how to measure fair values when fair value measurement is already prescribed under existing IFRSs. It does not propose any extensions of the use of fair values. The Discussion Paper is built around FASB's recently issued SFAS 157 Fair Value Measurements. SFAS 157 establishes a single definition of fair value together with a framework for measuring fair value for financial reports prepared in accordance with US GAAP. The IASB's Discussion Paper:
  • indicates the IASB's preliminary views on the provisions of FAS 157;
  • identifies differences between FAS 157 and fair value measurement guidance in existing IFRSs; and
  • invites comments on the provisions of FAS 157 and on the IASB's preliminary views about those provisions.

Some points about FAS 157:

  • Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
  • Fair value should be based on the assumptions market participants would use when pricing the asset or liability.
  • FAS 157 establishes a fair value hierarchy that prioritises the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity's own data.
  • Fair value measurements would be separately disclosed by level within the fair value hierarchy.
  • FAS 157 is effective for financial statements issued for fiscal years beginning after 15 November 2007, and interim periods within those fiscal years. Early adoption is permitted.
  • FAS 157 may be downloaded from FASB's Website without charge.
Click for IASB Press Release (PDF 53k). The Discussion Paper will be available without charge on the IASB's website starting 11 December 2006. Comment deadline is 2 April 2007. The IASB plans to publish an Exposure Draft in 2008.

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