latest ifrs developments from hot topics seminar

Latest Developments in IFRS

5th Annual Hot Topics SeminarOctober 16, 2012

Stephen G. Austin, CPA, MBAFirm Managing PartnerSwenson Advisors, LLP

BREAKING NEWSBREAKING NEWS

Gregory Anton, AICPA Chairman:

“IFRS Adoption by the U.S. is not coming any time soon”

Anton said the AICPA supports giving US companies the option to use IFRS, and supports the issue of one

set of high-quality standards, but warned that the "absolute soonest" IFRS will be seen in the US will be

in five to six years' time.

3 Accountancy Age, R. Crump, 8/10/2012

BREAKING NEWSBREAKING NEWSSEC Report Offers Lingering Questions about IFRS

The SEC staff report released on July 13, 2012 is 127 pages of details on how IFRS has been developed, maintained and is performing globally, and the potential challenges and benefits of their use by U.S. public companies.

But NO recommendation for adoption!But NO recommendation for adoption!

SEC.gov, 7/13/12SEC.gov, 7/13/12


SEC Shuts Down IFRS Decision Timeline

The SEC is making it clear that the staff’s long-awaited final report will not contain any

recommendations for commission action. SEC Chief Accountant, James Kroeker has announced his plans to leave his position at the SEC in July to

return to the private sector.

Compliance Week, T. Whitehouse, 7/9/12Compliance Week, T. Whitehouse, 7/9/125


Accounting Panel Expresses ‘Regret’ Over U.S. Stance

The IFRS Foundation, which oversees the IASB, said that while it recognizes the SEC’s right to determine how and when IFRS should

be used in the U.S., but “we regret that the staff report is not accompanied by a

recommendation action plan for the SEC.”

Wall Street Journal, 7/15/12 6

Executive Summary

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Summary Findings

1.Development of IFRS• IASB has made significant progress in developing a

comprehensive set of accounting standards• Standards are generally perceived to be high quality

by the global financial reporting community. However, there continue to be areas that are underdeveloped (extractive industries, insurance, rate-regulated industries)

2.Interpretive Process• The staff’s outreach both domestically and internationally

indicates that the IFRS IC should do more to address issues on a timely basis

• IFRS Foundation recently implemented changes to address this concern, however, it is unknown at this point whether they will be effective

Executive Summary, Continued

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3. IASB’s Use of National Standard Setters

• The IASB needs to understand the intricacies of a number of distinct domestic reporting and regulatory systems in order to develop accounting standards that could be incorporated in multiple jurisdictions

• The IASB should consider greater reliance on national standard setters

4. Global Application and Enforcement

• To derive many of the key benefits of a single set of accounting standards, it is critical that those standards are applied and enforced on a consistent basis

• The SEC conducted a review of financial statements prepared in accordance with IFRS, while financial statements generally appeared to comply with IFRS, global application of IFRS could be improved to narrow diversity

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5. Governance of the IASB• IASB does not have a mandate to consider the

establishment of standards with the focus of any single capital market

• May be necessary to put in place mechanisms specifically to consider and to protect the U.S. capital markets Example, maintaining an active FASB to endorse IFRSs

6. Status of Funding• IFRS Foundation has made progress in developing a funding

mechanism• More than 100 countries around the world, but current funding is

provided to the IFRS Foundation by businesses, not-for-profits, and governments in fewer than 30 countries

• Unsuccessful in obtaining funding for the portion of the IASB budget allocated to the U.S.!!

• Financial Accounting Foundation – committed to participating in discussions on the issue of funding from U.S. sources


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6. Status of Funding, continued• Staff’s most significant concern about the funding

approach is the continued reliance on the large public accounting firms to provide funds to the IASB

7. Investor Understanding• Staff observed that investor education on accounting

issues and changes in the accounting standards is not uniform


RECENT NEWSRECENT NEWS

David Tweedy:

“U.S. decision is a key to future international standards.”

“Nations with significant economies such as Japan, China and India might

not adopt IFRS if the U.S. doesn’t.”

11 Journal of Accountancy, K. Tysiac 4/25/2012

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MoU ProcessFirst MoU – February 2006

Second MoU – 2008

Third MoU – 2009

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Subsequent Series of Progress and Work Plan Reports

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SEC Staff Released Reports Analyzing the Current Reporting Practices and Comparing

U.S. GAAP & IFRS in Specific Areas

An Analysis of IFRS in Practice

Shows the results of the analysis of the

most recent consolidated financial

statements of 183 companies, including

SEC registrants & non-registrants, that

prepare financial statements in

accordance with IFRS.

Reports, Continued

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A Comparison of U.S. GAAP and IFRS

Summary of similarities & differences

between two sets of reporting standards

in 29 FASB Accounting Standards

Codification subject areas. The report is

informal only and does not include

conclusions and recommendations.

IASB Work PlanProjected targets as at October 1, 2012

IASB Work PlanProjected targets as at October 1, 2012, Continued

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IASB Work PlanProjected targets as at October 1, 2012, Continued

FASB/IASB Status of Projects

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Overview of Convergence Process

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IFRS for SMEs

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Progress report on Guide for micro-sized entities

applying for IFRS for SMEs

New English-language training modules

IFRS for SMEs translations: status report

IFRS for SMEs ‘train the trainers’ workshop held

in Mongolia and Ukraine

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A fact sheet on the IFRS for SMEs that summarizes activities since the IFRS for SMEs was issued has been posted to the IASB’s website

The fact sheet includes information about adoptions, translations, training, Q&As, publications, and the comprehensive review that is currently under way. It also contains an up-to-date list of SME resources that are available for free download from the IASB’s website.

The IFRS for SMEs fact sheet is available to download at www.ifrs.org

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The IASB staff has started to develop guidance to

help micro-sized entities apply the IFRS for SMEs.

The SME Implementation Group (SMEIG) will work

with the staff in developing this guidance.

No fixed timetable for completion of guidance.

However, staff is aiming for publication in early

2013.

Guidance for Micro-Sized Entities Applying for IFRS for SMEs

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Current status of translations of the IFRS for SMEs approved by the IFRS Foundation:

Completed: Albanian, Arabic, Armenian, Bosnian, Chinese (simplified), Croatian, Czech, French, Hebrew, Italian, Japanese, Kazakh, Lithuanian, Macedonian, Mongolian, Polish, Portuguese, Romanian, Russian, Serbian, Spanish, Turkish

In progress: Estonian, German, Khmer, and Ukrainian

Available for free download at www.ifrs.org

IFRS for SMEs Translation: Status Report

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Overview of the New Revenue Recognition Model

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Exposure Draft

Issued in June 2010

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Key Components :Revenue Recognition

Step 1 Identify the contracts with the customer

Step 2 Identify the separate performance obligations

Step 3 Determine the transaction price

Step 4 Allocate the transaction price to the performance obligations

Step 5 Recognize revenue when a performance obligation is satisfied

Revision to Exposure Draft Originally Issued in June 24, 2010

Re-Exposed in November 2011

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The boards decided to

re-expose the proposed revenue

guidance to avoid unintended

consequences from the final

standard and to increase

transparency.

Summary of Changes from Previous Exposure Draft

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Summary of Changes from Previous Exposure Draft, Continued

Journal of Accountancy “A new system for recognizing revenue”, Jan. 2012, M. Lamoreaux

IASB/FASB MeetingSeptember 2012

Topics discussed of revised Exposure Draft (ED)

“Revenue from Contracts with Customers”:

Constraining the cumulative amount of revenue recognized

Collectability, including accounting for contracts with

customers that contain nonrecourse, seller-based financing

Time-value of money

Contract issues—distribution networks

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IASB/FASB MeetingSeptember 2012, Continued

Constraining the cumulative amount of revenue recognized

The Boards tentatively decided:

That in keeping with the proposal in the 2011 ED, an entity should evaluate whether to constrain the cumulative amount of revenue recognized if the amount of consideration to which an entity expects to be entitled is variable

To clarify the meaning of ‘variable consideration’ to indicate that the constraint should apply to a fixed price contract in which there is uncertainty about whether the entity would be entitled to that consideration after satisfying the related performance obligation

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Collectability

The Board tentatively decided:

To approve the proposal in the 2011 ED that an entity should adjust the amount of promised consideration for the effects of the time-value of money if the contract with a customer has a significant financing component

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Time-Value of Money

The Board tentatively decided:

To present any impairments recognized in the current period or in a subsequent period in a consistent manner

To provide additional guidance in the Standard about how to determine whether a contract with a customer exists based on the customer’s commitment to perform its obligations under the contract

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Contract Issues – Distribution Networks

The Boards discussed the application of the proposals in

the 2011 ED to arrangements that arise in distribution

networks

An entity (such as a manufacturer) may transfer control of a product to its customer (who may be an intermediary, such as a dealer or retailer)

The manufacturer may also promise other goods or services as sales incentives to encourage the sales of those products that have become part of the intermediary’s inventory

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Leases

Exposure Draft

Issued in August 2010

(Re-Exposed)

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Work Plan for Remaining Priority Convergence Projects

Leasing: The objective of this project is to improve financial reporting by

ensuring that all assets and liabilities arising from lease contracts are recognized in the statement of financial position

The boards published a joint exposure draft in August 2010 The boards have been considering the feedback received from

comment letters and the boards’ extensive outreach activities They intend to develop a draft of the new standard, which will be:

a) Made generally available, via the boards’ websites, for interested parties to review;

b) Used as the basis for outreach with parties that are most affected by the proposed new requirements; and

c) Subjected to a detailed drafting review with selected parties, as part of the fatal flaw review process each board is required to undertake

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Work Plan for Remaining Priority Convergence Projects

Financial Instruments: Efforts to improve our requirements and to reach a

common solution have been complicated by differing imperatives that pushed our respective development timetables out of alignment

Strategy for addressing those differences remains the same – each board has been publishing its proposals while also soliciting comment on those of the other board, as a way of giving interested parties the opportunity to compare and assess the relative merits of both boards’ proposals

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Convergence ApproachConvergence Approach

China – Best Example Moving closer Not full incorporated Follow “ASBEs” – Accounting Standards for Business

Enterprises (Set by the Accounting Law of the PRC) Adopted 2006 standards in 2007 September 2009 – new Roadmap (exposure draft) In state of “lull”

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Endorsement Approach(Vast Majority Follow this Approach)(Vast Majority Follow this Approach)

Degree of deviation varies by jurisdiction Translated into local language (not English) Modification based on “country specific issues” EU – largest example

Australia – 2nd largest example

2005 Must follow IAS adopted by European Commission for listed companies

2006 - Present

New IFRS must go through multiple steps before its authorized by the “EFRAG” (European Financial Reporting Advisory Group)

and then “SARG” (Standards Advice Review Group) and then..

“ARC” (Accounting Regulatory Commission) and finally...

the European Parliament has three months to oppose endorsement

If not opposed published in the Office Journal of the EU

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IFRS Future in the U.S.

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Schapiro’s Tenure: She’s Already Outlasted Average SEC Chairman

Wall Street Journal, 9/19/12

It was reported on 9/18/12 that Schapiro is It was reported on 9/18/12 that Schapiro is

considering resigning following the election.considering resigning following the election.

The SEC says “she has no departure plans.”The SEC says “she has no departure plans.”

Officially, Schapiro’s term expires in 2014.Officially, Schapiro’s term expires in 2014.

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Post Election Prediction

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Thank You

Stephen G. Austin, MBA, CPA

[email protected]

www.SwensonAdvisors.com

www.SwenAsia.com

www.swentrack.com

www.swensonforensic.com