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Quarter 1 2011

Our first edition of 2011 leads with anarticle on the IASB’s first IFRS PracticeStatement, which provides a broad, non-binding framework for thepresentation of managementcommentary relating to IFRS financialstatements. We go on to consider otherrecent developments at the IASB,including proposals which wouldfundamentally alter the currentrequirements for hedge accounting.

We then turn to IFRS-related news at Grant Thornton, as well as a generalround-up of activities affecting the IASB.We end with an overview of theproposals that the IASB currently hasout for comment, and the implementationdates of newer Standards that are not yetmandatory.

Welcome to IFRS News – a quarterly update fromthe Grant ThorntonInternational IFRS team.IFRS News offers asummary of the moresignificant developments in International FinancialReporting Standards (IFRS)along with insights intotopical issues andcomments and views from the Grant ThorntonInternational IFRS team.

IFRS News

2 IFRS News Quarter 1 2011

IASB publishes framework formanagement commentary

The IASB has published its first IFRSPractice Statement ‘ManagementCommentary – A framework forpresentation’.

Management commentary is theterm used to denote narrative reportsthat often accompany the financialstatements. It is sometimes referred toby other names such as ManagementDiscussion and Analysis or anOperating and Financial Review. Suchreports provide users with:• historical explanations of the

amounts presented in the financialstatements

• commentary on the entity’sprospects and other information notpresented in the financial statements

• a basis for understandingmanagement’s objectives andstrategies.

The Practice Statement is not an IFRSand does not have the same authority asone. It does not mandate which entitiesare required to publish managementcommentary, how frequently theyshould do so or the level of assurancerequired. Instead the Practice Statementprovides a broad, non-bindingframework for the presentation ofmanagement commentary relating toIFRS financial statements.

The framework for preparation ofmanagement commentaryUnder the Practice Statement,management commentary is aimed at theneeds of the primary users of thefinancial statements (existing andpotential investors, lenders and othercreditors).

Rather than mandating the inclusionof certain information, the PracticeStatement establishes a principles-basedframework for preparing managementcommentary. Management shouldpresent commentary that is consistentwith the following principles:• to provide management’s view of the

entity’s performance, position anddevelopment; and

• to supplement and complementinformation presented in thefinancial statements.

Grant Thornton International comment Management commentary has an important role to play in providing usefulinformation to investors and others users of financial statements, and in improvingthe quality of the dialogue between the management of entities and those users.

We welcome the IASB’s publication of a high-level, principles-based guidancedocument rather than a mandatory IFRS. It should contribute to improvedManagement Commentary, particularly in those jurisdictions that do not alreadyhave well developed requirements in this area. In jurisdictions that have existingrequirements, the Practice Statement may provide useful guidance withoutnecessarily being sufficient to ensure compliance with those local requirements.

IFRS News Quarter 1 2011 3

In relation to supplementing andcomplementing the financial statements,management commentary should, inaddition to discussing the factors whichhave led to the amounts presented in thecurrent financial statements, discussforward-looking information. ThePractice Statement acknowledgeshowever that the extent of forward-looking information will be influencedby the regulatory and legal environmentwithin which the entity operates.

The Practice Statement provides abroad, non-binding framework for the presentation of managementcommentary relating to IFRS financial statements

Elements of management commentary The Practice Statement indicates that a management commentary will address thefollowing key elements, while acknowledging that the specific content will dependon the facts and circumstances of each entity.• the nature of the business (eg the entity’s main markets, its main products or

services, the legal and regulatory environment, etc)• management’s objectives and its strategies for meeting those objectives• the entity’s most significant resources, risks and relationships• the results of operations and prospects (eg financial and non-financial

performance and targets) • the critical performance measures and indicators that management uses to

evaluate the entity’s performance against stated objectives.

It is hoped that the flexibility afforded by the Practice Statement’s principles-basedapproach should reduce the risk of ‘boilerplate’-type disclosure.


IASB amends IFRS 9 ‘FinancialInstruments’

IASB addresses the controversialissue of changes in an entity’s owncredit riskWhen first published in November 2009,IFRS 9 addressed only the classificationand measurement of financial assets. Inaccordance with its phased approach tocompleting the Standard, the IASB hasnow added requirements for • classifying and measuring financial

liabilities and • derecognising financial assets and

financial liabilities.

The change addresses the counter-intuitive way in which a company infinancial trouble was previously ableto recognise a gain based on itstheoretical ability to buy back its owndebt at a reduced cost

Classifying and measuring financialliabilitiesMost of the requirements in IAS 39 forthe classification and measurement offinancial liabilities have been carriedforward unchanged to IFRS 9. Onecontroversial area of liabilitymeasurement – the effect of changes inthe fair value of a liability as a result ofchanges in the issuing entity’s own creditrisk – has however been changed.

Where an entity chooses to measureits own debt at fair value, IFRS 9 nowrequires the amount of the change in fairvalue due to changes in the issuingentity’s own credit risk to be presentedin other comprehensive income. Thechange addresses the counter-intuitiveway in which a company in financialtrouble recognised a gain based on itstheoretical ability to buy back its owndebt at a reduced cost. An exception tothe new approach is made where theeffects of changes in the liability’s creditrisk would create or enlarge anaccounting mismatch in profit or loss, inwhich case all gains or losses on thatliability are to be presented in profit orloss.

Reminder: New Standards about to take effectCompanies preparing their annual financial statements for the year ended 31 December 2010, should remember that the revised versions of IFRS 3‘Business Combinations’ and IAS 27 ‘Consolidated and Separate FinancialStatements’ will be effective for the first time. The revised Standards makefundamental changes to the way in which business combinations and changes in ownership interests are accounted for.

The Grant Thornton International IFRS team has recently issued ‘Navigating thechanges to International Financial Reporting Standards: a briefing for Chief FinancialOfficers’ which identifies all of the Standards that will be effective for the first time.A fuller description of this publication is given later in this newsletter.

Grant Thornton International comment The IASB’s decision to change the accounting for own credit risk addresses anissue where many commentators concluded that IAS 39 led to counter-intuitiveoutcomes.

Given the extent of change planned in other areas of IFRS in the near future, theIASB’s decision to retain most other features of financial liability accounting may bewelcomed by many constituents. The consequence, however, is that IFRS 9’srequirements on financial liabilities are quite different to the new classification andmeasurement principles for assets – including the retention of the embeddedderivatives rules for liabilities.


Derecognising financial assets andfinancial liabilities.The requirements in IAS 39 related tothe derecognition of financial assets andfinancial liabilities have beenincorporated unchanged into the newversion of IFRS 9.

The IASB had originally envisagedmaking changes to the derecognitionrequirements of IAS 39. Thoserequirements were however seen ashaving performed favourably during thefinancial crisis. Consequently, the IASBhas concluded that they remain fit forpurpose and need not be replaced in thenear future.

New consolidation Standards to be published soonThe IASB plans to release the following new Standards relating to consolidations in the first quarter of 2011:• Consolidated Financial Statements • Joint Arrangements• Disclosures: Unconsolidated Entities.

The first two Standards will replace IAS 27 and IAS 31 respectively. The GrantThornton International IFRS team plans to release a special edition of IFRS Newsfollowing the eventual publication of the Standards.


Amendments to IFRS 1, First-timeAdoption of International FinancialReporting Standards

The IASB has published two limitedamendments to IFRS 1 ‘First-timeAdoption of International FinancialReporting Standards’. The amendments:• remove certain fixed dates in the

Standard• introduce an additional exemption

for entities emerging from a periodof severe hyperinflation.

Removal of fixed datesThe first amendment replaces referencesto a fixed date of ‘1 January 2004’ thatwere in IFRS 1 with references to ‘thedate of transition to IFRSs’.

The reason for the references to thefixed dates (contained in the financialinstrument exception and the exemptionin relation to the initial fair valuemeasurement of financial instruments)was historic. They were introduced inadvance of 2005, a time when manycompanies were adopting IFRS for thefirst time, and were intended to put first-time IFRS adopters in the same positionas existing users at that time (who wereable to benefit from certain transitionalreliefs contained in IAS 39 ‘FinancialInstruments: Recognition andMeasurement’). As time has passed,however, the references to the 1 January2004 date have become less relevant.Replacing them with references to ‘thedate of transition to IFRSs’ will providerelief for first-time adopters of IFRSsfrom having to reconstruct transactionsthat occurred before their date oftransition to IFRSs.

Additional exemption after a period of severe hyperinflationThe second amendment to IFRS 1provides guidance on how an entityshould resume presenting financialstatements in accordance with IFRSsafter a period when the entity wasunable to comply with IFRSs because its functional currency was subject tosevere hyperinflation.

The amendment adds an exemptionto the Standard under which such anentity may elect to measure its assets andliabilities at fair value, which could thenbe used as the deemed cost in its openingIFRS statement of financial position,presented on or after the functionalcurrency normalisation date. This maylead to a comparative period of less than12 months. The amendment is availableto entities that are emerging from aperiod of severe hyperinflation, whetheror not they had applied IFRSs prior tothe severe hyperinflationary period.

Grant Thornton International comment We agree with the amendments to IFRS 1. The replacement of the fixed date forprospective application of some aspects of IAS 39 with the date of transition toIFRSs will reduce the cost and effort required to apply the detailed rules relating tosome aspects of financial instrument accounting.

Although the additional guidance and exemption relating to severe hyperinflationwill only impact a small number of entities globally, it provides much neededguidance and relief for those entities.


IASB amends IAS 12 Income Taxes

The IASB has published some limitedscope amendments to IAS 12 ‘IncomeTaxes’, which are relevant only when anentity elects to use the fair value modelfor measurement in IAS 40 ‘InvestmentProperty’.

The amendment introduces apresumption that an investmentproperty measured at fair value isrecovered entirely through sale

Under IAS 12, the measurement ofdeferred tax liabilities and deferred taxassets depends on whether an entityexpects to recover an asset by using it orby selling it. Without specific plans fordisposal of an investment property, it isdifficult and subjective to estimate howmuch of its carrying amount will berecovered through cash flows fromrental income and how much of it willbe recovered through cash flows fromselling the asset. This is particularly sowhen the carrying amount is measuredusing the fair value model in IAS 40.

To provide a practical approach insuch cases, the amendment introduces a presumption that an investmentproperty is recovered entirely throughsale. This presumption is rebutted if theinvestment property is held within abusiness model whose objective is toconsume substantially all of theeconomic benefits embodied in theinvestment property over time, ratherthan through sale.

SIC-21 ‘Income Taxes – Recovery of Revalued Non-Depreciable Assets’addresses similar issues involving non-depreciable assets measured using therevaluation model in IAS 16 ‘Property,Plant and Equipment’. This guidance hasbeen incorporated into IAS 12 as part ofthe amendments.

Grant Thornton International comment While we do not generally approve of exceptions from the principles of IFRSs, weaccept this very narrowly-scoped exception on the grounds of pragmatism. Itshould provide a practical and cost-efficient approach for measuring deferred taxassets and liabilities for fair-valued investment properties in jurisdictions in whichrental income and capital gains or losses are taxed differently.


IASB publishes proposals on hedgeaccounting

Exposure Draft aims to simplify thecurrent approach and better reflectrisk management practicesFollowing a thorough re-examination ofIAS 39’s current requirements, the IASBhas published the Exposure Draft‘Hedge Accounting’. This forms part ofthe third phase of the IASB’s project toreplace IAS 39 in its entirety. Theproposals aim to replace the rule-basedIAS 39 with a new model that is muchmore aligned with the way companiesmanage financial risks in practice.

Hedge accounting is a mechanismthat allows entities to reflect the resultsof some risk management activities inthe financial statements. This is achievedby changing the normal timing of therecognition of gains and losses such thatthe hedged risk and the hedginginstrument affect the income statementin the same period.

The existing hedge accounting ruleswere developed along with IAS 39’snormal measurement rules – inparticular the requirement to reportmost derivatives at fair value throughearnings. Hedge accounting createsexceptions to the normal rules, and wasintentionally designed to minimise theopportunities for perceived abuses suchas earnings manipulation. As a result,IAS 39’s hedge accounting rules are rule-based and restrictive.

the proposals will make it possible for some commonly used hedgingpractices to qualify for hedgeaccounting

Issue Description of proposal

Eligibility of hedged items • removes IAS 39’s prohibition on designating components of

non-financial instruments

• this change would make the accounting requirements more

reflective of the risk management policies of many companies

(eg companies that hedge the oil price component of their jet

fuel price exposure)

Eligibility of hedging • allows the time value of a purchased option to be treated as a

instruments cost of hedging in Other Comprehensive Income (as opposed to

being treated as a derivative at fair value through profit or loss)

• this change would decrease inappropriate profit or loss volatility

and would be more consistent with risk management practices

Groups and net positions • extends the use of hedge accounting to net positions thereby

(except macro hedging) improving the link to risk management

• eg it would be possible to apply hedge accounting to a net

foreign exchange position of 20 that is made up of an asset of

100 and a liability of 80

Effectiveness testing • replaces the 80-125 per cent effectiveness threshold with a

qualitative requirement based on the assessment of hedges

undertaken for risk management purposes

Discontinuation • proposes that hedging relationships can be adjusted without

necessarily stopping, and potentially restarting, hedge

accounting

Fair value hedge accounting • changes the mechanics of fair value hedge accounting so that

the remeasurement of the hedged item is presented separately

• information about fair value hedges (like cash flow hedges) will

be reflected in other comprehensive income (OCI) in order to

improve transparency (ie all information about hedging will be

disclosed in OCI)

Disclosures • a comprehensive set of new disclosures will focus on the risks

being hedged, how those risks are being managed and the

effect of hedging those risks upon the primary financial

statements

• this contrasts with IAS 39’s current disclosure requirements

which focus on an entity’s hedging instruments


The new approach to hedge accountingis intended to be simpler to apply, moreconsistent with risk management practices,and provide more useful information.The Exposure Draft proposes that entitieswill use more information producedinternally for risk management purposesas the basis for hedge accounting. Inaddition, some commonly used riskmanagement strategies that are currentlyineligible for hedge accounting willqualify under the proposals.

The table presented on the precedingpage sets out the major changes proposedin the Exposure Draft.

The IASB plans to issue the newStandard in mid-2011 (the newrequirements will be incorporated intoIFRS 9 ‘Financial Instruments’).Unfortunately however, the proposalsmay not achieve convergence with USGAAP. The US Financial AccountingStandards Board’s project on financialinstruments has a different scope to theIASB’s and proposes more limitedimprovements to hedge accounting.

Grant Thornton Sweden study onimpairment accounting Our Swedish member firm recentlycarried out a survey on the impairmentdisclosures in the 2009 consolidatedfinancial statements of all 254 Swedishlisted companies. The survey looked atthe impairment tests carried out andtheir results, the discount rates used, thereasons for any recognised impairmentlosses and any sensitivity analysesundertaken.

In an article for Balans, the Swedishaccountancy magazine, Björn Gauffinand Anders Thörnsten from GrantThornton Sweden raised concerns overthe application of, and quality of theinformation provided by, IAS 36’simpairment model. Among the pointsnoted were:• in 2009, 40 companies recorded

goodwill impairment losses amounting

to 11.9 billion SEK, representing 1.9per cent of the total goodwill balances

• goodwill and other intangibles areincreasingly dominant figures in theStatement of Financial Position –indeed for 23 companies, the bookvalue of goodwill exceeded total equity

• companies with apparently similaroperations seem to hold divergentviews on expected growth rates,forecast periods and discounting.Disclosure is therefore essential toenable users to identify criticalassumptions and assess their impact

• despite an increase in the yield on 10-year Swedish government bonds(commonly used as a measure for therisk-free rate), 40% of companieslowered the discount rate used inimpairment tests compared with

2008. Other things being equal, lowering the discount rate results in a higher value for the assets underreview

• many companies’ sensitivity analysesappear to reflect an Excel drivencalculation by the accountingdepartment rather than an analysis of current market conditions for thetested variables

• more and better disclosures areneeded to make companies’impairment assessments useful for analysts and other users.

The authors suggest that a return to goodwill amortisation should beconsidered if the quality of informationunder the current impairment modelcannot be improved.

Forthcoming Exposure Draft on impairment of financial instrumentsFollowing its review of comments received on its previous Exposure Draft ‘FinancialInstruments: Amortised Cost and Impairment’, the IASB has indicated that it willissue a further Exposure Draft on the subject in early 2011.

In seeking to improve the proposals in its earlier Exposure Draft, the IASB iscurrently exploring three alternative models for credit impairment.• immediate recognition of losses expected to occur over a period shorter than

the expected life of the loan (for example, a reliable period in the future)• recognition of lifetime expected credit losses using a time-proportionate

approach for a good book and full recognition of lifetime expected losses for abad book

• same as the second method but with a mechanism to accelerate recognition ofexpected losses in a good book to accommodate ‘front loaded’ expected lossrecognition patterns.

Preliminary discussions have also indicated that the IASB will exclude short-termtrade receivables from the scope of the next Exposure Draft.


UK partner wins Accountancy AwardSteve Maslin, a partner in our UKmember firm, has won the coveted UK‘Accountancy Age Personality of the

Year’. The award recognises his work inarticulating the need for change in thewake of the financial crisis.

Grant Thornton UK also won theprestigious ‘Audit Team of the Year’ atthe awards ceremony.

GTI IFRS team issues new publicationThe GTI IFRS Team has issued‘Navigating the changes to InternationalFinancial Reporting Standards: a briefingfor Chief Financial Officers’.

The publication provides a summaryof recent changes to InternationalFinancial Reporting Standards – it coversnew Standards and Interpretations thathave been issued and amendments madeto existing ones – that will affectcompanies’ future financial reporting. Itis designed to give Chief FinancialOfficers a high-level awareness of therequirements of changes that werefinalised by 30 November 2010, givingbrief descriptions of each.

For each change covered in thepublication, there is a section dealingwith its commercial implications. Thesesections focus on two questions:• how many entities will be affected?• what will be the impact on affected

entities?

A traffic light system indicates ourassessment of the answers to thesequestions.

To obtain a copy of the publication,please get in touch with the IFRScontact in your local Grant Thorntonoffice.

US firm finds work still to be donein educating the US on the benefitsof IFRSGrant Thornton LLP, our US memberfirm, has found that while there ismovement toward greater acceptance ofIFRS, there is still much work to bedone in educating the US financialcommunity on the benefits of IFRS.

In a national survey of US ChiefFinancial Officers and senior comptrollers,most said that IFRS should not be

adopted until after US GAAP and IFRShave converged to the point where thedifferences are inconsequential (5-7 years).More than a quarter (27%) believed thatIFRS should never be used, and anotherquarter (24%) said that IFRS should beadopted as soon as possible (2-5 years).

Grant Thornton LLP is a staunchsupporter of the movement toward

establishing one set of high-quality,globally accepted accounting standards.Our US firm’s CEO Stephen Chipmannotes that “Just as international businesshas benefitted over the last 30-odd yearsfrom the increased shared use of English,so too will global companies reap thebenefits of one financial reportinglanguage.”


New Grant Thornton InternationalExample IFRS Financial StatementsreleasedThe Grant Thornton International IFRSteam has published an updated version ofits IFRS ‘Example Consolidated FinancialStatements’. The previous version hasbeen reviewed and updated to reflectchanges in IFRSs that are effective for the year ending 31 December 2010. Inparticular, the publication reflects theadoption of IFRS 3R BusinessCombinations (Revised 2008).

To obtain a copy of the publication,please get in touch with the IFRS contactin your local Grant Thornton office.

Grant Thornton Internationalcomments on major proposals Grant Thornton International hascommented to the IASB on its majorproposals to improve its standards onrevenue recognition, leasing andinsurance (see previous editions of IFRSNews for details of the ExposureDrafts).

On revenue recognition, we supportmany of the Board’s broad principlesand objectives. We also suggest a numberof improvements to make the finalstandard more practical and easier tounderstand and apply consistently.

We have expressed significantconcerns on the leasing proposals andbelieve considerable work remains to bedone to develop a final standard. Ourconcerns include the “front-loading” ofrental expense for the lessee; lessoraccounting generally; the distinctionbetween a sale and a lease; andinconsistency with the revenuerecognition proposals. We suggest thatthe proposals are overly complex andrule-based, and may perpetuate thecurrent problem that a small change injudgments or circumstances oftentriggers a major change in theaccounting. At present we are notconvinced that any benefits of theproposed standard will justify itsimplementation costs.

We support the IASB’s efforts todevelop an IFRS on insurance contracts.We believe there is presently too muchdiversity in insurance accountingpractices around the world. Althoughwe raise questions over some areas,including discount rates and unit ofaccount issues, we believe the proposalswill help to more accurately reflect theunderlying economics of insurancecontracts and insurers’ businessprocesses.

First-time adoption of IFRS: ExampleConsolidated Financial Statements 2010In addition to our general IFRS ExampleConsolidated Financial Statements, the GrantThornton International IFRS team has alsoupdated its version for companies adoptingIFRS for the first time.

To obtain a copy of ‘First-time adoption ofIFRS: Example Consolidated FinancialStatements 2010’, please get in touch with theIFRS contact in your local Grant Thornton office.


US firm publication examines thekey differences between IFRS andUS GAAP for hedge fundsThe December 2010 edition of HedgeFundAdviser, a quarterly newsletterfrom our US member firm’s hedge fundpractice looked at the benefits andchallenges of IFRS for hedge funds.

The newsletter notes that withincreased globalisation and competition,it is becoming more important than everfor investors to be able to compareinvestment opportunities across borders.

To help prepare for convergence andeventual transition to IFRS in the UnitedStates, the newsletter looks at the keydifferences between IFRS and USGAAP for hedge funds.

Spotlight on our IFRS InterpretationsGroupGrant Thornton International’s IFRSInterpretations Group (IIG) consists of arepresentative from each of our memberfirms in the United States, Canada,Singapore, Australia, South Africa, India,the United Kingdom, France, Swedenand Germany as well as members of theGrant Thornton International IFRSteam. It meets in person three times ayear to discuss technical matters whichare related to IFRS. Each quarter wethrow a spotlight on one or more of the members of the IIG.

This quarter we focus on Canada’srepresentatives. Most Canadian publiclyaccountable enterprises will apply IFRSfor the first-time for interim and annualfinancial statements relating to annualperiods beginning on or after 1 January2011.

Sophie Bureau, Raymond ChabotGrant Thornton, CanadaSophie is Raymond Chabot GrantThornton’s Accounting ResearchPartner. Sophie joined Raymond ChabotGrant Thornton in 1988, becoming theAccounting Research Partner in 2007.Sophie has over 20 years experience as a specialist in accounting research, anauditor and a course instructor foruniversities. Sophie is also notably amember of the Canadian AccountingStandards Board’s IFRS DiscussionGroup.

Karen Parsons, Grant Thornton LLP,CanadaKaren Parsons is the NationalAccounting Standards Partner at Grant Thornton LLP. Previously apartner in the Assurance and BusinessAdvisory Services Group, Karen hasover 30 years of experience in publicaccounting. She has been a member of the Canadian Institute of CharteredAccountants’ Emerging IssuesCommittee and was a member of its International Financial ReportingStandards Advisory Committee from its inception to its dissolution.


G20 reiterates support for globalaccounting standardsFollowing their November summit meetingin Seoul, the leaders of the G20 group ofnations have once again emphasised theimportance they attach to achieving asingle set of improved high quality globalaccounting standards. They called on theIASB and the Financial AccountingStandards Board to complete theirconvergence project by the end of 2011.

CESR sees improvements in financialinstruments disclosures by Europeanfinancial institutionsThe Committee of European SecuritiesRegulators (CESR) has issued a follow upreport to its November 2009 study on the‘Application of Disclosure Requirementsrelated to Financial Instruments in the 2008Financial Statements of FinancialInstitutions’.

The follow up report presents theactions taken by European enforcers on theinfringements identified in the 2008financial statements. Following thoseactions, and alerts issued on areas such asthe fair value hierarchy, impairment offinancial assets and liquidity riskdisclosures, the report finds that there havegenerally been improvements in all areas.Significant improvement was noted inmeeting disclosure requirements related tovaluation techniques, an entity’s own creditrisk, day one profit or losses and specialpurpose entities.

New CESR report on IFRSenforcementCESR has published its ninth batch ofextracts from its database of enforcementdecisions taken by EU national enforcers offinancial information.

The report comes hot on the heels ofthe eighth batch of extracts (reported inlast quarter’s edition of IFRS News). Topicscovered in the new report are: classificationof financial liabilities; financial instruments –hedge accounting; revenue recognition;intangible assets; impairment of non-financial assets; consolidation; share-basedpayment; financial instruments – disclosure;and impairment of non-financial assets –disclosure.

Consultation on Financial Reportingon a Country-by-Country Basis byMultinational CompaniesThe European Commission is conducting apublic consultation in order to gatherstakeholders’ views on financial reportingon a country-by-country basis bymultinational companies. Country-by-countryreporting is a concept that would requiremultinational companies to disclosefinancial information on their operations inthird countries in their annual financialstatements.

US Securities and ExchangeCommission (SEC)The SEC has issued their first ProgressReport on the Work Plan related to globalaccounting standards.

The purpose of the Work Plan is toconsider specific areas and factors relevantto a Commission determination in 2011 asto whether, when, and how the currentfinancial reporting system for U.S. issuersshould be transitioned to a systemincorporating IFRS. The Progress Reportindicates that the SEC will be in a position in2011 to determine whether to incorporateIFRS into the US financial reporting system.

SEC to give US companies ampletime for IFRS adoptionSEC Chairman, Mary Schapiro, indicatedthat the SEC will allow public companies aminimum of four years to move to IFRS if itdecides to mandate the use of IFRS in theUnited States.

The comment came during remarksshe made on IFRS at the American Instituteof Certified Public Accountants’ NationalConference on Current SEC and PCAOBDevelopments.

Round-up


US accountants see pivotal timeahead for the development of IFRSA survey conducted by the AmericanInstitute of Certified Public Accountants on‘IFRS Readiness’ in the United States, hasfound that US Certified Public Accountantsare increasingly aware of IFRS but arewaiting to invest more resources ininternational standards until they see a clearsignal from the SEC about future USadoption.

The survey found that the largestproportion of respondents, 40 percent,support adoption of IFRS, although onlyafter more convergence between US GAAPand global standards through the IASB-FASB convergence process. An additional14 percent support adoption of IFRSwithout qualification, signifying a combined54 percent majority supports IFRS adoptionin the United States.

IFRS Foundation Trustees consult onfuture strategyThe Trustees of the IFRS Foundation, theoversight body of the IASB, have publisheda first-stage consultation documentdesigned to solicit input on the strategy ofthe IFRS Foundation. The objective of thereview is to help the organisation toconsolidate and build on theseachievements and achieve its ultimateobjective of a single high-quality globallyaccepted set of accounting standards.

The Trustees are seeking views ofstakeholders on four strategic fronts – theIFRS Foundation’s mission, governance, thestandard-setting process, and financing ofthe IFRS Foundation.

IFRS Foundation Trustees review theInterpretations CommitteeThe IFRS Foundation Trustees’ Due ProcessOversight Committee is carrying out areview of the Interpretations Committee(formerly known as IFRIC) in order toassess its effectiveness. The review isbeing conducted by means of aquestionnaire, which is available on theIASB website.

The Trustees expect to publish a reportsetting out their conclusions in the first halfof 2011.

IASB issues editorial correctionsThe IASB issued a number of minor editorialcorrections to IFRS at the end of October.The corrections have been posted on theIASB’s website (www.ifrs.org).

More countries adopt the IFRS forSMEsChile, Guatemala and Venezuela have allapproved the IFRS for SMEs for use bycompanies in their countries. This bringsthe number of countries permitting orrequiring use of the Standard to overseventy.

Meanwhile, the IASB’s initial print run of10,000 hard copies of the Standard hassold out, demonstrating the popularity ofthe Standard.

UK consults on use of IFRS for SMEsThe UK Accounting Standards Board has published its proposals for the future of UK GAAP.Their Exposure Draft ‘The Future of Financial Reporting’ sets out the following proposedthree-tier financial reporting framework, the middle tier of which would be based on theIFRS for SMEs.

Nature of Entity Accounting Regime Reduced disclosures for:

Tier 1 Entities that have public EU-adopted IFRS Qualifying subsidiaries

accountability

Tier 2 Entities without public A new Financial Reporting Qualifying subsidiaries

accountability; and Small Standard for Medium-sized

publicly accountable Entities (based on the IFRS

entities that are prudentially for SMEs)

regulated

Tier 3 Small entities without public Financial Reporting Standard

accountability for Smaller Entities


IASB and FASB issue Progress Reporton ConvergenceThe IASB and the US Financial AccountingStandards Board (FASB) have issued theirthird progress report on their plan forcompleting the major projects that wereagreed in their Memorandum ofUnderstanding.

The Progress Report confirms a targetcompletion date of June 2011 for anumber of priority projects that are beingundertaken jointly by the two Boards.These include:• financial instruments • revenue recognition• leases• the presentation of other

comprehensive income • fair value measurement.

A completion date of June 2011 alsoremains in place for the IASB’s projects onconsolidations and insurance contracts.

In order to give these projects priorityand enable them to be completed by June2011, the two Boards have deferreddeliberations on their joint projects dealingwith broader financial statementpresentation, financial instruments withcharacteristics of equity, emissionstrading schemes, and the reporting entityphase of the conceptual framework. Alsodeferred are some individual projectsincluding the IASB’s plan to revise IAS 37‘Provisions, Contingent Liabilities, andContingent Assets’.

IASB and FASB consult on effectivedates for new accounting standardsThe IASB and the FASB have publisheddocuments seeking views on when newfinancial reporting standards resultingprimarily from their work to improve andachieve convergence of IFRSs and USGAAP should become effective.

With a number of major projectsplanned to be completed in 2011, theboards are seeking views on whether orhow to sequence effective dates in orderto reduce the burden to interestedparties. Feedback from the consultationwill inform the boards as they jointlydevelop an implementation plan for thosenew standards that helps stakeholders tomanage both the pace and cost ofchange. The comment deadline is 31January 2011.

Canadian regulator issues its top 10tips for a first IFRS interim reportWith many Canadian companies about tomove to IFRS, the Ontario SecuritiesCommission has issued a guide formarket participants to highlight the keyrule changes and IFRS requirements thatissuers and advisors need to be aware ofprior to the filing of the first IFRS interimfinancial report.

‘Top 10 Tips for Public CompaniesFiling their First IFRS Interim FinancialReport’ also provides advice on bestpractice in presenting IFRS transitionitems that will assist investors inunderstanding how the change to IFRShas affected the issuer’s financial resultsand other business functions, such asdebt covenants and treasury activities.

SEC and CESR discuss IFRSconvergence issuesThe Securities and Exchange Commission(SEC) and the Committee of EuropeanSecurities Regulators (CESR) met in Parisin November to discuss regulatory reformefforts in the United States and theEuropean Union. As well as sharing viewsregarding market structure issues andsystemic risk, the regulators discussedissues relating to the convergence of IFRSand US GAAP.

With many globally active financialfirms operating in both the United Statesand Europe, the regulators areconsidering how to coordinate theirefforts to improve their effectivenesswhile minimising the likelihood ofregulatory arbitrage and unnecessaryconflicts of laws.

Round-up: Convergence

The table below lists new IFRS Standards and IFRIC Interpretations with an effective date on or after 1 January 2009.Companies are required to make certain disclosures in respect of new Standards and Interpretations under IAS 8 ‘AccountingPolicies, Changes in Accounting Estimates and Errors’.

Effective dates of new standards and IFRIC interpretations

New IFRS Standards and IFRIC Interpretations with an effective date on or after 1 January 2009

Title Full title of Standard or Interpretation Effective for accounting Early adoption permitted?

periods beginning on

or after

IFRS Practice Statement Management Commentary: A framework for presentation No effective date as Not applicable

non-mandatory guidance

IFRS 9 Financial Instruments 1 January 2013 Yes (extensive transitional rules apply)

IAS 12 Deferred Tax: Recovery of Underlying Assets 1 January 2012 Yes

(Amendments to IAS 12)

IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for 1 July 2011 Yes

First-time Adopters (Amendments to IFRS 1)

IFRS 7 Disclosures – Transfers of Financial Assets (Amendments 1 July 2011 Yes

to IFRS 7)

Various Annual Improvements 2010 1 January 2011 unless Yes

otherwise stated (some are

effective from 1 July 2010)

IFRIC 14 Prepayments of a Minimum Funding Requirement 1 January 2011 Yes

– Amendments to IFRIC 14

IAS 24 Related Party Disclosures 1 January 2011 Yes (either of the whole Standard or

of the partial exemption for

government-related entities)

IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures 1 July 2010 Yes

for First-time Adopters (Amendment to IFRS 1)

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 Yes

IAS 32 Classification of Rights Issues (Amendment to IAS 32) 1 February 2010 Yes

IFRS for SMEs International Financial Reporting Standard for Small and Immediately subject to approval N/A

Medium-sized Entities within the individual jurisdiction

Various Annual Improvements 2009 1 January 2010 unless Yes

otherwise stated (some are

effective from 1 July 2009)



New IFRS Standards and IFRIC Interpretations with an effective date on or after 1 January 2009

Title Full title of Standard or Interpretation Effective for accounting Early adoption permitted?

periods beginning on

or after

IFRS 1 Additional Exemptions for First-time Adopters (Amendments 1 January 2010 Yes

to IFRS 1)

IFRS 2 Group Cash-settled Share-based Payment Transactions 1 January 2010 Yes

(Amendments to IFRS 2)

IFRS 1 First-time Adoption of International Financial Reporting 1 July 2009 Yes

Standards (Revised 2008)

IAS 39 Amendment to IAS 39 Financial Instruments: Recognition 1 July 2009 Yes

and Measurement: Eligible Hedged Items

IFRIC 17 Distributions of Non-cash Assets to Owners 1 July 2009 Yes (but must also apply IFRS 3

Revised 2008, IAS 27 Revised 2008

and IFRS 5 (as amended by IFRIC 17))

IFRS 3 Business Combinations (Revised 2008) 1 July 2009 Yes (but only for periods beginning on

or after 30 June 2007, and in

conjunction with IAS 27 Revised 2008)

IAS 27 Consolidated and Separate Financial Statements 1 July 2009 Yes (but must be applied in

(Revised 2008) conjunction with IFRS 3 Revised 2008)

IFRIC 18 Transfers of Assets from Customers Transfers of assets on or Yes provided the valuations and other

after 1 July 2009 information needed to apply the

Interpretation to past transfers were

obtained at the time those transfers

occurred

IAS 32 and IAS 1 Amendments to IAS 32 Financial Instruments: Presentation 1 January 2009 Yes (but must be applied in

and IAS 1 Presentation of Financial Statements: Puttable conjunction with related amendments

Financial Instruments and Obligations Arising on Liquidation to IAS 39, IFRS 7 and IFRIC 2)

IFRS 1 and IAS 27 Amendments to IFRS 1 First-time Adoption of International 1 January 2009 Yes

Financial Reporting Standards and IAS 27 Consolidated and

Separate Financial Statements

IFRS 7 Amendments to IFRS 7 Financial Instruments Disclosures: 1 January 2009 Yes

Improving Disclosures about Financial Instruments

IFRS 2 Amendment to IFRS 2 Share-based Payment: Vesting 1 January 2009 Yes

Conditions and Cancellations

IAS 1 Presentation of Financial Statements 1 January 2009 Yes

IAS 23 Amendments to IAS 23 Borrowing Costs 1 January 2009 Yes

IFRS 8 Operating Segments 1 January 2009 Yes

IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009 Yes

Various Annual Improvements to IFRSs 2008 1 January 2009 (unless Yes

otherwise stated)

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This table lists the documents that theIASB currently has out to comment andthe comment deadline. Grant ThorntonInternational aims to respond to each ofthese publications.

Open for comment

Current IASB documents

Document type Title Comment deadline

Request for Views Effective Dates and Transition Methods 31 January 2011

Exposure Draft Hedge Accounting 9 March 2011

Paper for Public Status of Trustees’ Strategy Review 24 February 2011

Consultation

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