Reporting review
The Ernst & Young bulletin on auditing, accounting and corporate governance. January 2012
US SEC to put PCAOB under microscope
The US Securities and Exchange Commission will question the Public Company Accounting Oversight Board Chairman James Doty about his budget and policy priorities on 11 January 2012, in a rare public meeting designed to shed more transparency on the agency that has tightened the screws on the auditing profession over the past year. A vocal critic of the way auditors did their job during the 2007-2009 financial crisis, Doty has called for a series of major regulatory changes that have been met with strong resistance from accounting firms. The PCAOB has the power to impose rules and to inspect and fine accounting firms, including the Big Four accounting firms.
UK lawmakers: New regulatory regime should push competition
UK lawmakers have said that promoting greater competition in financial services should be the central task of a new industry regulator charged with protecting consumers. Prime Minister David Cameron has proposed creating a new body called the Financial Conduct Authority, or FCA, as part of a shake-up of regulation in the wake of a financial crisis that required taxpayers to bail out banks. Under current proposals, the FCA's three objectives are to protect consumers, enhance the integrity of the financial system and promote choice in the market for financial services. But the Treasury Select Committee, a group of lawmakers that scrutinizes financial and economic policy in the UK, said that those objectives do not go far enough. It wants promoting competition to be the FCA's primary job.
Basel rejects delay to liquidity buffers
Top central bankers and regulators from 27 major economies have said that banks will be required to hold emergency stocks of easy-to-sell assets starting in 2015, but will be permitted to dip into these liquidity buffers during times of stress. The global regulators firmly rejected industry pleas for a delay or substantial rewrite of the controversial planned “liquidity coverage ratio” that will require banks to hold buffers against a 30-day market crisis. Part of the “Basel III” reform package designed to prevent a repeat of the 2008 financial crisis, the LCR has come in for heavy criticism from bankers who say it will constrain lending, harm economic growth and make the banking system vulnerable to sovereign woes.
SEC approves 11% budget increase for audit overseer
The SEC voted unanimously to approve an 11% budget increase for the PCAOB. The board, which is overseen by the SEC, will see its budget increase to US$227.7 million from US$204.4 million. SEC Chairman Mary Schapiro said: “There is little question that the PCAOB has grown into an important regulatory body with a significant investor protection role.” The board said it needs the additional money to implement an expansion of its authority to oversee the audits of SEC-registered brokers and dealers, as mandated by the 2010 Dodd-Frank law. Previously, the board only had authority to oversee the audits of publicly-traded companies. The board also said it needs additional money to conduct a greater number of international inspections.
EU ministers agree OTC clearing powers
European finance ministers struck a deal in Brussels to balance national authorities’ right to authorize clearing houses against the right of the European Securities and Markets Authority to overrule decisions. The impasse had threatened to delay the introduction of a key piece of derivatives reform, known as European Markets Infrastructure Regulation. The legislation was conceived as the region’s commitment to a mandate from the G-20 group of nations to move swathes of the vast US$6 trillion over-the-counter derivatives market onto electronic trading venues and through clearing houses.
Global body to represent big banks
The world’s biggest banks are set to have a new voice on the global regulatory stage as the Global Financial Markets Association — a little known body that acts as an umbrella group for three regional trade associations — beefs up its profile and changes its top management. The GFMA plans to reinvent itself as a body to represent the interests of the world’s biggest banks, as the two international regulatory bodies — the Financial Stability Board and the Basel Committee on Banking Supervision — move forward with their agenda to set tougher standards on a global basis for the world’s banks and start to target the toughest new rules at a category of so-called GSifis — global systemically important financial institutions — most of which are banks, or GSib
EU to complain about “Volcker” to Geithner
The European Commission plans to complain to US Treasury Secretary Timothy Geithner that the proposed US regulations could discourage banks from trading European sovereign bonds, potentially increasing funding costs for the continent's governments. Michel Barnier, the European Commissioner for Internal Market and Services, has said that he will raise objections with Geithner about the potential impact of the planned "Volcker rule," which is aimed at restricting banks from trading with their own capital. EU is worried that the planned rule would hamper US banks’ ability to buy and sell European sovereign bonds on behalf of customers, reducing liquidity in those markets.
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IFRS Developments - Issue 21: Impairment - a major step forward in achieving convergence
The IASB and FASB made significant progress at their recent Joint Board meeting, having agreed on several tentative decisions in relation to the "three-bucket" expected loss approach to the impairment of financial assets. These include, the transfer principle from Bucket 1 into Bucket 2 or Bucket 3; the Bucket 1 impairment allowance; the differentiating factor between Bucket 2 and Bucket 3; the grouping of financial assets for impairment evaluation; and the application of the new impairment approach to retail loans, commercial loans and debt securities.
IFRS Developments - Issue 22: Offsetting of financial Instruments
The recently issued amendments to IAS 32 and IFRS 7 on offsetting of financial instruments are intended to clarify existing application issues relating to the offsetting rules, reduce the level of diversity in current practice and to overcome the differences in the offsetting requirements under IFRS and US GAAP. The clarifying amendments to IAS 32 are effective for the annual periods beginning on or after 1 January 2014. The new disclosures in IFRS 7 are required for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. Both require retrospective application for comparative periods.
IFRS Developments - Issue 23: Limited improvements to the IFRS 9 classification and measurement model.
At its recent meeting, the IASB reached a tentative decision to consider making limited improvements to IFRS 9 Financial Instruments. While limiting the scope of the review, the IASB seeks to address the interaction between this standard's classification and measurement model and the accounting for insurance contract liabilities. The IASB also seeks to address specific application issues in IFRS 9 and consider possible alignment between IFRS 9 and the FASB's proposed classification and measurement model.
Insurance Accounting Alert - Boards discuss onerous contract testing and measurement of options and guarantees
On December 15 and 16, the IASB and the FASB, respectively, or, collectively, the Boards, held joint meetings to continue their re-deliberations of the tentative decisions in the IASB’s Exposure Draft Insurance Contracts (ED) and in the FASB’s Discussion Paper Preliminary Views on Insurance Contracts (DP). A large part of the meeting was devoted to discussing the definition of portfolio grouping of cash flows for determining the residual/ single margin, and the risk adjustment (IASB only).
Applying IFRS – New mandatory effective date and transition disclosures
In December, the IASB issued amendments to the classification and measurement model in IFRS 9. The amendments move the mandatory effective date from 1 January 2013 to 1 January 2015. Earlier application continues to be permitted. The amendments no longer require the restatement of comparative figures. Instead, IFRS 7 has been amended to require additional disclosures on transition from IAS 39 to IFRS 9. The new disclosures are either required or permitted, based on the entity’s date of transition. Our Applying IFRS publication summarises what you need to know about these amendments and includes an illustrative example of how the transition disclosures may look in practice.
Applying IFRS in banking and capital markets: Challenges for banks and their structured entities in adopting and applying IFRS 10
This issue of Applying IFRS focuses on the application issues, practical challenges and the potential business impacts for banks and their structured entities in adopting IFRS 10 Consolidated Financial Statements.
The recent financial crisis highlighted the need for better accounting to reflect the substance of relationships between entities. It also highlighted the need for consistency, transparency and comparability in the accounting for and disclosure of such relationships.
In May 2011, the International Accounting Standards Board issued IFRS 10 and IFRS 12 Disclosure of Interests in Other Entities, with the aim of increasing consistency, transparency and comparability across these areas. These new standards are effective for annual periods beginning on or after 1 January 2013, and must be applied retrospectively.
IFRS Outlook – January 2012
I am pleased to send you the January 2012 issue of IFRS Outlook. We look at current and emerging IFRS issues, with the needs of business leaders very much in mind and we share our views on the pertinent issues and their potential impact for businesses..
In this issue you will find .....
Global Accounting Standards post-2011 – a way forward
The IASB issued a request for views on the strategic direction and overall balance of its standard-setting agenda. In the midst of the ongoing global financial crisis, we provide our views on the role the IASB can play in setting relevant and useful standards for global financial reporting.
Hedge accounting moves closer to risk management practices
The IASB’s new standard expected on hedge accounting will mark a significant shift from the way entities have conventionally applied hedge accounting under IFRS. A Review Draft of the final standard is expected to be available on the IASB’s website in early 2012 for a period of 90 days. In this article, we summarise the reasons for the project and discuss the differences between the new hedge accounting model and current requirements under IAS 39 Financial Instruments: Recognition and Measurement.
IFRS project update
Find out which projects the IASB and the IFRS Interpretations Committee are currently discussing.
Resources
Look here for an up to date list of our recent publications.
IASB Projects: A pocketbook guide
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. This December 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 FASB as part of ongoing efforts to converge IFRS and US GAAP. This guide also includes some of the potential financial and business implications of the proposed accounting changes, together with Ernst & Young's views on the projects.
This edition provides updates to 31 December 2011 for the following:
• Issuance of an exposure draft of the IASB’s proposals for consolidation by investment entities
• Re-exposure of the IASB and FASB’s revised proposals for the recognition of revenue from contracts with customers
• Tentative decisions taken by the IASB, including the decision of the IASB and FASB to re-expose the lease accounting proposals
Revised timelines for finalising the project
Applying IFRS: Revenue from contracts with customers – the revised proposal (January 2012).The IASB and FASB recently re-exposed their proposed single revenue model that would align IFRS and US GAAP and could significantly change the timing of revenue recognition. How will you be affected?
In Applying IFRS: Revenue from contracts with customers – the revised proposal (January 2012), you will find an analysis of the proposal and frequently asked questions about applying the proposal. It also includes examples to illustrate how the proposal would be applied under various scenarios and a comparison of the proposal to existing standards.
Good Real Estate Group (International) Limited.This edition of Good Real Estate Group (International) Limited contains an illustrative set of consolidated financial statements for a real estate company and its subsidiaries for the year ending 31 December 2011. Good Real Estate Group (International) Limited's activities include the development and leasing of investment property together with the development and sale of residential property. These illustrative financial statements have been prepared in accordance with IFRS that were in issue as at 30 September 2011, and effective for the year ending 31 December 2011.
Good Construction Group (International) Limited.This edition of Good Construction Group (International) Limited contains an illustrative set of consolidated financial statements for a construction company and its subsidiaries for the year ending 31 December 2011. Good Construction Group (International) Limited's activities include construction and engineering as well as investment in and operation of infrastructure. These illustrative financial statements have been prepared in accordance with IFRS that were in issue as at 30 September 2011, and effective for the year ending 31 December 2011.
