The Law, et al

Financial services legal news and updates from around the globe.

Information on the latest in regulation, legislation, and related current events for financial services auditors.

IASB Proposes New IFRS Guidance

Two exposure drafts amend standards regarding first-time adopters and discontinued operations.

The International Accounting Standards Board (IASB) has released two exposure drafts to revise International Financial Reporting Standards (IFRS). In Additional Exemptions for First-time Adopters, the IASB proposes to amend IFRS 1, First-time Adoption of International Financial Reporting Standards, to address the retrospective application of IFRS in selected areas to ensure that organizations applying the standards don't face undue cost or effort during the transition. The revised IFRS 1 would:

Exempt companies that use full-cost accounting under previous generally accepted accounting principles from retrospective application of IFRS for oil and gas assets and for operations subject to rate regulation. Instead, such companies would measure those assets at the date of transition to IFRS.
Exempt companies with leasing contracts from reassessing the classification of those contracts according to IFRS if they are accounted for in accordance with International Financial Reporting Interpretations Committee (IFRIC) 4, Determining Whether an Arrangement Contains a Lease.

The second IASB exposure draft, Discontinued Assets, proposes amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. Specifically, the proposals revise the definition of discontinued operations to a component of an entity that is:

An operating segment that has been discontinued or is classified as held for sale.
A business that meets the criteria to be classified as held for sale on acquisition.

In addition, the IASB proposes that organizations be required to provide additional disclosure on such discontinued operations, including the post-tax profit or loss and the post-tax gain or loss recognized on the measurement to fair value less costs to sell or dispose of the assets.

The IASB's Discontinued Assets exposure draft is part of a joint venture with its U.S. counterpart, the Financial Accounting Standards Board (FASB). The FASB issued its own staff position for public comment, FAS 144-d, Amending the Criteria for Reporting a Discontinued Operation.

Comments to the IASB and FASB on these three exposure drafts are due by Jan. 23, 2009.

FASB Issues Exposure Drafts

Three drafts provide guidance and propose amendments to FASB Statement No. 140 and Interpretation No. 46.

The Financial Accounting Standards Board (FASB) issued three exposure drafts related to transfers of financial assets by public entities. The drafts address amendments to FASB Statement of Financial Accounting Standard No. 140 and Interpretation No. 46, which was revised in 2003.

Accounting for Transfers of Financial Assets seeks feedback on proposed amendments to Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The amendments are intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about transfers of financial assets. Comments are due to the FASB by Nov. 14.

Amendments to FASB Interpretation No. 46 (R) seeks input on proposed guidance for determining whether an enterprise must consolidate a special-purpose entity. It would require ongoing assessments to determine whether an entity is a variable interest entity and whether an enterprise is the primary beneficiary of such an entity. Comments are due by Nov. 14.

The proposed FASB Staff Position FAS 140-e and FIN 46 (R)-e, Disclosures About Transfers of Financial Assets and Interests in Variable Interest Entities, is intended to improve disclosures by public entities and enterprises. It amends Statement No. 140 to require public entities to provide additional disclosures about financial asset transfers. It also amends Interpretation No. 46 (R) to require public enterprises to provide additional disclosures about their involvement with variable interest entities. Comments are due by Oct. 15.

The FASB statements would take effect at the beginning of each reporting entity's first fiscal year that begins after Nov. 15, 2009. The proposed staff position would take effect in the first reporting period that ends after the final version is issued - the final staff position is expected to be issued in the fourth quarter of this year. The documents are available from the FASB's Web site.

IPSASB Seeks Comments on Revisions to Borrowing Cost Accounting Standard

Standard-setting board's exposure draft examines how borrowing costs affect the public sector.

The International Public Sector Accounting Standards Board (IPSASB) has released for comment Exposure Draft (ED) 35, Borrowing Costs (Revised 200X), which contains proposed changes to International Public Sector Accounting Standard (IPSAS) 5, Borrowing Costs. ED 35 is part of a project to update IPSASs to converge with related International Financial Reporting Standards where appropriate for the public sector. The IPSASB is an independent standard-setting board within the International Federation of Accountants (IFAC).

As part of the project, the IPSASB reviewed the International Accounting Standards Board's amendments to International Accounting Standard (IAS) 23, Borrowing Costs, which requires organizations to capitalize directly attributable borrowing costs to the acquisition, construction, or production of a qualifying asset. In considering the applicability of the principles established in IAS 23 to the public sector, the IPSASB was mindful that qualifying assets in the public sector would not ordinarily be anticipated or intended to generate positive cash inflows, and that public sector organizations frequently borrow for public policy purposes. At a national level and some lower levels of government, borrowings are often not attributable to a particular asset acquisition or capital project. For these reasons, the IPSASB decided that borrowing costs in the public sector should be recognized immediately as an expense, except in certain specific circumstances.

Other proposed changes include:

Replacing IPSAS 5's objective section with a core principle section.
Including a scope exclusion regarding borrowing costs directly attributable to acquisition, construction, or production of a qualifying asset measure at fair value at initial recognition.
Removing unnecessary definitions (e.g., accrual basis, assets, and cash).

Moreover, the exposure draft includes a transitional provision that an organization shall apply the standard to borrowing costs relating to qualifying areas for which the commencement date for capitalization is on or after the effective date. Also, an organization may designate any date for the effective date and apply the standard to borrowing costs relating to all qualifying assets for which the commencement date for capitalization is on or after that date.

ED 35 may be downloaded from IFAC's Web site. Comments are requested by Jan. 7, 2009.

SEC Draws IFRS Roadmap

Proposed plan provides directions for U.S.-listed companies to convert to International Financial Reporting Standards.

The U.S. Securities and Exchange Commission (SEC) has voted to publish a roadmap outlining the conditions under which U.S. publicly listed companies would begin using International Financial Reporting Standards (IFRS). The plan could lead to a switch from U.S. Generally Accepted Accounting Principles (GAAP) to IFRS beginning in 2014. The SEC will vote on implementing the proposed roadmap after a public comment period that ends 60 days after the plan is published in the Federal Register.

Under the plan, the largest U.S.-listed companies would have the option of filing financial statements based on IFRS beginning in 2010. Early adopters would have to either provide an audited reconciliation from IFRS to U.S. GAAP for IFRS-based 10-K statements filed over a three-year period or follow the procedures specified in IFRS 1, the International Accounting Standards Board's (IASB's) standard for first-time adopters. The switch to IFRS would become mandatory over a three-year period:

2014: Large companies that haven't already adopted IFRS.
2015: Medium-sized companies.
2016: Small companies.

Before that can happen, though, the SEC's roadmap stipulates conditions that must be met for the plan to go forward and gives the commission the right to vote to scrap the plan if they aren't met by 2011. The conditions include:

Increasing convergence between IFRS and U.S. GAAP.
Monitoring the independence of the IASB and International Accounting Standards Committee Foundation.
Establishing extensible business reporting language data tags for IFRS.
Observing the conversion issues and costs experienced by early adopters.
Educating U.S. accountants on IFRS.