TOMORROW, the Financial Reporting Council will announce the first part of its new code of conduct for corporate governance. It is a welcome step towards ensuring that businesses behave in a responsible way, but more is needed.
It has been striking in recent times that the public and policymakers have blamed business’s failures on ethical lapses. Accounting scandals at Enron and WorldCom, financial crises partly built on questionable financial behaviour and bumper bank bonuses have all been criticised as not just a corporate failures, but moral ones. Bodies like the FRC have a role in encouraging ethical behaviour in business, but other stakeholders do too, not least professional bodies.
But before we look at how they can encourage ethical behaviour, it’s helpful to look at the basics. Ethics in a business context have been defined by Paul Makosz, a former consultant on ethical issues to the World Bank and blue-chip North American corporations, as “principles or norms of behaviour regarded as desirable by the majority of society”. Even if we accept this, it doesn’t help a lot. The second you go any further and actually implement this concept of ethics in real life, everything gets rather complicated.
For a start, we’re immediately confronted with a problem: how do we enforce those ethics? Broadly speaking, there are two approaches to enforcing ethics in business: a rules-based and a principles-based approach.
In a rules-based system, everyone – the regulated, the regulator, and the public – knows exactly what is permitted, and all stakeholders have to do is to follow the rules. Historically-speaking, the rules-based approach has been the most popular. When things have “gone wrong”, the usual response of an authority has been to issue new rules or regulations.
But this system has two problems. Firstly, new rules create new compliance costs for business, which means companies must work harder to increase revenues to cover those costs. Chasing the extra revenue can make companies more willing to bend rules. And that is the second problem: rules can be bent. Rules define what is and isn’t allowed, but there are always plenty of things that are allowed because they aren’t covered by the rules. Worse, “acting within the rules” can allow companies to justify what could otherwise be considered unethical behaviour. Acting within the letter, but not the spirit of the rules can lead to trouble.
BALANCE SHEET
Take, for example, the use of Repo 105 accounting by Lehman Brothers. The investment bank was able to make assets disappear off its balance sheet, simply by picking and choosing which legal jurisdictions it got its legal opinions and accounting standards from. But Lehman never broke the rules. ACCA was one of the first to note that rules-based corporate governance frameworks were an accident waiting to happen. Every bank that failed in the crisis complied with corporate governance requirements.
Anthony Belchambers, chief executive of the Futures and Options Association, argues that “ethics has been replaced by observance of rules. People have outsourced their sense of behavioural responsibility to compliance with external rules”. This is something that the Walker Review noted too, but Walker’s proposed solution is more regulations for banks to comply with.
The alternatives to rules are principles. Importantly, while you can dodge a rule, you can’t dodge a principle. Again, though, there are problems. While rules make sure you know exactly what is and what isn’t allowed, principles leave grey areas. Often, only hindsight clarifies whether something was right or wrong.
Then there’s the fact that principles only work well in a principled environment. In an environment where the prevailing culture is to comply with the letter but not the spirit of the law, and even then only when someone is looking, principles may be a normative aim too far. Besides, according to whose principles should businesses conform?
Expectations of ethical conduct in business must acknowledge that businesses exist to make a profit, and that they have to behave in a way that maximises value for their shareholders. In that case, you could argue that businesses should be allowed to operate in a way that places pure business interest above the public interest. According to Makosz, that would make such behaviour unethical. Social usefulness is paramount. Businesses are a part of society, and cannot be allowed to behave in ways that undermine it.
The International Federation of Accountants (IFAC) certainly takes this view and places the public interest in a position of utmost importance in its code of conduct: “A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest”. Businesses must therefore behave in a way that would be considered ethical by society at large. But this returns us to our earlier conundrum: a rules-based or principles-based approach?
As strong supporters of International Financial Reporting Standards (IFRS), we at ACCA are naturally inclined to support a principles-based approach; principles cannot be avoided, as rules can be.
It is encouraging that the Financial Reporting Council’s proposed UK Corporate Governance Code places an emphasis on principles rather than rules. However, there is still the issue that principles work best in a principled environment. Environments are shaped by those that inhabit them. It is the principles of CEOs, CFOs, and other finance professionals that will decide whether a principled approach works or not.
You can’t force people to be ethical, but you can certainly help them. This is why, in 2007, at ACCA we overhauled our syllabuses to place ethics and professionalism at the heart of our qualification. It is up to us and other accountancy bodies to create principled accountants – the CEOs and CFOs of tomorrow – who will place ethical behaviour and the public interest at the top of their priorities.
Ethics and professionalism are assessed in 11 of the 16 ACCA qualification syllabuses. We have an online ethics module – the first of its kind – which takes students and members through various ethical dilemmas to raise their awareness of ethical values, and aims to make it easier for our students and members to exercise good judgement in the future.
Any ACCA affiliate wanting to become an ACCA member must have completed this module. We are committed to training not just people that are good accountants, but accountants who are good people. With principled accountants, a principles-based approach to the enforcement of ethical behaviour can work.
Paul Moxey is head of corporate governance and risk management at ACCA, the Association of Chartered Certified Accountants
Friday, May 28, 2010
Mining Industry in Next Phase of the Boom, Although Short-Term Volatility Remains, Finds New Report from PricewaterhouseCoopers
mmodity prices in the second half as the global economic recovery began to take hold."
"It was a recovering year for commodity prices and global mining giants had to contend with improving their financial strength and operating results – all while managing around a very challenging economic environment that spanned the globe," Ralbovsky continued. "For success moving forward, it is essential that lessons from the past be learned so that the industry can identify potential uncertainties and respond accordingly, allowing the industry to fully extract the benefits of being back to the boom."
The report notes that although the total number of mining deals increased 16 percent from the prior year, activity was largely focused on smaller scale deals of less than $250 million, with average deal values of $52 million, down nearly $72 million from 2008. And while some companies had the resources to execute potential transactions, opportunity gave way to caution and no major deals were consummated.
"With no significant transactions completed during the year, we believe that some companies that had the financial resources available may have potentially missed opportunities to acquire assets," added Ralbovsky. "Although the window was small, it was open. As a result, Chinese investment was at the forefront of transactions and made up 22 percent of all global mining M&A activity and 30 percent of the Top 10 deals by value."
Indications of the Next Phase of the Boom
Despite approximately $200 billion of capital expenditure over the past three years, production remained flat across most commodities. Exploration spending by the top 40 declined significantly, given its discretionary nature. As reserve replacement becomes more challenging, the lack of spend on exploration poses the question of when and where the next world-class mines will be found. Add to that the strong fundamentals on the demand side over the medium and long-term, largely attributed to continued growth from China and other developing nations, and the industry may be in the next phase of the boom, the report found.
What's on the minds of industry CEOs?
While views may differ, almost without exception the number one agenda item is the global economy. Fundamental to success will be the ability to understand the lead demand indicators, particularly obtaining a good read on China and other developing nations. Today's CEO is more focused on other macroeconomic factors, such as foreign exchange rates, the cost of energy and the impact potentially unsustainable government budget deficits will have on interest rates, tax regimes, and the global economy. However, operating cost remains a key value differentiator.
Commodity Prices
Metal prices continued on a downward trend for the first six months of 2009, but recovered sharply along with most commodities in the second half. The upward trend in commodity prices continued into 2010 in many cases. The turnaround in copper prices has been most notable with the 2009 year-end spot price reaching $7,342 per ton. In both iron ore and metallurgical coal markets there has been a recent trend towards short-term contracts, driven by the big miners. Gold, on the back of 7 percent production increases and a 12 percent increase in average price, saw its share of total industry revenue increase from 10 percent to 14 percent in 2009.
After a hiatus, the future is looking bright again for the industry. Although significant short-term volatility remains – the long-term demand fundamentals will drive this cycle.
For a copy of the "Mine-Back to the Boom" report, visit www.pwc.com/mining.
About "Mine-Back to the Boom"
PwC analyzed 40 of the largest listed mining companies by market capitalization. The analysis includes major companies in all parts of the world whose primary business is mining.
The results aggregated in this report have been sourced from the latest publicly available information, primarily annual reports and financial reports available to shareholders. Where 2009 information was unavailable at the time of data collation, these companies have been excluded. Companies have different year-ends and report under different accounting regimes, including International Financial Reporting Standards (IFRS), US Generally Accepted Accounting Principles (US GAAP), Canadian GAAP, and others.
Information has been aggregated for the financial years of individual companies and no adjustments have been made to take into account different reporting requirements and year-ends. As such, the financial information shown for 2009 covers reporting periods from April 1, 2008 to December 31, 2009, with each company's results included for the 12-month financial reporting period that falls into this timeframe
"It was a recovering year for commodity prices and global mining giants had to contend with improving their financial strength and operating results – all while managing around a very challenging economic environment that spanned the globe," Ralbovsky continued. "For success moving forward, it is essential that lessons from the past be learned so that the industry can identify potential uncertainties and respond accordingly, allowing the industry to fully extract the benefits of being back to the boom."
The report notes that although the total number of mining deals increased 16 percent from the prior year, activity was largely focused on smaller scale deals of less than $250 million, with average deal values of $52 million, down nearly $72 million from 2008. And while some companies had the resources to execute potential transactions, opportunity gave way to caution and no major deals were consummated.
"With no significant transactions completed during the year, we believe that some companies that had the financial resources available may have potentially missed opportunities to acquire assets," added Ralbovsky. "Although the window was small, it was open. As a result, Chinese investment was at the forefront of transactions and made up 22 percent of all global mining M&A activity and 30 percent of the Top 10 deals by value."
Indications of the Next Phase of the Boom
Despite approximately $200 billion of capital expenditure over the past three years, production remained flat across most commodities. Exploration spending by the top 40 declined significantly, given its discretionary nature. As reserve replacement becomes more challenging, the lack of spend on exploration poses the question of when and where the next world-class mines will be found. Add to that the strong fundamentals on the demand side over the medium and long-term, largely attributed to continued growth from China and other developing nations, and the industry may be in the next phase of the boom, the report found.
What's on the minds of industry CEOs?
While views may differ, almost without exception the number one agenda item is the global economy. Fundamental to success will be the ability to understand the lead demand indicators, particularly obtaining a good read on China and other developing nations. Today's CEO is more focused on other macroeconomic factors, such as foreign exchange rates, the cost of energy and the impact potentially unsustainable government budget deficits will have on interest rates, tax regimes, and the global economy. However, operating cost remains a key value differentiator.
Commodity Prices
Metal prices continued on a downward trend for the first six months of 2009, but recovered sharply along with most commodities in the second half. The upward trend in commodity prices continued into 2010 in many cases. The turnaround in copper prices has been most notable with the 2009 year-end spot price reaching $7,342 per ton. In both iron ore and metallurgical coal markets there has been a recent trend towards short-term contracts, driven by the big miners. Gold, on the back of 7 percent production increases and a 12 percent increase in average price, saw its share of total industry revenue increase from 10 percent to 14 percent in 2009.
After a hiatus, the future is looking bright again for the industry. Although significant short-term volatility remains – the long-term demand fundamentals will drive this cycle.
For a copy of the "Mine-Back to the Boom" report, visit www.pwc.com/mining.
About "Mine-Back to the Boom"
PwC analyzed 40 of the largest listed mining companies by market capitalization. The analysis includes major companies in all parts of the world whose primary business is mining.
The results aggregated in this report have been sourced from the latest publicly available information, primarily annual reports and financial reports available to shareholders. Where 2009 information was unavailable at the time of data collation, these companies have been excluded. Companies have different year-ends and report under different accounting regimes, including International Financial Reporting Standards (IFRS), US Generally Accepted Accounting Principles (US GAAP), Canadian GAAP, and others.
Information has been aggregated for the financial years of individual companies and no adjustments have been made to take into account different reporting requirements and year-ends. As such, the financial information shown for 2009 covers reporting periods from April 1, 2008 to December 31, 2009, with each company's results included for the 12-month financial reporting period that falls into this timeframe
FASB releases fair value proposal
The US accounting standard setter has released it’s fair value standard, which strives to simplify rules surrounding financial instruments, but jars with international accounting rules, used by it’s neighbouring economies.
The Financial Accounting Standards Board (FASB) waited until US markets closed to release its long awaited reforms to financial instrument accounting, which will expand the use of fair value in a bid to increase transparency.
AdvertisementThe fair value principle forces financial institutions, to measure the value of their assets at market prices, rather than their original purchase price. The provides greater transparency for investors, but has been criticised by regulators, as increasing volatility.
The issue made headlines as the crisis took hold towards the end of 2008, as asset prices plummeted in illiquid markerts.
Under FASB’s proposal, most financial instruments would be measured at fair value in financial statements, but amortised cost would also be disclosed in some instances.
The rule, however, differs, to the International Accounting Standards Board’s (IASB) mixed-measurement model, which allows some assets to be valued at amortised cost.
The issue represents a challenge as both board move towards a June 2011 deadline to converge their accounting codes.
FASB said it would have ideally preferred to issue the proposal jointly with the IASB.
“However, each Board has faced different imperatives that have resulted in different approaches for accounting for certain types of financial instruments, resulting in different timetables for the project,” FASB said in its exposure draft.
“FASB’s main objective is to develop accounting standards that represent an improvement to U.S. financial reporting. What may be considered an improvement in jurisdictions with less developed financial reporting systems applying International Financial Reporting Standards (IFRS) may not be considered an improvement in the United States.”
The standard comes days after Sir David Tweedie, IASB chairman, told a San Diego audience both the FASB and IASB models could be reconciled.
“Say we both stick to our same positions [on classification and measurement], maybe we need to put out something that would say ‘if you want to get the same other comprehensive income as FASB, you have to add this on, which would be the fair value’” he said.
“FASB would do the opposite. If you want to get the FRS number, you deduct this. There are ways to do it.”
The Financial Accounting Standards Board (FASB) waited until US markets closed to release its long awaited reforms to financial instrument accounting, which will expand the use of fair value in a bid to increase transparency.
AdvertisementThe fair value principle forces financial institutions, to measure the value of their assets at market prices, rather than their original purchase price. The provides greater transparency for investors, but has been criticised by regulators, as increasing volatility.
The issue made headlines as the crisis took hold towards the end of 2008, as asset prices plummeted in illiquid markerts.
Under FASB’s proposal, most financial instruments would be measured at fair value in financial statements, but amortised cost would also be disclosed in some instances.
The rule, however, differs, to the International Accounting Standards Board’s (IASB) mixed-measurement model, which allows some assets to be valued at amortised cost.
The issue represents a challenge as both board move towards a June 2011 deadline to converge their accounting codes.
FASB said it would have ideally preferred to issue the proposal jointly with the IASB.
“However, each Board has faced different imperatives that have resulted in different approaches for accounting for certain types of financial instruments, resulting in different timetables for the project,” FASB said in its exposure draft.
“FASB’s main objective is to develop accounting standards that represent an improvement to U.S. financial reporting. What may be considered an improvement in jurisdictions with less developed financial reporting systems applying International Financial Reporting Standards (IFRS) may not be considered an improvement in the United States.”
The standard comes days after Sir David Tweedie, IASB chairman, told a San Diego audience both the FASB and IASB models could be reconciled.
“Say we both stick to our same positions [on classification and measurement], maybe we need to put out something that would say ‘if you want to get the same other comprehensive income as FASB, you have to add this on, which would be the fair value’” he said.
“FASB would do the opposite. If you want to get the FRS number, you deduct this. There are ways to do it.”
Thursday, May 27, 2010
How starter kits meet IFRS - IAS 31
IAS 31 applies in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors. This blog focuses on how joint-ventures should be included in the consolidated statements.
Proportionate consolidation or equity method
Principles
Joint-ventures (entities that are jointly controlled by the parent and other venturers) are included in the consolidated statements using either proportionate consolidation or the equity method. For more details about the equity method, please refer to the blog dedicated to IAS 28.
As regards proportionate consolidation, the venturer may combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements (option 1). Alternatively, the venturer may include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements (option 2).
In the starter kit
In the starter kit, both methods (proportionate consolidation and equity method) are available. As regards proportionate consolidation, the group's share of each item of assets, liabilities, income and expenses is included line by line in the financial statements (option 1 above).
Internal transactions
Principles
IAS 31's requirements are as follows: "when a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognize only that portion of the gain or loss that is attributable to the interests of the other venturers. When a venturer purchases assets from a joint venture, the venturer shall not recognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party".
IAS 31 is silent when it comes to operations between joint-ventures or between subsidiaries and joint-ventures.
In the starter kit
Automatic rules described in blog # 5 (IAS 27) for subsidiaries apply to joint-ventures. Elimination is weighted with the joint-venture's consolidation rate or with the lowest consolidation rate when transactions take place between joint-ventures.
Changes in investor's ownership interest
Loss of joint control
Principles described in IAS 27 for loss of control over a subsidiary apply when a parent loses joint control over a joint-venture. When the remaining interest, if any, gives significant influence, same principles apply as for a subsidiary becoming an associate (see blog # 6 - loss of control).
Increase / decrease in interest rate
Principles
If a parent increases its interest in a joint-venture without achieving control (which means that the acquiree remains a joint-venture afterwards), IFRSs do not specify how to deal with this operation in the consolidated financial statements.
As regards a decrease in interest rate, IAS 31 states that "if an investor's ownership interest in a jointly controlled entity is reduced, but the investment continues to be a jointly controlled entity, the investor shall reclassify to profit and loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income". It is inferred that a gain or loss should be recognized in the income statement on a partial disposal of a joint-venture.
In the starter-kit
The new interest rate and the new integration rate in the joint-venture (which changes as a consequence) are taken into account with the impact of change posted on flow F04. Additional manual entries are left up to the user (same as for associates, see blog #8).
What's next?
In the next blog, we will focus on IFRS 3 "Business combinations".
Proportionate consolidation or equity method
Principles
Joint-ventures (entities that are jointly controlled by the parent and other venturers) are included in the consolidated statements using either proportionate consolidation or the equity method. For more details about the equity method, please refer to the blog dedicated to IAS 28.
As regards proportionate consolidation, the venturer may combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements (option 1). Alternatively, the venturer may include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements (option 2).
In the starter kit
In the starter kit, both methods (proportionate consolidation and equity method) are available. As regards proportionate consolidation, the group's share of each item of assets, liabilities, income and expenses is included line by line in the financial statements (option 1 above).
Internal transactions
Principles
IAS 31's requirements are as follows: "when a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognize only that portion of the gain or loss that is attributable to the interests of the other venturers. When a venturer purchases assets from a joint venture, the venturer shall not recognize its share of the profits of the joint venture from the transaction until it resells the assets to an independent party".
IAS 31 is silent when it comes to operations between joint-ventures or between subsidiaries and joint-ventures.
In the starter kit
Automatic rules described in blog # 5 (IAS 27) for subsidiaries apply to joint-ventures. Elimination is weighted with the joint-venture's consolidation rate or with the lowest consolidation rate when transactions take place between joint-ventures.
Changes in investor's ownership interest
Loss of joint control
Principles described in IAS 27 for loss of control over a subsidiary apply when a parent loses joint control over a joint-venture. When the remaining interest, if any, gives significant influence, same principles apply as for a subsidiary becoming an associate (see blog # 6 - loss of control).
Increase / decrease in interest rate
Principles
If a parent increases its interest in a joint-venture without achieving control (which means that the acquiree remains a joint-venture afterwards), IFRSs do not specify how to deal with this operation in the consolidated financial statements.
As regards a decrease in interest rate, IAS 31 states that "if an investor's ownership interest in a jointly controlled entity is reduced, but the investment continues to be a jointly controlled entity, the investor shall reclassify to profit and loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income". It is inferred that a gain or loss should be recognized in the income statement on a partial disposal of a joint-venture.
In the starter-kit
The new interest rate and the new integration rate in the joint-venture (which changes as a consequence) are taken into account with the impact of change posted on flow F04. Additional manual entries are left up to the user (same as for associates, see blog #8).
What's next?
In the next blog, we will focus on IFRS 3 "Business combinations".
IASB Chairman Outlines Approach for Reconciling IASB and FASB
International Accounting Standards Board Chairman Sir David Tweedie on Tuesday outlined a possible approach for reconciling the divergent IASB and FASB models for financial instruments accounting. With FASB’s comprehensive exposure draft on financial instruments expected any day, Tweedie said during a JofA exclusive interview at the AICPA Council meeting in San Diego that public comments on the boards’ proposals will play a key role in getting their two approaches closer together.
Speaking later to the AICPA Governing Council, Tweedie thanked the AICPA for its longstanding support of the IASB even before international standards were popular. To understand Tweedie’s approach to fixing the financial instruments problem requires some background on where the standards setters diverged. As a result of the subprime mortgage collapse, accounting for loans and securities derived from loans was widely criticized. When the financial crisis started in 2008, this project was already on the active agendas of both standard setters, but the crisis put enormous political pressure on the IASB and FASB to improve their standards as soon as possible.
In a move that was not followed by FASB, the IASB split its project to replace IAS 39, Financial Instruments: Recognition and Measurement, into three parts to deal separately with classification and measurement; impairment; and hedging. FASB decided to deal with all three aspects of financial instruments in a single project and plans to issue its comprehensive exposure draft by the end of this month. Despite intense joint deliberations, FASB and the IASB were unable to agree on a common approach for classification and measurement. The IASB published its approach on Nov. 12, 2009, with the release of IFRS 9, Financial Instruments. IFRS 9 may be adopted early but is not effective until Jan. 1, 2013.
Under what is expected to be the proposed FASB model:
* Most instruments would be measured on the statement of financial position at fair value with changes in fair value reflected in net income, or net income and other comprehensive income;
* A limited amortized cost option would be available for financial liabilities; and
* No reclassification would be permitted between categories.
Under the IASB model (IFRS 9):
* The scope of the standard is limited to assets only;
* Amortized cost is used when it matches the entity’s business model and cash flow characteristics of the asset;
* Fair value is used for equity instruments, most derivatives and some hybrid instruments; and
* Bifurcation of embedded derivatives is not permitted.
To read the complete coverage please visit http://www.journalofaccountancy.com/Web/20102960.htm
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
Speaking later to the AICPA Governing Council, Tweedie thanked the AICPA for its longstanding support of the IASB even before international standards were popular. To understand Tweedie’s approach to fixing the financial instruments problem requires some background on where the standards setters diverged. As a result of the subprime mortgage collapse, accounting for loans and securities derived from loans was widely criticized. When the financial crisis started in 2008, this project was already on the active agendas of both standard setters, but the crisis put enormous political pressure on the IASB and FASB to improve their standards as soon as possible.
In a move that was not followed by FASB, the IASB split its project to replace IAS 39, Financial Instruments: Recognition and Measurement, into three parts to deal separately with classification and measurement; impairment; and hedging. FASB decided to deal with all three aspects of financial instruments in a single project and plans to issue its comprehensive exposure draft by the end of this month. Despite intense joint deliberations, FASB and the IASB were unable to agree on a common approach for classification and measurement. The IASB published its approach on Nov. 12, 2009, with the release of IFRS 9, Financial Instruments. IFRS 9 may be adopted early but is not effective until Jan. 1, 2013.
Under what is expected to be the proposed FASB model:
* Most instruments would be measured on the statement of financial position at fair value with changes in fair value reflected in net income, or net income and other comprehensive income;
* A limited amortized cost option would be available for financial liabilities; and
* No reclassification would be permitted between categories.
Under the IASB model (IFRS 9):
* The scope of the standard is limited to assets only;
* Amortized cost is used when it matches the entity’s business model and cash flow characteristics of the asset;
* Fair value is used for equity instruments, most derivatives and some hybrid instruments; and
* Bifurcation of embedded derivatives is not permitted.
To read the complete coverage please visit http://www.journalofaccountancy.com/Web/20102960.htm
Sponsor: Cambridge Consulting Group provides cost containment and risk management services to CFOs at major Fortune 500 Companies. With experience in Corporate Finance and Commercial Real Estate, Cambridge provides specific programs that reduce real estate and operational expenses. For more information please visit their website at www.ccgiweb.com
IASB - User questionnaire for Fair Value Option
The International Accounting Standards Board (IASB) has produced a questionnaire for financial statement users on its May 2010 exposure draft “Fair Value Option for Financial Liabilities.” This questionnaire is targeted at analysts and forms part of a comprehensive program of outreach activities to IFRS constituents. Comments are requested from all parties, including users of financial statements, by July 16, 2010. (Read the IASB Web announcement and submit a response to the Exposure Draft User Questionnaire.)
The future of UK GAAP: ACCA costs the change
ACCA (the Association of Chartered Certified Accountants) today publishes the first detailed comparison to date of the differences between UK Generally Accepted Accounting Standards (UK GAAP) and the International Financial Reporting Standard for Small and Medium-sized Enterprises (IFRS for SMEs).
ACCA’s new report, entitled The new UK GAAP: how would the numbers look? explores the potential impact on reported profits of companies who currently use UK GAAP and will be affected by proposals issued by the UK Accounting Standards Board (ASB) in 2009. The report can be found at this link: http://www.accaglobal.com/pubs/general/activities/library/financial_reporting/other/tech-afb-nug.pdf
These proposals will result in UK GAAP evolving to reflect the IFRS for SMEs as published by the International Accounting Standards Board (IASB). ACCA’s report focuses on those differences between the two standards which could make reported profits larger or smaller, and the extent to which this would alter the tax payable.
“The intention is that the IFRS for SMEs should replace the current UK accounting standards perhaps from 2012,’” says Richard Martin, ACCA head of financial reporting and the report’s author.
“This report identifies over 50 potential differences between current UK accounting and the international standard. In each case, we have tried to identify whether this might mean that profits would be larger or smaller and if this means paying more or less tax on them.
“Any individual company will not be affected by all of the differences, but we recommend that accountants check to see whether they or their clients might be impacted.”
ACCA’s new report, entitled The new UK GAAP: how would the numbers look? explores the potential impact on reported profits of companies who currently use UK GAAP and will be affected by proposals issued by the UK Accounting Standards Board (ASB) in 2009. The report can be found at this link: http://www.accaglobal.com/pubs/general/activities/library/financial_reporting/other/tech-afb-nug.pdf
These proposals will result in UK GAAP evolving to reflect the IFRS for SMEs as published by the International Accounting Standards Board (IASB). ACCA’s report focuses on those differences between the two standards which could make reported profits larger or smaller, and the extent to which this would alter the tax payable.
“The intention is that the IFRS for SMEs should replace the current UK accounting standards perhaps from 2012,’” says Richard Martin, ACCA head of financial reporting and the report’s author.
“This report identifies over 50 potential differences between current UK accounting and the international standard. In each case, we have tried to identify whether this might mean that profits would be larger or smaller and if this means paying more or less tax on them.
“Any individual company will not be affected by all of the differences, but we recommend that accountants check to see whether they or their clients might be impacted.”
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