EYe on Reporting
Welcome to our latest edition of EYe on Reporting.
This month we highlight two recent publications, the first of which summarises the proposals from the joint project by the New Zealand Institute of Chartered Accountants (NZICA) and the Institute of Chartered Accountants of Scotland (ICAS) to reduce excessive disclosure requirements in accounting standards that make it hard for investors, lenders and other stakeholders to see important information amongst the sea of detail.
The second publication discusses accounting issues arising from the New Zealand Emissions Trading Scheme (ETS) and touch on potential tax implications. This publication does not cover all the possible accounting issues that might arise under the ETS – but is a useful tool to help you identify the specific accounting issues relevant to your business, to consider your accounting policy options where choices are available, and to help you in discussions with internal and external stakeholders.
Looking further ahead, the timetable for the International Accounting Standards Board (IASB) projects has once again been revised with the IASBs decision to re-expose the leasing proposal for the second time. The re-exposure will give constituents a chance to comment on the changes and it means a final standard will not be issued until well into 2012.
In addition, the IASB has tentatively decided to move the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, with earlier application permitted. The IASB plans to publish the proposed change in an exposure draft which will have a comment period of 60 days.
Our latest issue of the IASB project pocketbook provides an overview of the projects currently being addressed by the IASB. This issue highlights the revised work plan of the IASB and its revised work plan.
Financial Accounting Advisory Services
Cutting the clutter from financial reports (pdf, 293.3kb)
The recent trend in accounting standards for ever-increasing disclosure requirements has caused financial statements to become longer and longer, with voluminous amounts of details provided. This has raised concerns about 'disclosure overload' - with investors, lenders and other stakeholders struggling to find important information in the sea of detail.
The New Zealand Institute of Chartered Accountants (NZICA) and its Scottish counterpart, the Institute of Chartered Accountants of Scotland (ICAS), have responded to these concerns with the issue of a report, Losing the excess baggage – reducing disclosures in financial statements to what’s important.
Kimberley Crook, national leader of Financial Accounting Advisory Services at Ernst & Young, is a member of the joint NZICA-ICAS working group and summarises the proposals in this publication.
A new wave for New Zealand: Accounting for the New Zealand Emissions Trading Scheme
As part of New Zealand’s response to global climate change and its obligations under the Kyoto Protocol, the New Zealand Emissions Trading Scheme (ETS) was introduced.
In this publication, we discuss some of the accounting issues arising from the ETS. We also briefly discuss the potential tax implications.
The IASB continues to move forward with its standard-setting activities and the ability to stay one step ahead in a sea of change is critical. Our July 2011 edition of the IASB Projects: A pocketbook guide summarises the key features of the various IASB projects, many of which are joint projects with the US Financial Accounting Standards Board (FASB) as part of ongoing efforts to converge IFRS and GAAP. This guide also includes some of the potential financial and business implications of the proposed accounting changes, together with our views on the projects.
The IASB and the FASB decided at their July 2011 meeting to re-expose their joint leases proposal for a second time, because they have made significant changes to the model they proposed last year. They also tentatively decided that lessors should apply a "receivable and residual" approach to all leases, with a few exceptions. This represents a significant change from current lease accounting and the proposals in last year's exposure draft.
This issue of IFRS Developments summarises the key points of the proposed lessor model.
Also see the related item below on lessee accounting, in the next section on “IFRS news and updates”.
The IASB tentatively decided on 22 July 2011 to move the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, with earlier application permitted. This decision is in response to feedback received from constituents and the IASB's prior intention to allow entities to adopt IFRS 9 Financial Instruments in one package.
The IASB plans to publish the proposed change in an exposure draft, which will have a comment period of 60 days.
This issue of IFRS Developments highlights the impact of the proposed change on reporting entities.
In the recent Australian Federal Court case: ASIC v Healey, Justice Middleton found that each of the directors and officers of Centro Group had breached their duty of care and diligence and had failed to take all reasonable steps to ensure compliance with the law in relation to the approval of the annual financial report.
Our Australian publication provides an overview of the key actions for boards and audit committees to review, understand and challenge the financial statements.
IFRS news and updates
At the July 2011 meeting, the IASB and FASB continued to discuss their three-bucket approach for impairment of financial assets. The new three-bucket approach captures different phases of deterioration in credit quality of financial assets. All financial assets subject to impairment would be initially classified in Bucket 1. Any subsequent transfers to Buckets 2 and 3 would be based on changes in credit loss expectations. While the Boards have decided that the impairment allowance for Buckets 2 and 3 would be based on full expected lifetime losses, they have yet to decide whether the allowance for Bucket 1 would be based on 12 months or 24 months of expected credit losses.
This issue of IFRS Developments summarises the key points of the new approach.
In October 2010, the IASB completed Phase 1 of IFRS 9, classification and measurement of financial instruments, by issuing amendments to IFRS 9. These amendments addressed financial liabilities and incorporated the current de-recognition principles of IAS 39 into IFRS 9.
The second edition of our Implementing Phase 1 of IFRS 9 publication addresses additional questions that are being asked about implementing IFRS 9, recognising that some aspects of the standard are still unclear.
The new standard is principles-based, with less extensive rules and application guidance than IAS 39. Therefore, its application will require the careful use of judgement.
The IASB and the FASB (collectively, the Boards) have made significant changes to their proposed leases model to address conceptual and operational concerns constituents raised about their original proposal. Like the exposure draft, the revised proposal (i.e., exposure draft adjusted for subsequent deliberations) would require most leases to be recognised on the balance sheet. This would also require a number of judgements, as well as periodic reassessment.
This publication from our Applying IFRS series, Lessee model comes together as leases project progresses, summarises the revised leases proposal for topics the Boards have redeliberated through June 2011. These decisions are primarily lessee-related, and this publication compares the revised proposal with current accounting. All of the decisions made by the Boards to date are tentative and will not be finalised until they approve a final standard.
Also see the related item above, in the “Hot topics” section, on the Boards’ July 2011 decisions, including on the lessor model and the issue of a second exposure draft on the lease accounting proposals.
The International Accounting Standards Board (IASB) launched a public consultation to seek broad public input on the strategic direction and overall balance of its future work programme. The consultation document asks questions to gather views on the IASB’s future work programme from all those involved in or affected by financial reporting.
The 2010 Annual Report of the IFRS Foundation is now available from the IASB website. The report comprises three sections:
- Section 1 – Trustees of the IFRS Foundation: Inspiring confidence and trust in independent standard-setting
- Section 2 – Activities of the IFRS Foundation: Financial reporting for global capital markets
- Section 3 – Financials: Audited financial statements of the IFRS Foundation for the year ended 31 December 2010
Industry in focus
Preparing for IFRS accounting changes: Banking
The IASB is continuing its efforts to overhaul financial reporting. A number of new standards have been issued and others are expected to be finalised over the next few months and through 2012. This July 2011 update to our Preparing for IFRS accounting changes - Crucial developments for banks focuses on the key accounting changes through June 2011.
Insurance accounting alert: Residual margin and acquisition costs
In June 2011, the IASB tentatively decided that the residual margin should be adjusted for specified changes in estimates. In addition, the IASB and FASB agreed that acquisition costs should include direct costs only, and provided examples of indirect costs that would be excluded. However, the FASB reaffirmed that acquisition costs should be limited to those that can be allocated to successful efforts, while the IASB retained both successful and unsuccessful efforts.
The Boards did not come to a final conclusion on a presentation model for the statement of comprehensive income, but decided to pursue a presentation that provides both margin and volume information on the face of that statement.
This of issue Insurance Accounting Alert summarises these discussions.
Measure by measure: Synchronising IFRS 9 and IFRS 4 Phase II for insurers focuses on the expected impact of IFRS 9 Classification and Measurement for insurers taking into consideration types of financial assets held currently, the expected impact of the proposals under IFRS 4 Phase II (the project to replace IFRS 4 Insurance Contracts) and the considerations for any potential difference in the timing of adoption of the standards. It is important that insurers understand the impact of IFRS 9, and act now to make sure that they are prepared for the potential impact.
The IFRS Interpretations Committee considered the near final interpretation on accounting for waste removal costs during the production phase of a surface mine at its July 2011 meeting. This issue of IFRS Developments highlights the key points of the proposed interpretation and what the impact means for businesses.
The 1 July 2011 saw the Financial Reporting (Amendment) Act 2011 come into force amending the Financial Reporting Act 1993 and transforming the Accounting Standards Review Board (ASRB) into the External Reporting Board (XRB). The XRB’s responsibilities include the preparation and issuance of financial reporting standards, and auditing and assurance standards. The XRB has formed two standard-setting boards, the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB), to which it delegated its authority to develop and approve such standards. The establishment of the XRB is a significant change in the standard-setting process in New Zealand which previously saw the responsibilities for setting accounting and auditing standards divided between the ASRB, a statutory body, and the Financial Reporting Standards Board (FRSB) and Professional Standards Board (PSB), which were part of the New Zealand Institute of Chartered Accountants.
On the horizon
Below are recent Exposure Drafts which are currently open for comment to the New Zealand Accounting Standards Board (NZASB), IASB and/or International Public Sector Accounting Standards Board (IPSASB). Please refer to the current exposure draft section on the XRB website for more details (www.xrb.govt.nz).
Comments due to NZASB by
Comments due to IASB or IPSASB by
IPSASB ED - Key Characteristics of the Public Sector with Potential Implications for Financial Reporting
31 August 2011
21 September 2011
21 October 2011
If you missed any of the recent global webcasts you can now watch them via the webcast archive. The following webcasts were broadcast in June and July:
- IFRS 10 Consolidated Financial Statements
- IFRS 11 Joint Arrangements
- IFRS 13 Fair Value Measurements
For more information on any of the points raised in this newsletter, please contact a member of Ernst & Young’s Financial Accounting Advisory Services Team:
Kimberley Crook – Partner, Auckland: +64 9 300 7094
David Pacey – Executive Director, Auckland +64 274 899 049
Andrew Moorby – Executive Director, Christchurch: +64 274 899 949
Ravi Kumar – Senior Manager, Auckland +64 212 214 717
Jude Doliente – Manager, Auckland +64 212 417 481
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