In this issue Discussing the credit crunch............................................. 1 Interview with Pedro Malan, Trustee................................. 5 Four principles ensuring sustainable funding................... 3 IASC Foundation update.................................................. 4 Interview with Jeff Lucy, Trustee....................................... 7 Five questions on adoption and translation...................... 8 Challenging but rewarding—Korea and IFRSs............... 10 Working towards 2011—Canada and IFRSs................... 11 IFRS for SMEs................................................................ 12 Facing up to pensions accounting.................................. 14 IASB/IFRIC project updates............................................ 17 Staff changes.................................................................. 19
Discussing the credit crunch Robert Bruce interviews Sir David Tweedie and John Smith As the credit crunch and its consequences have unfolded there has been much discussion about the issue of fair value and where accounting standards fit into the crisis. Here IASB Chairman, Sir David Tweedie, and Board member John Smith discuss the issues. ‘There has been a lot of talk about volatility in the marketplace’, says Smith. ‘People talk of accounting for volatility as though it has caused this crisis. Volatility is not invented, and when companies report volatility that volatility is real. The change in assets and liabilities is an economic event and all businesses are exposed to economic volatility’, he adds. ‘It results from things in the marketplace changing. And all the accounting does is describe it.’ But that accounting has come under attack. How far has this been a case of ‘shooting the messenger’? ‘Mark-to-market or fair value accounting has been attacked by some in the press, but others are of the opinion that the transparency and disclosure provided by fair value has helped to disclose the true economic position earlier’, says Tweedie. According to a survey of CFA Institute members
Changes and challenges Over recent months, quite understandably, the financial media have focused on the credit crisis. Everybody is interested in understanding how the crisis has happened and what can be done to prevent future events like this. The IASB’s Chairman, Sir David Tweedie, and Board member John Smith discuss the issue in an interview with Robert Bruce. Finding solutions for what can be done to prevent future market crises will certainly be one of the challenges of the forthcoming years for the financial community, and the IASB is ready to participate in the search for solutions. Overall, 2007 was an exciting year for the organisation. More countries decided to adopt IFRSs and the US SEC took the landmark decision to allow foreign registrants to use IFRSs without reconciling to US standards. But the success of IFRSs brings changes and challenges for both the organisation itself and the adopting countries. While the countries joining are convinced of the future benefits of IFRSs, adopting or accepting a new set of accounting standards entails substantial regulatory changes and requires a major educational effort within the country. From the Foundation’s perspective the success of global standards means that it is essential to ensure that IFRSs remain IFRSs in any country and in any language they are translated into. In this edition of INSIGHT we take a look at these changes and challenges surrounding IFRSs and at the different ways of dealing with them. We hope this edition will give you an interesting insight!
Mark Byatt (mbyatt@iasb.org) Sonja Horn (shorn@iasb.org)
worldwide, 79 percent of respondents believe that fair value requirements improve transparency and contribute to investor understanding of financial institutions’ risk. ‘Fair value accounting has been accused by some of exacerbating the present financial crisis. Perhaps we should get a few points clear. The crisis has been caused by bad lending which has then been scattered around the world by banking’s “originate loans and then distribute them” policies. These loans have been sliced and diced in many ways and wrapped up in complex financial instruments that probably stretched the ratings agencies to their limits and probably gave some investors who didn’t do enough due diligence more assurance than they should have, and because the banks had distributed the loans these loans probably moved outside the banks’ risk assessment practices’ explains Tweedie. John Smith adds: ‘A major part of the problem is that markets are unsure where these bad loans have ended up and consequently have marked down any instruments suspected of containing them. The use of fair value is not new. Fair value has long been used to determine how much a bank
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‘It should be remembered that the European Central Bank’, comments Tweedie, ‘concluded just over a year and a half ago that consistent and rigorous application of IFRSs would increase the stability of the financial system by strengthening the banks’ internal discipline and risk management in the medium term.* IFRSs have resulted in much more information on derivatives being published than ever before. In the absence of such information markets would probably be more volatile than they are today’, he says.
Sir David Tweedie, IASB Chairman
can recover from a loan. The valuation of loans, therefore, has always been on a fair value basis when full recovery is uncertain.’ Much talk has been made of the alleged pro-cyclic effect of mark-to-market accounting. David Tweedie sees the issue from a slightly different angle: ‘Some of the complaint has been that the valuation has been artificially low and will recover in the future. This could well be the case. But accounts are supposed to reflect the current situation, not a probable future one. Ultimately, it is lack of trust that has caused the present market problems. And in that sense, picking a value that one hopes might be the value in a year or two is hardly likely to increase the trust as each institution probably has a rather different view of the future. ‘Leaving these instruments at cost when everyone knows their value is impaired is an equally bad idea. As some have said, fair value is probably the worst possible measurement system apart from all the others’, he says.
There can even be a silver lining. ‘Even the fact that markets are low today enables people who did not purchase the instruments at the centre of the crisis to move into the market and purchase these instruments and be rewarded for their caution’, Tweedie continues. ‘Accounting has to reflect facts, not assume stability when it doesn’t exist.’ Long before the credit crunch the IASB had been examining the issues of consolidation and recognition. The question of special investment vehicles and other ways of taking something off balance sheet is part of that review. ‘Think of risk and think of the requirement under IFRS 7 to disclose various types of risk’, says Smith. ‘It doesn’t matter whether the entity is consolidated or not consolidated.’ He underlines that the risk is still there and should hence be reported: ‘The extent of risk should always be disclosed and be transparent.’ Providing further enhancements to transparency and disclosure is at the heart of a recent report by the Financial Stability Forum (FSF), a meeting of senior regulatory and supervisory bodies, as well as other international institutions. Amongst a range of recommendations the FSF called on the IASB to expedite
John Smith provides an example in another walk of life: ‘Think of a teenager who has been told that if he gets good grades at school then his parents will buy him a car. He gets the grades and he gets the car. But he has so much fun in it that he takes his eyes off the ball and his grades start to fall. He is worried so he goes to the head teacher and asks him not to send his grades to his parents and argues they don’t reflect all the work he has done. He asks for an average of his grades over the year to be sent out to his parents instead. What would happen? He would be chucked out of the head teacher’s office but that is what is going on in the business world at the moment.’ Smith argues that if the accounting did not disclose what was going on, the problems could have only got worse. ‘By denying this information to the marketplace the real problems wouldn’t have been discovered until a year or two down the road and it would by then be worse.’ And the accounting issues are nothing to do with the economic realities. ‘Whether you use fair value or not the losses would still exist. The fact that they have been reported means that the problems are now being attended to’ says Smith. For him the current situation is an essential lesson for managers in how to manage their risks. ‘In order to manage risk they have to measure it’, he says, ‘and that is one thing that fair value requires. It is a measurement. Managers may not like reporting it, I can understand that, but they are accountable for how well they manage the risk and so they should be reporting it.’ 2
John Smith, IASB
the consolidations and derecognition projects already on the work plan by skipping the optional due process step of publishing a discussion paper and moving straight to exposure draft stage. The report also supported plans for the IASB to form an expert group to assist in providing further guidance on how to apply fair value measurement in illiquid markets. ‘We are supportive of the recommendations set out in the FSF report and will work with others to ensure that any lessons to be learnt from the crisis are dealt with appropriately’, concluded Tweedie.
* ECB, Assessment of accounting standards from a financial stability perspective, December 2006
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Four principles ensuring sustainable funding
The funding of an independent standard-setter operating in a global context can be problematic. Independence means that the funding has to come with no strings attached. However, the global context means that few organisations can provide funding on a similar global scale. The 2008 budget shows the result of four basic funding principles that the Trustees adopted in 2006 that were aimed at solving the issue. Having no established ties to specific regulators or countries means that there is no straightforward link to funding from what might be considered the usual sources. ‘There is no one to mandate a universal levy on international companies or other bodies who benefit from the standard-setting process’ said Tom Seidenstein, Director of Operations, IASC Foundation. In the past this has meant relying on funding from a relatively small group of some 200 organisations and companies to finance the Foundation’s budget. That began to change in 2006 when the IASC Foundation Trustees laid out specific ground rules to ensure that
there could be no suggestion that funding impinged on the independence of the IASB and that the financing would be placed on a more sustainable basis. It set out four principles: The first was that funding had to be broad-based. A sustainable long-term financing system must expand the base of support to include the major participants in the world’s capital markets. This should increase the diversification of the base of the funding. The second was that the funding system should be compelling. It should make free riding very difficult. This should be accomplished through official support from the relevant regulatory authorities, for example, and formal approval by the collecting organisations. Thirdly, the funding should be open-ended and not contingent on any action that might infringe on the independence of the standard-setting. And finally, the burden of the funding should be shared by the major economies of the world on a proportionate basis, using gross domestic product (GDP) as the determining measure. Ultimately the aim is to move to a simple levy system. This would add an element of automaticity to the funding system and reduce any future claims of dependence on single company contributions. ‘Dependence on voluntary contributions could hamper your independence’, said Gerrit Zalm, Chairman of the Trustees. ‘But I have never 3
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found a company that refused because it disagreed with a standard. My preference is for a levy system, which already works in several countries. It is good that all companies, who after all do benefit from IFRSs, should contribute. And it is an independent system.’ Another issue behind the long-term goal to achieve a universal levy system is to widen the distribution of funding as much as possible. Seidenstein explained: ‘The wider the sharing of the funding, preferably through a universal levy, the less anyone can suggest that independence could be impaired by undue influence from any quarter. A levy takes away any power that might be gained by contributing and gets rid of the perception that any company could influence the standard-setting work.’
IASC Foundation funding – The facts Budget: • £16 million for 2008 • £13 million through voluntary contributions • Remaining: income through publications How it works: • Voluntary contributions (countries, international
Getting there is a gradual process. A national levy system is in place in the UK and Italy, and is in the process of being established in the Netherlands. Regulatory authorities in Australia and New Zealand have made financial commitments, and broad-based voluntary systems are being set up in many other countries. Even if a global levy system is still in the future, the principles introduced by the Trustees have shown results. Seidenstein commented: ‘We are at the point when we can honestly say that thousands are involved, but we are continuing our efforts.’ As a result, roughly £13 million of the Foundation’s budget of £16 million in 2008 is already covered through long-term donations. The remaining amount is covered through income from the organisation’s Publications Department. The aim, however, remains to become fully independent of other sources of income. ‘One of the difficulties,’ said Seidenstein, ‘is that introducing a levy often needs legal changes. There are different models out there though, and we are not too prescriptive. It is very much an evolutionary process.’ But the programme of widening the funding and ensuring that it is sustainable in the long term is in place and will be accelerated. He concluded ‘There will be a steady progression on this.’
• National levy systems in place for some countries • Aim: a broad-based, sustainable, and permanent Where can I get more information? www.iasb.org under About Us/About the Foundation
IASC Foundation update IFRS Taxonomy 2008 The IASC Foundation’s XBRL Team released in March the near final version of the IFRS Taxonomy 2008—a complete translation into XBRL of IFRSs as published in the Bound Volume 2008. The IFRS Taxonomy 2008 will be published in the same languages as the IFRS Bound Volume 2008. The near final version is freely available on the IFRS XBRL Website on http://www.iasb.org/xbrl/taxo.asp.
Further vacancies will be created in July 2008 by the retirement of four IFRIC members. An advertisement for new members is posted on the IASC Foundation’s Website www.iasb.org.
Three Trustees appointed The IASC Foundation appointed in March three new Trustees: •
Robert Glauber, retired chairman and chief executive officer, NASD (the private sector regulator of the US securities market), and former Under Secretary of the Treasury for Finance, United States
•
Pedro Malan, former Finance Minister and former president of the Central Bank of Brazil, and currently chairman of Unibanco
•
Luigi Spaventa, former chairman of the Commissione nazionale per le società e la borsa (Consob) and former Minister of the Budget, Italy.
IFRIC enlarged Two additional members of the IFRIC were appointed in March to increase the membership from 12 to 14 in order to broaden the IFRIC’s IFRS expertise. The new members are: •
Margaret M (Peggy) Smyth, Vice President, Controller, United Technologies Corp, United States
•
Scott Taub, Managing Director, Financial Reporting Advisors, LLC, United States, and former Acting Chief Accountant and Deputy Chief Accountant, US Securities and Exchange Commission.
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The appointments mark the completion of an international search and carry the support of the Trustee Appointments Advisory Group. The appointments fill vacancies created by the retirement of William McDonough of the United States, Roberto Teixeira da Costa of Brazil and Kees Storm of the Netherlands, respectively.
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Building the global brand An interview with Pedro Malan, IASC Foundation Trustee Pedro Sampaio Malan, current Chairman of Brazil’s third largest private bank, Unibanco, joined the Trustees in March. He is not only a former president of the Central Bank of Brazil and former finance minister during the Cardoso presidency, he is also credited with successfully reforming 1973 the nation’s banking system, saving it from the negative effects of 1997’s Asian market 2002 crisis. On the basis of his experience he strongly believes in a global accounting language and that experience should 2004 remain one of the fundamental criteria for membership in any of the bodies of the 2005 IASC Foundation.
I have a very positive view of the progress achieved so far. But as always in complex undertakings such as this, there is no room for complacency. We still have a long way to go. However, attaining the ultimate fundamental objective that led to the creation of the IASB is now clearly within our reach.
What do you think will be the main challenges for the Australia & IFRSs Trustees over the next couple of years? Australia is a founding member of In addition to maintaining the forward momentum IASC, thea IASB’s for widerpredecessor adoption of IFRSs, to move ahead with the organisation Constitution Review is certainly important. I hope the
The review Financialwill Reporting Council ensure that the integrity of IFRSs and the directs the Australian Accounting independence of the IASB will be further consolidated. Standards Board (AASB) to At the same time, the Trustees should be able to show introduce IFRSs 1 January 2005
to a wider public that we are a part of a transparent and
The AASB drafts a new set of accountable organisation that is overall widely respected Australian accounting standards for its technical expertise, consensus or convergenceto reflect IFRSs fully
Mr Malan, why did you decide to become a Trustee? There are two things: first, my conviction that the international economy needs and will benefit enormously from the adoption of a single set of financial reporting standards. Secondly, I have received strong encouragement from some leading personalities involved for a long time in this effort, such as Paul Volcker, among others, in the US, in Europe and, very relevant to me as well, encouragement 2000 from those who have been leading the way towards IFRS adoption in my own country, Brazil.
seeking capabilities and strategic vision of its Boards and Monitoring Groups.
IFRSs are adopted
The IASC Foundation is unique as a private body that is effectively setting laws in different countries. However, it is totally independent of any national influence and is not subject to any official supervisory body. This has led some to voice concerns over a lack of transparency and oversight.
I have just been nominated as a Trustee of the IASC Foundation and therefore I am not the best person to give a full reply to this question. But from what I have read and seen so far, I do not think that the criticism is The Cardoso administration entirely justified. One of the proposes that the Brazilian Congress should change the 1976 Law on concerns voiced relates to Public Companies to facilitate the governance issues and the adoption of IASs oversight function of the Changes subject of intensive Trustees. It seems to me that consultation in three subcommittees Do you have some the first is being addressed of the Brazilian Congress personal goals that you in the context of the regular 2006 The Central Bank of Brazil requires all aim to achieve during your Constitution Review that has Brazilian banks and financial institutions to comply with IFRSs time as a Trustee? just started. And given the from 2010 outstanding quality of the I hope to make a modest 2007 The Senate approves changes to other Trustees, I am under contribution to moving the allow the adoption of IFRSs for listed the impression that we have companies. The law is immediately process forward, helping to sanctioned by President Lula all the conditions to exercise ensure even wider adoption our oversight responsibilities Brazilian banks will have to comply with IFRSs in of IFRSs than we have today, 2009 and listed companies in 2010 properly—even more so once especially in the leading we are supported by a well countries of the global functioning Monitoring economy. And I want to contribute to making IFRS a Group with representatives of the regulatory agencies and brand name by working together with my fellow Trustees, other interested organisations. the IASB, national regulators and professional and public opinion makers in my region, especially in Brazil at the With IFRSs adopted or accepted in a growing number moment. of countries around the world there is also some discussion emerging about the national representation More and more countries are adopting IFRSs and it of Trustees and IASB members. seems that the US is also moving in that direction. Is there much left to do? Yes, as we move forward in establishing the IFRS brand name as the global set of standards for financial reporting on a wider basis than the one already achieved, and
Brazil & IFRSs
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‘Stakeholders must know that there is room and there are ways to express their views on the IASB proposals and possibly influence the further development of these proposals.’ Pedro Malan
with emerging markets increasing their weight in global capital markets, the issue of representation is bound to emerge more forcefully. But I believe that if the Trustees are to be an effective functioning mechanism their total number should not be much bigger than the 22 at present. With regard to the IASB composition, our constitution states clearly and rightly that ‘the Trustees shall ensure that the IASB is not dominated by any particular constituency or geographical interest… the main qualifications for membership of the IASB shall be professional competence and practical experience.’ I think these should remain the basic criteria, even when we consider enlarging the current Board slightly. For me the same applies to the IFRIC and especially the SAC membership, where broad geographical representation is indeed very important. Do you think countries like Brazil feel sufficiently involved in the process of creating IFRSs?
In everything in life there is room for improvement. I would be naïve if I said that the country as a whole is firmly behind IFRSs or even that the country feels sufficiently involved. But I am sure that there is a growing recognition of the critical importance of Brazilian firms adopting a high quality global standard based on principles that are transparent and internationally comparable. However, there is surely room for improvement in terms of making this view more widespread—both in Brazil and in Pedro Sampaio Malan Latin America overall. 1986–1990 Executive Director, The World Bank 1990–1992 Executive Director, Inter-American Development Bank 1991–1993 Special Consultant and Chief External Debt Negotiator, Brazilian Ministry of Finance 1993–1994 President of the Brazilian Central Bank 1995–2002 Minister of Finance for Brazil 2003–April 2004 Vice-Chairman, Unibanco Brazil Since May 2004 Chairman, Unibanco
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What can be done to ensure ongoing commitment of the international community and its actors in the different capital markets and to counter potential fears of ’dominance’ of certain countries? I believe that the composition of the IFRIC and of the SAC could and should be used to allay some of the fears and concerns of those keen on geographical balance. However, this should always be done under the condition of preserving technical competence and experience as the fundamental criteria for membership in these bodies.
The development of IFRSs as the global accounting language is an evolving, living process. At the moment we should be concerned to maintain and establish open channels of communications with all legitimate stakeholders, and with the integrity of the process. Stakeholders must know that there is room and there are ways to express their views on the IASB proposals and possibly influence the further development of these proposals. The more effectively these communication channels are known and used, the less there will be fears of ‘dominance’ by a country or region.
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Maintaining momentum An interview with Jeff Lucy, IASC Foundation Trustee
Jeff Lucy 2007 Chairman of the Financial Reporting Council 2004–2007 Chairman of the Australian Securities and Investments Commission (ASIC) 2003–2004 Deputy Chairman, Australian Securities and Investments Commission (ASIC) 1994–2000 Managing Partner of PricewaterhouseCoopers, Adelaide 1994–1995 National President of the Institute of Chartered Accountants in Australia
In January 2008 Jeff Lucy joined the Trustees of the IASC Foundation for a three-year term. As former chairman of the Australian Securities and Investments Commission (ASIC) and incoming Chairman of the Australian Financial Reporting Council, he has been at the heart of Australian and international regulatory affairs for a decade. ‘There are two reasons why I became a Trustee’, he said. ‘I’m a passionate believer in international accounting and auditing.’ This passion found its expression in his work within various regulatory bodies on an international level. ‘When I was with the ASIC I worked with the international regulators, initially with IOSCO, then I became the first chairman of the International Forum of Independent Audit Regulators.’ The second reason for his engagement is geographical. Australia can feel isolated from the international capital markets, their regulators and standard-setters and this acts as an incentive to be more enthusiastic than most to overcome this perception. Lucy explains: ‘For us in Australia, with a modest capital market, it is so important that we participate internationally and help Australia punch above its weight.’ This influences what he would like to achieve during his term as a Trustee. ‘First and foremost I am representing Australia’, he said. ‘It is important that we continue to be around that table.’ However, Lucy also recognises that there are wider issues at play: ‘I think that the role of Trustees is not about individuals. It is a team. It is a consensus-driven group. But there are challenges: Europe, the structure of the IASB and the US decisions on IFRSs. It is a very interesting time. We Australians can be helpful because of our geography. We are not America and we are not Europe. Our views are respected because we are entirely independent.’ The new Trustee comes from a country that has seen an effective adoption and implementation process of IFRSs. ‘It went extremely well’, he remembered. ‘There have been issues but the financial people and the audit committees have responded to the challenge. It has not been seamless but it has worked.’ As an example he points to the creation of the Financial Reporting Panel, which acts in a similar way to that of the Financial Reporting Review Panel in the UK: ‘If the regulator felt something
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Australia & IFRSs 1973
Australia is a founding member of IASC, the IASB’s predecessor organisation
2002
The Financial Reporting Council directs the Australian Accounting Standards Board (AASB) to introduce IFRSs 1 January 2005
2004
The AASB drafts a new set of Australian accounting standards to reflect IFRSs fully
2005
IFRSs are adopted
was inappropriate in a set of accounts then it would be reported to the Panel.’ Lucy points out that so far: ‘There has not been a single referral.’ He also sees a wider responsibility stemming from the Australian success: ‘One of our responsibilities is to be available in case our neighbours such as China, Hong Kong, India, Japan, Korea or Pakistan need advice related to adoption issues, for example.’ Here his previous work as an international regulator is beneficial. ‘I’ve met many of the regulatory organisations in these countries, so it is natural for me to open up communications with them’, he said. And he has one final point on the work of the Trustees: ‘One of the real responsibilities for a body of Trustees is to deal with succession. The IASB has been extraordinarily successful. That hasn’t happened by itself. It has had a really committed and capable chairman and members. We need to ensure that the momentum is not lost. We need to bring people on and take it further.’
Brazil & IFRSs 2000
The Cardoso administration proposes that the Brazilian Congress should change the 1976 Law on Public Companies to facilitate the adoption of IASs
Five questions on...
Changes subject of intensive consultation in three subcommittees the Brazilian Congress wayofto become the accounting
IFRSs are on their language of choice around the world. 2006 The Central Bank of Brazil requires all Along with the success comes the challenge to maintain the integrity and consistency of Brazilian banks and financial institutions to comply with the standards. Kenneth Creighton isIFRSs the IASC Foundation’s senior manager responsible from 2010 for the distribution of IFRSs. He answers crucial questions on IFRS adoption and 2007 The Senate approves changes to allow the adoption of IFRSs for listed translation. companies. The law is immediately sanctioned by President Lula
…IFRS adoption Brazilian banks will have to comply with IFRSs in 2009 and listed companies in 2010
1 Deciding to adopt IFRSs – what now? Before a country has taken the political decision to adopt IFRSs, the entity that has the legal authority for setting financial reporting standards needs to get in touch with the IASC Foundation. That authority might be a government department, the standard-setter or the accountancy institute, and it is important that we discuss the long-term and short-term implications of adoption. We will then enter into a legal contract with the adopting country to clarify all issues relating to the receipt and legal distribution of IFRSs. Although our policies are globally consistent, the contract in question can vary from country to country. This is because of the unique legislative and regulatory processes in each country. For example, in some countries the standards need to be printed in the official gazette as law, while in other countries the law simply refers to a handbook, containing the standards, which is sold commercially. We respect each country’s process of setting the standards and we will tailor a contract to match the country’s unique system while we remain consistent on the issues of IFRS quality, consistency and branding. 8
2 How is the quality and consistency of IFRSs maintained? Each country’s adoption process might be different; nevertheless it is important that the quality and consistency of IFRSs is maintained. Investors, analysts, in fact anybody using IFRSs, rely on IFRSs being the same in every country that has adopted the standards. If a country were to make changes to the standards, alter the name ‘IFRSs’, or not continue to adopt new standards, then this detracts from the benefits of having a single shared and consistent set of global standards The contractual relationship clarifies these copyright issues to ensure the integrity of the IFRSs.
3 What is the IASB policy on copyright? Many countries need IFRSs without copyright so they can be made law and disseminated without restrictions. In these cases the contract we sign waives the copyright on the core standards so that they can be freely distributed and redistributed by anyone. But the contract clarifies that no changes can be made to the standards and we do
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not waive copyright on the additional material, such as the Basis for Conclusions, Implementation Guidance and Illustrative Examples, that accompanies the standards.
4 Where can I get the additional material? The additional material is published in our annual Bound Volume, which can be purchased through our Website at www.iasb.org and is available for subscribers of eIFRS, the online version of IFRSs. Often we have a licence arrangement in place with countries that have adopted or are adopting IFRSs and in this case the additional content is made available through local distributors.
5 What does IFRSs adoption cost? The adoption of IFRSs is first and foremost a political decision of the adopting country. The true cost of adoption is dependent on the degree of change necessary to the country’s current system and culture of financial reporting. However, contracting with the IASC Foundation is relatively low cost. The copyright waiver agreement does have a nominal fee which varies according to a country’s income level.
… Translation 1 Why translate IFRSs? Translation is a necessary and vital part of achieving the IASC Foundation’s mission to develop a single set of global accounting standards. It is a clear necessity as we ask a multilingual world to speak one financial reporting language. Only through consistent, quality translation can this be possible. To date the translation team has overseen the translation of IFRSs into over 40 languages.
2 How do you decide into which languages to translate? We translate into languages on the basis of need. Often this is directly linked to national adoption of IFRSs. For example, European adoption of IFRSs requires translations in the 21 official EU languages. However, it is not just national adoption that drives IFRS translation. We are often contacted by organisations that see a market need. This is the case in the Ukraine, for instance. Long before the Ukraine adopted IFRSs, we worked with the Ukrainian Federation of Public Accountants and Auditors to publish a translation in that country. We believe that the availability of IFRSs in Ukrainian helped the eventual adoption of IFRSs by the Ukraine.
3 How does the translation process work? Here at the IASC Foundation we do not actually translate, this is done by professionals externally. However, the translation process is managed and overseen by us. This process is built on two fundamental steps— professional translation and then expert review. Because IFRSs are technical, and the language is very precise, it is not enough simply to translate. Therefore for each language we create a committee of accounting experts and a translation becomes official only when that committee has reviewed and approved of it.
4 How do you deal with the fact that countries sharing a language don’t necessarily share the same terminology? Language transcends national borders, and one shared language can vary substantially between regions so they might use a different terminology. This is also a reason why we want our translation review committees to be diverse and represent the various markets using the language. If, for example, a Spanish term is not acceptable in one Spanishspeaking country, we expect the Spanish review committee to find – or create – a universally acceptable term. Our general approach is to support only one translation per language. The existence of multiple translations of what is basically the same language would only increase confusion, quite apart from the possibility of the proliferation of legal arguments over the resulting arguable differences in financial reporting.
5 Translation needed? Existing IFRS translations can be acquired via the Webshop on our Website. On www.iasb.org you will find a section dedicated to translation. However, if IFRSs are not available in your language and you want to arrange for them to be translated, please contact me. It is important to get in touch with the Foundation because any translations must be agreed with the standard-setting body of the country to ensure that copyright and content issues are addressed. Copyright is the tool we use to maintain the brand and integrity of IFRSs around the world.
Adoption / Translations enquiries Kenneth Creighton, IASC Foundation, Senior Manager – Publications 30 Cannon Street, London EC4M 6XH +44 (0)20 7332 2740 kcreighton@iasb.org Other translation enquiries Ioanna Tzivani, itzivani@iasb.org, +44 (0)20 7332 2743
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Challenging but rewarding Korea on its way to adopting IFRSs As one of the region’s leading economies, Korea’s decision to fully embrace IFRSs has provided further evidence that Asia is a firm believer in global standards. Yet the transition to a principle-based environment has been a difficult one to make. Dr Chungwoo Suh, Chairman of the Korean Accounting Standards Board (KASB), provides an insight into Korea’s plans for transition. Adoption takes time. Korea has been working on the process since 2002. But the critical point was the announcement of a road map in March 2007. ‘Before that we spent four to five years in preparation for the full adoption’, said Dr Chungwoo Suh. ‘Initially, we tried to converge by adopting standard by standard but that was not as effective as we expected’, he said. ‘Foreign investors thought that we were not 100 per cent IFRS and we did not want this to lead to any downside for us and our companies.’ For a country that ranks third in the number of listed companies in EU markets that is quite an understandable worry. After several years of preparation Korea decided in February 2006 that a task force for IFRS adoption should be organised. ‘In that task force we invited every interested party—the KASB, the government, big accounting firms, big economic institutions and listed companies’, said Dr Suh. ‘We had regular meetings every month analysing whether we needed full adoption right now or whether we should follow the standardby-standard process.’ Then a decision was taken. ‘We decided to go for a big bang approach, heading for full implementation simultaneously so that companies could be recognised abroad as 100 per cent adopters’, he said. ‘We made the official announcement of the road map in March 2007.’ A new task force was set up to co‑ordinate the translation of IFRSs into Korean and to negotiate the amendment of all the relevant laws and regulations to bring them into line with IFRSs. This process is still in progress. ‘We hope to finish that by the end of the year’, said Dr Suh. Certainly a major change does not come without some challenges and setbacks along the way. The first was reluctance from smaller listed companies. ‘They did not want to apply IFRSs because they felt they were not ready and were lacking the necessary resources’, said Dr Suh. ‘They wanted us to delay adoption. But we took time to help them understand why we had to go for full adoption. There were considerable difficulties but now we have a satisfactory agreement and they see that there will be more benefits than costs from applying IFRSs. Foreign investors may become interested in them and they have a better chance of raising capital’, he said.
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Dr Chungwoo Suh, Chairman KASB
The second was the process of amending laws. ‘We have so many laws, all with so many goals. They don’t just exist for the capital markets and amending them is not easy’, he said. ‘Each law comes under a different government department with its own structure and aims. We needed to co‑ordinate their work. So there was a lot of talking and meeting at the beginning’, he said looking back at the time. One long-term change that the country is undergoing is the move to a principle-based approach. ‘We didn’t have the right infrastructure for principle-based standards’, he explained and continued: ‘Korean GAAP is quite similar to US GAAP and is very much a rule-based system. But accountants, companies and regulators are used to a rule-based approach. CFOs and accounting firms needed to train or get the personnel for a principle-based approach. The transition from rule-based to principlebased standards is indeed challenging. We have to change everything—every law, every auditing system.’ But he is confident that all those challenges can be overcome. ‘There are many future potential benefits of adoption’, he said. The most positive one among those is that people will undoubtedly recognise Korea as a full IFRS adoption country. ‘Leadership and fresh initiatives will make it happen. It was important that IASB members visited us and provided a persuasive explanation to people in Korea’, he said. ‘We have also had great help from our neighbour countries, like Australia, China, Hong Kong and Japan. They have different approaches and experiences but they all urged us to do it as early as possible.’ Korea has decided that from 2009 any company can choose to apply IFRSs, with the use of IFRSs becoming mandatory for all listed companies from 2011.
INSIGHT, Q1/Q2, 2008
Canadian adoption Working towards 2011 About 400 Canadian companies are registered with the SEC, the US regulator. That is the largest number of foreign registrants from a single country and is more than from all of the countries of the EU put together. Canada’s accounting standards have therefore had a traditionally strong connection to US GAAP. But now Canada is working towards a deadline of 2011 to implement IFRSs. Robert Bruce examines the background to this decision. ‘In the mid-1990s the Canadian Institute of Chartered Accountants (CICA) undertook a comprehensive re‑evaluation of standard-setting’, said Paul Cherry, Chairman of the Canadian Accounting Standards Board. ‘The upshot was that we wanted to go for global accounting standards, but at that time they weren’t ready, so we opted for “harmonisation” with US standards. It was a matter of trying to align the main parts but falling short of the thousands of pages of US rules but we lost control of the process. The standards were often interpreted and applied in practice as being the same as the US rules, particularly as the largest audit firms were closely aligned with their US affiliates.’ The results went far beyond what was intended. ‘The effect of US GAAP was spilling way beyond the 400 or so US registrants and was affecting all companies throughout Canada. Accounting firms were becoming nervous about following the US rules for their American clients and finding that clients in Canada and around the world using similar standards were doing something different’, he said. Something needed to be done. ‘There was considerable uneasiness with being drawn deeper into the US detailed rules’, said Cherry, ‘and in the end that led us to reconsider our position towards US GAAP. We did a reality check. By this stage IFRSs had evolved so they had become a viable option. This had nothing to do with technical reasons’, he said, ‘but from a practical point of view IFRSs were a better choice. In the end it was a relatively easy decision and a strong consensus for IFRSs evolved very early on in the process.’ ‘Seven or eight years ago I couldn’t have conceived we would be where we are now’, said Douglas Hyndman, Chairman of the Accounting Standards Oversight Council. ‘At the time we were under pressure to adopt US GAAP and abandon Canadian accounting standards.’
Signs in the US that IFRSs could eventually be used by US companies have increased support for IFRSs even among those that were previously sceptical. ‘Events over the last twelve months have dissipated the concerns of many of those who felt we should go for US GAAP’, said Cherry. Hyndman, who is also Chair and CEO of the British Columbia Securities Commission, agreed. ‘We have bought into the idea of one set of global standards’, he said. ‘The movement in the US has emboldened many. The signals coming out of the SEC towards IFRSs have been very positive.’ In 2006 Canada took the decision to go for a 2011 implementation deadline. ‘That gave us five years’, said Cherry. But down at the coalface there is the usual worry about the work to be done and the time available in which to do it. Michael Conway is Chief Executive and National President of Financial Executives International, Canada. ‘We do support adoption of IFRSs but we are worried about the 2011 date’, he said. Last October FEI Canada called for a one-year delay in implementation unless several outstanding concerns were addressed. ‘In reality’, said Conway, ‘2011 means 2009. The 2011 financials would need comparatives from 2010 and the opening balances for those would be from 2009. Most people think that 2011 is a long time off’, he said. ‘But when you say 2009 they say “Oh!”. Things are a lot closer than they appear.’ ‘Our focus over the last two years has been on the detail’, said Cherry. ‘We are now encouraging people to become familiar with the standards and see if they can deal with them. Education and training are at the top of everyone’s list.’ ‘IFRSs are only feasible if our members have enough information to implement them effectively’, said Conway. ‘Education and training have only been recently broadened and the CICA, FEI Canada and the audit firms are now generating resources and information. Attendances at seminars and workshops have been phenomenal recently’, he said. ‘This is new for Canada. A lot of audit firms are shipping staff in from Europe to take on the new frontier.’ It is felt that innate similarities between the two systems will help the process. ‘We have devised an approach which will make it easier’, said Cherry. ‘Canadian GAAP’, said Conway, ‘has always been a lot more principle-based than US GAAP. We haven’t had the same cookbook approach as the US. We are closer to the IFRS mindset than the Americans. In Canada you probably knew an awful lot about IFRSs but hadn’t realised it. If you were to put the characteristics of Canadian GAAP and IFRSs into a columnar format you would find relatively few in conflict’, he said. continued bottom page 12 11
INSIGHT, Q1/Q2, 2008
IFRS for SMEs First results from the consultation period In February 2007 the International Accounting Standards Board (IASB) published its exposure draft of a proposed International Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs). The original comment deadline had been extended from 1 October to 30 November 2007 to allow companies and organisations participating in field tests to factor the results of these tests into their comment letters. With the end of this comment period, the IASB’s work on producing an IFRS for SMEs is entering its decisive stages. The ambitious goal of the IASB is to come up with a final IFRS for SMEs by the end of the year. Pressure to produce such a standard for smaller companies came originally from the European Union and from a broad group of national accounting standard-setters. Lately, countries from across the emerging world, particularly in Asia and Latin America, have expressed strong support for a global SME standard. Probably the most enthusiastic response following the publication of the exposure draft has come from South Africa, where a recent change in company law required a simplified SME accounting standard. The South African Institute of Chartered Accountants (SAICA) saw the IASB’s proposal as meeting this urgent need and chose to bring the IASB standard into effect while still in its draft stage. While South Africa implemented the ED in 2007, the IASB is only now about to start its redeliberations on the exposure draft. These redeliberations will be guided largely by the outcome of the comment period, during which the IASB received 162 comment letters and by the
results of extensive field tests involving 116 companies in 20 countries across the world. In those tests, SMEs restated their most recent annual financial statements following the proposals in the exposure draft and reported to the IASB on any problems they encountered during this process. Naturally the comment letters and the feedback obtained through the field tests address a broad range of issues that constituents would like the IASB to consider. In March 2008 the staff presented a first overview on those issues to the Board and a comprehensive overview of the field tests was presented in April 2008. There was also a meeting of the project’s working group, which will provide further advice and feedback to the Board on the various issues raised during the consultation period. Composed of a broad range of interested parties including a representative of the United Nations Conference on Trade and Development, International, a member of the Eastern Central and Southern African Federation of Accountants, representatives of the big accounting firms and several companies from around the globe, this 40‑member group plays an important part in assisting the IASB in the development of the IFRS for SMEs. If everything goes as the project manager Paul Pacter hopes, a final standard will be issued around the end of this year. It will then be up to individual jurisdictions to decide whether or not they wish to adopt the IFRS for SMEs, and for which entities. Further deliberations will be taking place in May 2008 and continue throughout the summer.
‘Canadian adoption’ continued from page 11 For the regulators there are other issues. ‘Do we allow people to go for IFRSs early’, asked Hyndman. ‘Different companies will be in different positions. Companies on US stock exchanges or NASDAQ might well have a reason to move over early and only have to do one set of statements. Others might want more time.’ He is not in favour of any delay. ‘The concern at the oversight council is that people only focus on these things when the deadline is within sight’, he said. ‘It is better to stick with the deadline and, if there are bumps along the way, then we will just have to manage.’ While there is a general positive view on adoption there are some concerns about more detailed issues. ‘There are worries for certain specific industry issues where there is potential change in IFRSs soon expected after our adoption’, said Conway. ‘The last thing we want is for large companies to do an IFRS implementation and then do another in a relatively short time’, he said. ‘Investors could become confused with restatements. It would not be in our best interests.’
12
‘For us’, said Cherry, ‘the challenge right now is getting people to start identifying the key issues. We are encouraging industry groups to get together and brainstorm.’ Overall the consensus is there. ‘There are advantages to IFRSs in the long term’, said Conway. ‘We feel that having internationally comparable financial statements facilitates international investment and trade’, said Hyndman. ‘We are a small open economy based on international trade. Anything that facilitates that is good for the Canadian economy.’ As with any business-wide implementation of new, or slightly different, rules there will be problems. But overall the Canadian experience is proving to be a positive one. ‘We are very pleased’, said Cherry. ‘It’s going really well and we are probably ahead of schedule.’ The IFRS North America conference took place on 24 and 25 April in Toronto, Canada. The Canadian Financial Executives Research Foundation released at this occasion the results of a survey on “IFRS readiness in Canada”. The report is available on www.feicanada.org.
INSIGHT, Q1/Q2, 2008
Exposure Draft – IFRS for SMEs An overview of main issues mentioned in the comment letters
The table below describes some of the topics addressed in the comment letters. A full list of the main issues that arose during the comment period is available in the observer notes for the IASB meeting in March, which can be accessed via the project section of the Website at www.iasb.org .
Cross-references to full IFRSsq
Accounting policy optionsq
Anticipating changes to full IFRSsq Disclosureq
Scopeq
Most respondents who addressed the ‘stand-alone’ issue asked for elimination of all or nearly all cross-references to full IFRSs, thereby making the IFRS for SMEs a stand-alone standard. Respondents raised various ‘version control’ issues if crossreferences were retained. For example, if an IFRS is amended or replaced, would that result in an ‘automatic’ change to the cross-reference, or would the cross-reference to the earlier version remain until the cross-reference itself is amended? The draft IFRS for SMEs includes, by cross-reference to full IFRSs, accounting policy options for investment property; property, plant and equipment; intangible assets; borrowing costs; the direct method for presenting operating cash flows; accounting for government grants; development costs; associates; joint ventures; and financial instruments. By a two-to-one margin, respondents recommended that all or most options in full IFRSs should be available to SMEs. Of course, if cross-references are eliminated, then those options will have to be addressed directly in the IFRS for SMEs. In several instances (including pensions and deferred taxes) the exposure draft anticipated changes that, in the light of decisions made by the IASB in other current projects, are likely to be made to full IFRSs. Some respondents commented that as a matter of policy the IFRS for SMEs should not anticipate possible changes to full IFRSs. Many respondents encouraged the IASB to simplify the proposed disclosures. However, few identified specific candidates. Many suggested that further research was needed. The staff are considering whether and how to do this. Some respondents asked the IASB to consider whether the IFRS for SMEs is too complex for tiny entities (say, those with fewer than 10 employees). They suggested that the IASB should consider whether its use should be permitted for small listed entities and some other entities that the IASB believes have public accountability because they act in a fiduciary capacity (such as travel agencies, utilities that take customer deposits, and unit trusts managed for a small number of investors).
Fair value – generalq
Some respondents would, as a general principle, restrict the use of fair value to (a) when market price is quoted or readily determinable without undue cost or effort and (b) all derivatives. Some would add that the instrument must be readily realisable and/or the entity must have an intention to dispose of it.
Consolidationq
Respondents asked the IASB either to exempt smaller entities from consolidation or to allow jurisdictions to decide. Some suggested allowing a temporary control exemption.
Financial instrumentsq
Goodwill & intangibles amortisationq
Share-based paymentq q Income taxesq
The various proposals made included: • make cost the default measurement basis, not fair value. • bring back the available-for-sale category. • straight-line amortisation of discounts/premiums, not the effective interest method. • hedge accounting: allow a ‘shortcut’ method similar to the FASB’s; provide guidance for measuring hedge effectiveness and simplify hedging documentation. • allow purchased options and debt instruments as hedging instruments. • clarify what is required for derivatives and embedded derivatives. • add guidance on factoring. • do not allow the choice of using full IAS 39. Respondents urged the IASB to permit or require amortisation of goodwill and other indefinite life intangibles over a limited number of years. They generally acknowledged that there would still be a need to consider impairment; however, amortisation would lessen the need for an impairment write-down. Respondents thought that the intrinsic value method currently allowed for most SMEs in IFRS 2 is not much of a simplification. They suggested possible further simplifications, including intrinsic value to be measured only upon issue (not updated) or the calculated value method in SFAS 123 (no subsequent ‘true up’). Some respondents preferred disclosure only for equity-settled share-based payments. Many respondents urged simpler accounting for income taxes; suggestions for how to achieve this were wide-ranging. Some would prefer SMEs not to recognise deferred tax at all, or only those instances where it was expected to reverse within a few years. Others would recognise deferred tax more comprehensively, but measured more simply than proposed.
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INSIGHT, Q1/Q2, 2008
Facing up to pensions accounting IAS 19 needs reviewing Pensions matter, and not just to a company’s balance sheet. Maintaining confidence in their financial well-being is important to all of us and therefore it is imperative that the way companies account for them, as with other post-employment benefits, is transparent and consistently applied. In March the IASB published its ideas for reforming pensions accounting in a discussion paper Preliminary Views on Amendments to IAS 19 Employee Benefits. At one time the disclosure of the effects of pensions on a company was rudimentary and driven largely by a desire not to rock the boat. Then came FRS 17, the pensions standard in the UK, with its pioneering efforts in forcing uncomfortable disclosures about volatility and the fragile financial position that many companies found themselves in. Since then the pensions world has changed, both in terms of disclosures and also in how companies view post‑employment benefits. It is no wonder that, a few more years down the line, there is a clamour to update and reform the existing rules. ‘The original standard was issued more than ten years ago and was much like the FASB standard at the time. It contained already some of the compromises that we are addressing today but at that time and under the circumstances they seemed acceptable’, says Stephen Cooper, part-time member of the IASB. A growing awareness of pension issues around the world, changing market conditions and an increasing complexity of post‑employment benefit schemes are all factors that have made a substantial overhaul of pensions accounting necessary. A glance at the numbers shows just how important the issue is. In 2007 the estimated pension liability for 80 of the top companies around the world was almost £700 billion. There are some cases where the pension liability exceeds the market capitalisation of the company. Two aspects of the accounting for pension liabilities under IAS 19 are causing the biggest trouble. 14
One is the option for deferred recognition of gains and losses and the other is the accounting for promises linked to returns on assets or an index.
Addressing the main issues Under IAS 19 companies can recognise a pension asset on the balance sheet even when the plan is running a funding deficit and vice versa’, says Jenny Lee, project manager for post-employment benefits. When IAS 19 was created it was reckoned that, in the business climate at that time, companies just would not accept a tougher standard. As a result various options for recognising gains and losses were allowed, making comparisons almost impossible. But it is not only comparability that is at stake. Because of the option to defer recognition of changes in the liability under IAS 19, nobody can truly be assured that the figures shown reflect the pension liabilities of a company to its full extent. The option to defer recognition allows companies to feed losses or gains into the income statement gradually. ‘This smoothing approach does not help to give a true picture of the pension liabilities’, says Cooper, adding ‘accounting standards must ensure that the balance sheet reflects an appropriate picture of how good or bad a company is doing in terms of its pensions assets and liabilities.’ Companies that do not currently use immediate recognition might not welcome the IASB’s proposal to remove deferred recognition, arguing that it would introduce volatility, whereas analysts are likely to welcome it because it would show them exactly what is going on. ‘The changes proposed would not increase the volatility of a pension fund. Instead, what they will do is provide a more realistic picture of the current state of a company’s pension liabilities’, explains Lee. Where gains and losses are not recognised immediately, the balance sheet figures show amounts based on estimates of the future that are subjective and this can lead to misjudgements from both the company itself and users of financial statements. The ideas we are putting forward would help to avoid this in the future.’
INSIGHT, Q1/Q2, 2008
The IASB wants to focus the discussion on where these gains and losses should be presented in the financial statements. ‘There are three options’, Lee explains. ‘First, everything could go into profit or loss. Second, the cost of service could go into profit or loss and everything else into other comprehensive income. Third, the cost of service, interest costs and imputed income on assets could go into profit or loss and all remeasurements could go into other comprehensive income.’
Reflecting underlying realities The other main area that the discussion paper addresses relates to the current categorisation of post-employment benefits. ‘When IAS 19 was written there was a focus on final salary and defined contribution plans’, says Lee. But there are many different plans around the world that are not clearly either one or the other. And because of a lack of an appropriate category for those kinds of plans, the same promise might be accounted for as defined benefit by one company and as defined contribution in another, which poses a big obstacle to comparability across balance sheets for investors and analysts. Another problem resulting from that lack of an appropriate category is that those kinds of plans are also not measured appropriately. Consequently some liabilities are underestimated, some are overestimated and others are ignored altogether. To address the issue the IASB proposes to create a new category and an appropriate measurement method. ‘We propose to create a category for these types of plans. We have called them contribution-based because they are based on contributions with a promised return on those contributions. So far we think that the most appropriate measurement method for these kinds of plans would be one that is based on current estimates, makes an allowance for risk, including credit risk, and is consistent with market prices. Also, the approach should be able to measure the value of embedded options and guarantees. That implies a fair value type approach assuming that the benefit promise does not change,’ explains Cooper. For example, an employer promises to pay a contribution of 1,000 currency units (CU) and a promised return in line with an equity index. Under IAS 19, the liability would be bigger than CU1,000 even though the employer could completely offset its liability by purchasing the relevant asset for just CU1,000. The fair value approach instead would give the more realistic liability of CU1,000 adjusted for risk. ‘People now recognise the importance of the underlying realities and there is a growing awareness of the importance of getting the pensions accounting right’ says Cooper. There will be plenty of time for the issues to be aired. There is a six-month comment period following which the comments will be considered by the IASB and an exposure draft produced. Timetables for the publication of an exposure draft will depend on the feedback and the IASB’s decisions. However, the IASB hopes for a final standard in 2011. ‘What we need now is extensive discussions with input from all sides’, says Cooper. ‘We are actively encouraging a debate about these important issues.’
Discussion Paper – Preliminary Views on Amendments to IAS 19 Employee Benefits
Why modify IAS 19? Significant problems and criticisms: s DEFERRED RECOGNITION AND CORRIDOR METHOD ALLOW SCOPE FOR SMOOTHING s PRESENTATION OPTIONS REDUCE COMPARABILITY s RELEVANCE OF THE EXPECTED ASSET RETURN s NO APPROPRIATE CATEGORY EXISTS FOR SOME PENSION PROMISES s INAPPROPRIATE MEASUREMENT FOR SOME PENSIONS PROMISES CAN LEAD TO OVERESTIMATION OR UNDERESTIMATION OF A COMPANY S PENSION LIABILITIES Addressing the main issues: s PROPOSAL )MMEDIATE RECOGNITION ONLY s PROPOSAL #HOOSE A SINGLE PRESENTATION APPROACH n THREE POSSIBLE ALTERNATIVES PRESENTED s PROPOSAL 5SE ACTUAL RETURN OR A MORE OBJECTIVE MEASURE OF INCOME ON ASSETS s PROPOSAL #REATE NEW CATEGORY FOR HYBRID PLANS CONTRIBUTION BASED PROMISES s PROPOSAL .EW MEASUREMENT METHOD FOR CONTRIBUTION BASED PROMISES Outside the current scope: s MEASUREMENT OF TYPICAL lNAL SALARY PLANS AND POST RETIREMENT MEDICAL PLANS s ACCOUNTING FOR TYPICAL DElNED CONTRIBUTION PLANS IF THE PLAN IS FULLY FUNDED AND CONTRIBUTIONS ARE PAID WHEN DUE Questions: $ID WE GET THE SCOPE RIGHT !RE THE PRELIMINARY VIEWS APPROPRIATE
on the paper will follow later this year. And as pensions are an issue that interests many, the IASB is also trying to reach out by using new methods such as a live Webcast at the launch of the discussion paper and a voice-over presentation, both available on the project Website. ‘We want to make people understand that we are fixing a real problem’, says Cooper and adds: ‘It is important for all that we create a standard that ensures that companies make a good assessment of their obligations and whether they can meet them.’ For more information please visit the post-employment benefits project page at www.iasb.org .
To come to these initial proposals the IASB has consulted external parties, including the project’s working group, which comprises industry experts, preparers, actuaries and analysts from around the world. Further discussions 15
IASB_CDROM&BV08Leaflet art3.qxp
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INTERNATIONAL FINANCIAL REPORTING STANDARDS ON CD-ROM (APRIL 2008 EDITION) This latest edition of International Financial Reporting Standards (IFRSs) on CD-ROM contains the consolidated text of all IFRSs (including IASs, IFRIC and SIC Interpretations) as approved at January 2008, as well as all the latest IASB Exposure Drafts, IFRIC Draft Interpretations and Discussion Papers issued by the IASB and the IFRIC. This CD is easy to install and use. The key features include: • Fast Access: installs directly to your hard drive for quick and easy access with no need to keep the CD in the CD-ROM drive. • Ease of Use: a very fast comprehensive ‘search’ function enables you to find precisely what you need every time. The searching highlights results and provides forward and backward navigation and the Table of Contents features dynamic and static tree views. • This edition has a new Multi-view screen which enables the publication to be viewed and searched in up to four different areas concurrently. • Extensive Note Handling Capabilities: attach notes to any IFRS content; associate or store data files, such as Word or Excel documents, within notes. Upgrade from a previous version of the CD-ROM and import your annotations directly into the 2008 edition. • Expanded Windows Functions: print an entire document, or just a highlighted section; copy and paste, or drag and drop to Word or send via email - all formatting is preserved. The latest version of IFRSs on CD-ROM uses eComPress technology from Eurofield Information Solutions Pty Limited to deliver a secure yet highly flexible solution.
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T SI VI T RE A O P M HO rg UT S .o O OK asb i ND BO . FI HE ww TO T w
INSIGHT, Q1/Q2, 2008
Open for comment Discussion paper on proposals to improve the accounting for post-employment benefits (Comment deadline: 26 September 2008) The discussion paper Preliminary Views on Amendments to IAS 19 Employee Benefits sets out the IASB’s preliminary views on how the accounting for some post-employment benefits, including pensions, could be improved. The IASB seeks views on its initial proposals (see article on page 14 in this INSIGHT) and other approaches, and on whether respondents agree with the scope of the project.
To comment visit www.iasb.org and click on ‘Open to Comment’.
Discussion paper as first step towards reducing complexity in reporting financial instruments (Comment deadline: 19 September 2008)
Discussion paper on financial instruments with characteristics of equity (Comment deadline: 5 September 2008)
The discussion paper Reducing Complexity in Reporting Financial Instruments is the first stage in a project to replace IAS 39 Financial Instruments: Recognition and Measurement. The requirements for the reporting of financial instruments are widely regarded as difficult to understand, interpret and apply, and constituents have urged the IASB to develop standards that are principle-based and less complex. The discussion paper analyses the main causes of complexity in reporting financial instruments and proposes possible intermediate approaches to address some of them. It sets out the arguments for a possible long-term approach that would use one measurement method for all types of financial instruments within the scope of a financial instruments standard.
The discussion paper Financial Instruments with Characteristics of Equity is the first stage of the project to improve and simplify the requirements in IAS 32 Financial Instruments: Presentation. Stakeholders around the world have criticised IAS 32 as difficult to apply and argued that the application of its principles can result in an inappropriate classification of some financial instruments. The discussion paper addresses these two issues. It presents the Preliminary Views document that was published by the US Financial Accounting Standards Board (FASB) in November last year. This is a modified joint project and in this case the initial research was led by the FASB. Therefore the IASB seeks views on whether the proposals in the FASB document are a suitable starting point for its own deliberations. The outcome of the consultations will be essential in determining the future direction of the project.
The IASB seeks views on both the possible long-term and intermediate approaches and is interested to hear about possible alternatives on how it should proceed in developing new standards for reporting financial instruments that are principle-based and less complex.
Comment period closed IFRIC Draft Interpretation: D24 Customer Contributions (Comment deadline: 25 April 2008)
IFRIC Draft Interpretation: D23 Distributions of Non-cash Assets to Owners (Comment deadline: 25 April 2008)
IFRIC D24 addresses a number of areas where practice is diverse, by aiming to standardise practice and provide increased clarity. The IFRIC proposes that access providers will be required to recognise contributed assets and revenue from providing access to a supply of goods or services over the period access is provided. Those that have previously not recognised contributed assets will have to recognise increased property, plant and equipment and revenue. Those that have previously recognised revenue immediately on the receipt of a contributed asset may now be required to recognise it over a longer period. IFRIC D24 is proposed to be applied prospectively.
The IFRIC was asked to provide guidance on how an entity should measure distributions of assets other than cash when it pays dividends to its owners acting in their capacity as owners. At present, IFRSs do not address the measurement of distributions to owners. IFRIC D23 would apply to all types of distributions of non-cash assets with one exception: It would not apply to a distribution of an asset to another entity within the same consolidated group. The draft interpretation proposes that all types of distributions of non-cash assets would be measured at the fair value of the assets distributed. The IFRIC proposes that the guidance should be applied only to future distributions because it recognises the difficulty entities would face in recognising past distributions at their fair values.
Following the analysis of the comments received the IFRIC is expected to begin redeliberating the issues in D24 and D23 at its July meeting.
17
INSIGHT, Q1/Q2, 2008
Completed projects Amendments to improve the financial reporting of particular financial instruments In February the IASB issued Puttable Financial Instruments and Obligations Arising on Liquidation—amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements. The amendments come into effect on 1 January 2009, with earlier application permitted. The amendments to IAS 32 require entities to classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions: •
puttable financial instruments (for example, some shares issued by co-operative entities)
•
instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (for example, some partnership interests and some shares issued by limited life entities).
Additional disclosures are required about the instruments affected by the amendments.
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Amendment to IFRS 2 Share-based Payment The amendment comes into effect on 1 January 2009, with earlier application permitted. In January the IASB issued Vesting Conditions and Cancellations—an amendment to IFRS 2 Share-based Payment. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. In response to comments received during the consultation period the IASB decided to provide further guidance on the determination of whether a condition is a vesting condition and on the accounting treatment for conditions that are not vesting conditions.
Second phase of the business combinations project completed In January the IASB issued a revised version of IFRS 3 Business Combinations and an amended version of IAS 27 Consolidated and Separate Financial Statements. The project was undertaken jointly with the FASB. The objective was to develop a single high quality accounting standard that would ensure that the accounting for business combinations is the same whether an entity is applying IFRSs or US generally accepted accounting principles (GAAP). In publishing its equivalents to IFRS 3 and IAS 27, the FASB has made fundamental changes to its accounting for business combinations; other improvements will change both IFRSs and US GAAP. The revised IFRS 3 reinforces the existing IFRS 3 model but remedies problems that have emerged in its application. The new requirements take effect on 1 July 2009, with earlier application permitted.
IASB INSIGHT / ISSN 14742667      Editors: Mark Byatt, Sonja Horn Layout: Marith Zaccarelli Support: Ailie Burlinson, Michael Butcher, Nicola Collins Photos/Graphics: 2, LivingDesign; 3,4,5,7, 8,10,15,17, Buckmans Limited; 6,9,12, IASC Foundation; 11, istockphoto, Konstantin Inozemtsev; 16, istockphoto, James Steidl The views expressed in IASB Insight are not necessarily those of the IASC Foundation or the IASB. The authors and publishers accept no responsibility for any loss or damage resulting from reliance on the views expressed herein. Copyright Š 2008 International Accounting Standards Committee Foundation (IASCF)  All rights reserved.  No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, including photocopying, recording or otherwise, without prior permission from the IASCF. IASB INSIGHT is published by the IASC Foundation, 30 Cannon Street, London EC4M 6XH, United Kingdom, Tel: +44 (0)20 7246 6410, Fax: +44 (0)20 7246 6411 Email: iasb@iasb.org, Web: www.iasb.org Text printed on 55 per cent recycled paper.
INSIGHT, Q1/Q2, 2008
Changes to the IASB’s technical leadership team Following the resignation of Liz Hickey, Director of Technical Activities, who will be returning to her native New Zealand, Sir David Tweedie, Chairman of the IASB, announced in April a reorganisation of the technical leadership team. The changes will come into effect in July this year.
reviews of major new standards. The position combines her existing responsibilities for IFRIC activities with the management of post‑implementation reviews and annual improvements projects.
Peter Clark, Senior Project Manager, will be promoted to Director of Research, responsible for identifying and managing issues that affect a range of IASB projects, and for overseeing technical quality. Gavin Francis, Senior Project Manager, will be promoted to Director of Capital Markets. He will be responsible for the development of IFRSs, with particular emphasis on financial instruments and related areas. Tricia O’Malley, a former IASB member and current IFRS Co-ordinator will become Clockwise from left: Gavin Francis, Alan Teixeira, Director of Peter Clark, Wayne Upton, Tricia O’Malley Implementation Activities. This enhanced role reflects both the relevance of interpretations to ensuring the consistent application of IFRSs and the organisation’s commitment to post‑implementation
Paul Pacter
Paul Pacter will retain his existing responsibilities as Director of Standards for SMEs. Paul has shown tremendous energy and leadership driving the SME project forward, which is all the more remarkable given the part-time nature of the role.
Alan Teixeira, Senior Project Manager, will become Director of Technical Activities and will be responsible for the development of IFRSs. Wayne Upton, Director of Research, will become Director of International Activities—a vital role that better reflects both his current responsibilities and extensive experience in assisting major economies in making the transition to IFRSs and in meeting the growing volume of requests from around the world for assistance in implementing IFRSs. He will also be available for special projects. Peter, Gavin and Alan will initially retain their current project responsibilities in addition to their expanded management roles. Commenting on the announcement, Sir David Tweedie said: “We are extremely sorry to see Liz go, and I thank her most warmly for the huge contribution that she has made to the IASB over the past five years. … I welcome all of the directors to their new roles in what is undoubtedly an exciting and challenging time for the organisation.’
Staff changes Arrivals
XBRL team
Technical staff
Andrea Felkai (Hungary) joined the team as XBRL project assistant. Holder of a master’s degree in economics from Corvinus University, Budapest, she previously worked for in the accounting department of Avis Europe Plc, where she took part in an IFRS conversion project.
Leng Bing (China) joined as a visiting fellow on secondment from the Ministry of Finance in Beijing. He will participate in various projects and will be available as a consultant for the technical staff. Mark Bunting (South Africa) joined as a project manager. He was previously associate professor of accounting at Rhodes University, South Africa, and before then was director of accounting for the South African Institute of Chartered Accountants. He has been assigned to the conceptual framework project. Michael Mueller (US) joined as a practice fellow on secondment from Deloitte. A senior manager, with experience in advising on accounting for financial instruments and leases, he will be working on the derecognition project.
Operations and support staff Victoria Blackburn (UK) joined as a project administrator for the reporting entity group of projects. She was previously employed in London as the marketing and publicity officer at the Imperial Society of Teachers of Dancing. Lorida Tieri (Italy) joined the Translations team as a project manager. She has extensive experience in managing translation projects for the pharmaceutical sector and is taking over the EU translation projects.
Departures
Masashi Oki (Japan) arrived as a practice fellow on secondment from KPMG. A senior manager, with over 14 years’ general experience in auditing practice, he has joined the IFRIC team and has taken over the project on hedges of investments in foreign operations (D22).
Two practice fellows have completed their secondments. Candy Fong has returned to Deloitte in Hong Kong, and Colin Edwards has returned to KPMG in the UK.
Nikolaus Starbatty (Germany) joined as an industry fellow on secondment from Siemens in Munich, where he has experience of hedge accounting and most recently has been advising on major M&A deals. Initially he will be working on the emission trading schemes project.
in Singapore.
Michael Thomas, project manager, completed his research into derecognition and has left to take up a post with a bank David Bray, associate manager contracts, has left to take up a post with a large commercial organisation, and Luciana Abrantes, education associate, has returned to practice in tax management with KPMG (in London). 19
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) 2008 The only official printed edition of the consolidated text of the IASB’s authoritative pronouncements This edition presents in a single volume the latest version of International Financial Reporting Standards (IFRSs) including International Accounting Standards (IASs), IFRIC and SIC Interpretations and the supporting documents—application guidance, illustrative examples, implementation guidance, bases for conclusions and dissenting opinions—as approved for issue by the IASB at 1 January 2008. The main changes in this 2008 edition of the Bound Volume include: • a revised IAS 1 Presentation of Financial Statements; • a revised IFRS 3 Business Combinations; • a revised IAS 23 Borrowing Costs; • an amended IAS 27 Consolidated and Separate Financial Statements; • two new Interpretations – IFRIC 13 Customer Loyalty Programmes and IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction; • amendments to IFRS 2 Share-based Payment; • amendments to other IFRSs resulting from these pronouncements; and • the IFRIC Due Process Handbook. The volume also includes the IASC Foundation Constitution, the IASB Framework for the Preparation and Presentation of Financial Statements, the Preface to International Financial Reporting Standards, the Due Process Handbook for the IASB, an updated Glossary of Terms, and a comprehensive Index.
Publication Date: ISBN: Product Code: Price:
March 2008 978-1-905590-54-4 10118 £60 (plus shipping)
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