29 Jun

IASB consults on the accounting for financial instruments with characteristics of equity

The International Accounting Standards Board (Board) today has published for public comment a Discussion Paper on how companies issuing financial instruments should classify them in their financial statements.

IAS 32 Financial Instruments: Presentation currently sets out how a company that issues financial instruments should distinguish financial liabilities from equity instruments. That distinction is important because the classification of the instruments affects how a company’s financial position and performance are depicted.

IAS 32 works well for most financial instruments. However, continuing financial innovation means that some companies find it challenging to classify some complex financial instruments that combine some features of both debt—liabilities—and ordinary shares—equity instruments.

Challenges in classifying these instruments can result in diverse accounting in practice, which in turn makes it difficult for investors to assess and compare companies’ financial position and performance. In addition, investors have been calling for better information, particularly about equity instruments.

The Board has responded to feedback from investors and others and has considered previous work on the topic to propose an approach that would:

  • provide a clear rationale for why a financial instrument would be classified as either a liability or equity without fundamentally changing the existing classification outcomes of IAS 32; and
  • enhance the information provided through presentation and disclosure.

This approach would provide investors with richer and more comparable information about financial instruments issued by companies. Clearer principles will help companies accounting for financial instruments they issue both now and as financial instruments continue to evolve.

Hans Hoogervorst, Chair of the International Accounting Standards Board, said:

“Our approach aims to meet the needs of both investors and companies by providing investors with better information and companies that issue financial instruments with clearer guidance on how to account for those instruments.”

The Board is now calling for feedback on this proposed approach to help it further develop a solution.

The discussion Paper Financial Instruments with Characteristics of Equity can be accessed here. It is open for comments until 7 January 2019. A Snapshot, providing a top line summary of the document, can be found here.

25 Jun

IFRS Foundation consults on narrow-scope changes to its Constitution

The Trustees of the IFRS Foundation, responsible for the oversight and governance of the IASB, have proposed changes to the IFRS Foundation’s Constitution to increase the maximum tenure of the Trustee Chair and Vice-Chairs.

The proposed amendments are to increase the maximum tenure of the Trustee Chair from six to nine years―three three-year terms―including any previous period that they may have served as a Trustee. There is also an amendment to provide the option to appoint the Chair either from among the Trustees, or externally.

The proposals also make it clear that the Vice-Chairs will be appointed from among the Trustees, and may serve a maximum period of nine years, which includes time served as a Trustee.

Reappointments

The changes would provide flexibility in safeguarding the Foundation’s stability through the continuity of its leadership, whilst ensuring there is appropriate diversity and independence among the Trustees. The changes would also clarify the requirements for Trustee reappointment.

The proposed amendments are set out in the Exposure Draft Amending the Terms of Appointment for the IFRS Foundation Trustee Chair and Vice-Chairs and published for public consultation. The comment deadline is 17 September 2018.

View the Exposure Draft.

09 Nov

BDO Indonesia takes over PKF

BDO Indonesia is pleased to announce a merger with one of country’s PKF offices, in the city of Tangerang – the largest city in Banten province and the third largest urban centre in the greater Jakarta region.

This consolidation adds 6 CPA partners, 2 CPA directors, 2 advisory directors, 2 tax directors and 110 professional staff with credentials in several listed companies, foreign direct investment, banking, insurance, property, airlines, jewellery manufacturing and other specific industries.  It includes an established Korean business desk to better serve BDO’s Korean clients and companies operating in Indonesia.

Michell Suharli, head of the Banten office, explains:

The team and I have observed the recent transformation of BDO in Indonesia and welcome the opportunity to be part of the firm’s future success. We are uniquely placed in Banten as the largest group of public accountants servicing one of the fastest-growing industrial corridors in Indonesia. Having a BDO office in this industrial area will significantly help to drive the firm’s growth to meet its ambition.

Welcoming Michell and his partners and staff to BDO, Stephen Darley, CEO Asia Pacific, notes that the new BDO Banten office was until recently part of the PKF member firm in Indonesia, adding that – 

This is particularly welcome, given the established Korean desk and, with a relatively new and vibrant Korean member firm in Seoul, I am confident of continued growth in winning more international business in this corridor.

Stephen also makes the point that BDO Indonesia has posted a 34% growth in its audit business over the last year, the highest growth rate amongst even the top 10 firms in our network and firmly reinforcing its number 5 position in Indonesia. This is importantly significant as Indonesia is projected to be amongst the top 5 GDP countries by 2030.

Thano Tanubrata, deputy CEO of BDO Indonesia, adds:

In addition to this expansion in West Java, we will soon open new offices in both Surabaya and Makassar, two of the more significant business centres in East Indonesia, in a further effort to grow our reach and services across the nation. At present BDO Indonesia has 45 partners and more than 700 professional staff, all committed to our vision to be the leader for exceptional client service in Indonesia.
04 Sep

ICAEW publishes IFRS 9 briefing

ICAEW has published a briefing on the new accounting standard, IFRS 9, which is to be implemented on 1 January 2018. The new rules will mean banks must show their expected losses earlier than in the past.

Zsuzsanna Schiff, Manager, Auditing and Reporting, said:

One of the major outcomes of the financial crisis was a fundamental review of how banks account for loan losses. The model used prior to the crisis was heavily criticised for providing ‘too little too late’, and ultimately allowing a credit bubble to develop and an over-optimistic assessment of bank’s reported profits.
IFRS 9 is a more forward-looking approach. It will mean banks will be forced to estimate credit losses from the date the loan is taken out, and over the course of its lifetime. However, this model is complex and means that banks must look into the future and estimate the impact of possible economic events – and it is just that, an estimate.
The element of forecasting could potentially lead to unpredictable results, as estimates are highly subjective. This will also make comparisons between banks difficult, which analysts may find problematic. Providing enough information on year-on-year changes, assumptions and projections will be vital to allow users to compare banks

The application of IFRS 9 will substantially increase the amount banks set aside for bad loans, and will also make their results more unpredictable as economic predictions are made. The key challenges banks will face include difficulties predicting the future, complexities of calculations, and defining ‘significant’ changes in credit risk.

The full briefing can be found here: http://www.icaew.com/en/technical/financial-services/inspiring-confidence-in-financial-services

17 Jul

FSB publishes statement on IFRS 17

The FSB has published a statement welcoming the new insurance contracts Standard, IFRS 17, which was issued by the IASB) in May 2017.

The FSB identified the completion of IFRS 17 as a high priority at its September 2015 Plenary meeting. Now, the FSB has published a statement welcoming the issuance of the Standard, stressing the importance of insurers starting the process to implement the Standard as soon as possible and highlighting the significance of proper application.

Insurers have until 2021 to implement the new Standard, which requires all insurance contracts to be accounted for in a consistent manner. IFRS 17 will help investors and others better understand insurers’ risk exposure, profitability and financial position.

Hans Hoogervorst, Chairman of the Board, said:

IFRS 17 will provide important insight into insurance companies’ risk exposure and performance, which—in turn—will contribute to financial stability. It is therefore an important contribution to the FSB’s mission of strengthening the stability in the financial sector

The Board is a member of the FSB, and IFRS Standards are among the Key Standards for Sound Financial Systems defined by the FSB.

FSB’s statement can be found here.

Further information about IFRS 17 Insurance Contracts can be found here. The IFRS Foundation also has a dedicated web section to support those implementing the Standard. It can be found here.

06 Jul

Valuation of Financial Instruments

The AICPA is seeking comments from financial professionals and organisations on the valuation of financial instruments and their underlying components. The Framework is said to bring further clarity, consistency and transparency to the valuation of these instruments.

Historically, financial instruments, such as mortgage-backed securities, credit default swaps, complex bonds and other derivatives, have been difficult to value, which has the potential to adversely impact markets and the global economy.

The new Framework defines the level of documentation necessary for a professional working with securities and financial instruments to effectively demonstrate the valuation performed. The guidance provided by the Framework relies upon three major principals: independence, objectivity and consistency. This guidance will inform the basis for a new credential from the American Institute of CPAs, Certified in Valuation of Financial Instruments (CVFI), expected to launch later this year.

The Disclosure Framework for the Valuation of Financial Instruments and the Certified in Valuation of Financial Instruments (“CVFI”) Credential, provides guidance on how to explain the characteristics of financial instruments and disclose how these securities have been valued in a way that is understandable, consistent and transparent. The Framework establishes parameters of documentation requirements, sets definitions of terms that may be unique to the Framework, and includes a list of accounting, audit and valuation standards and references to technical literature directly applicable to the guidance in the Framework.

The comment period for this Framework is open through September 27, 2017. Comments within this time period will be reviewed and applied to the disclosure framework by the AICPA Disclosure Framework Work stream and the AICPA Financial Instruments Task Force, both of which are comprised of financial professionals, academics, and financial policy experts.

Jeannette Koger, CPA, CGMA vice president of advisory services and credentialing, AICPA:

Financial instruments have become increasingly complex and determining their value has been a challenge that has adversely affected the market in the past. With this Framework, the AICPA is responding to marketplace needs by creating a standardised and replicable process for financial professionals who perform valuations on financial instruments,”
This Framework will ensure that professionals working with financial instruments perform their engagements with independence, objectivity and consistency. We encourage all stakeholders to review and comment on the draft

The Application of the Disclosure Framework for the Valuation of Financial Instruments demonstrates how the Framework would be applied for areas of valuation that are often either misapplied or insufficiently supported or documented in valuations for financial reporting. It also identifies the most common components in which the valuation professional provides a conclusion of value, and addresses matters where there is need for greater consistency in the application of the approaches and methodology. It provides support for matters that require the application of professional judgment, as well as documentation of inputs and results.

The Application of the Financial Instruments Framework will continue to evolve and expand to cover a broader spectrum of subject matter topics and professional practice trends in the valuation profession.

Once finalized, CVFI credential holders will be required to comply with the Framework, ensuring confidence in the consistency in their work, to ensure integrity and transparency in the fulfillment of their duties, in the interest of the financial markets and ultimately to the public.

CPAs and valuation professionals are encouraged to sign up for information and updates on the Certified in Valuation of Financial Instruments (CVFI) credential from the AICPA.

26 Jun

Draft guidance on the IFRS for SME Standard published for public comment

The draft guidance is in the form of a questions and answers (Q&A) document and addresses the accounting treatment for a financial guarantee issued by a parent company in that parent company’s separate financial statements.

The SMEIG is responsible for assisting the IASB matters related to the implementation of the IFRS for SMEs Standard. Developing non-mandatory and timely guidance on specific accounting questions raised by those implementing the Standard is one of the two main responsibilities of the SMEIG. The other is to make recommendations to the Board regarding amendments to the Standard.

This draft guidance is the first to be published since the initial comprehensive review of the IFRS for SMEs Standard was completed in May 2015.

The consultation is open for comment until 1 September 2017 and can be accessed here.

21 Jun

AICPA Praises House for Passing Mobile Workforce Bill

The AICPA applauded the U.S. House of Representatives today for passing the Mobile Workforce State Income Tax Simplification Act of 2017, H.R. 1393.  The bill would simplify state income tax reporting and withholding rules for employees who sometimes work outside their home states.

“The House’s passage of the Mobile Workforce State Income Tax Simplification Act of 2017 is a victory for taxpayers and their employers,” Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA, stated.  “Enactment of H.R. 1393 would eliminate the need for much of the complex record-keeping that employers face when their employees cross state lines to work.  It also would relieve many workers of the burden of filing state income tax returns for states in which they worked only a few days during the year.” 

Melancon explained that the legislation would create a uniform national standard that would eliminate the compliance maze many employers and employees currently face because they have to keep track of numerous state income tax withholding laws and varying de minimis exemption periods imposed on nonresident workers.  Employee earnings would not be subject to state income tax and withholding outside their home state unless the employee worked in a state for more than 30 days during the calendar year.

However, Melancon noted that under H.R. 1393 notable individuals, such as professional athletes, professional entertainers and public figures, do not qualify for the 30-day de minimis exemption.  They would still have to pay tax to the state where they are appearing.  Non-headline performers, including dancers and musicians, would be covered by the 30-day national standard. 

H.R. 1393 was introduced by Representatives Mike Bishop (R-Mich.) and Hank Johnson (D-Ga.).

“The AICPA has strongly supported the passage of mobile workforce legislation for many years,” Melancon stated, “and we appreciate the leadership shown by Representatives Bishop and Johnson.”

“We urge the Senate to pass its companion bill soon so that thousands of employers and employees can be relieved of the burden imposed by inconsistent state tax laws,” he added. 

21 Jun

Africa’s economy continues to develop under robust corporate governance principles

Most countries across Africa have robust corporate governance codes of practice at present, as economic prosperity increases across the continent. A new joint study by ACCA  and KPMG has found standards of corporate governance code are well aligned with OECD Principles of Corporate Governance released in 2015.

The report, Balancing Rules and Flexibility for Growth, focuses on 15 countries across Africa, and examines the corporate governance requirements for listed companies against the benchmark across four tenets of corporate governance. These are derived from the OECD principles and include: leadership and culture, strategy and performance, compliance and oversight, and stakeholder engagement. Governance requirements are assessed based on their clarity and completeness of content, degree of enforceability and availability of relevant requirements.

While one-third of the countries studied by KPMG and ACCA have recently reviewed their corporate governance codes, now could be the right time for others to take stock and make improvements, given the impetus of the new OECD Principles and the need to encourage more foreign direct investment.

The study found all 15 African markets have a corporate governance code or equivalent in place, with most countries adopting their first codes from 2000 onwards.

Irving Low, Partner and Head of Risk Consulting, KPMG in Singapore, said:

A number of countries have had corporate governance codes for some time and the experience of implementing them has created practical learning points. The African markets will be able to leverage the lessons learned in the evolution of similar codes in other markets

The report ranked South Africa number one, having adopted the largest number of OECD Principles – with Kenya, Mauritius, Nigeria and Uganda completing the top five. Overall, a majority of markets (10 out of 15) have aligned their corporate governance requirements with more than 80 percent of OECD Principles.

Irving Low, added:

We hope this study can contribute to raising the standard of corporate governance requirements across Africa. Each market needs to consider their specific political, legal, economic, social and cultural environment when making decisions about developing, defining and enforcing corporate governance requirements

Speaking about the findings in relation to Africa’s development, Jamil Ampomah, Director, Sub Saharan Africa, ACCA, said:

As these markets grow and evolve, more awareness and effort will be needed to strengthen remaining critical areas of corporate governance, particularly for remuneration structures, performance evaluation, risk governance, and board composition and diversity

Most markets mandate the basic corporate governance requirements such as financial disclosure, shareholders’ rights and the role of the board, supplementing these with non-mandatory guidelines for good practice.

Jamil Ampomah continued:

Achieving the right balance between rules and flexibility is a tricky task for any country, but of fundamental importance for those where corporate governance is critical to support robust economic growth
Although decisions about how to shape a corporate governance framework and how fast to do so may be unique to each market, and there is no ‘one-size-fits-all’, there is value in continuing to compare and incorporate internationally accepted standards of corporate governance

The 15 countries examined in this study were Egypt, Ethiopia, Ghana, Kenya, Malawi, Mauritius, Morocco, Mozambique, Nigeria, Rwanda, South Africa, Tanzania, Tunisia, Uganda and Zambia.

Visit www.accaglobal.com/gb/en/professional-insights/risk/balancing-rules-and-flexibility-for-growth.html to read the full report.

30 Mar

IASB consults on proposed improvements to IFRS 8 Operating Segments

The IASB has published proposed improvements to the IFRS covering Operating Segments, IFRS 8, for public consultation.

IFRS 8 Operating Segments was issued in 2006. It sets out the disclosure requirements for information about a company’s operating segments, products and services, as well as about the geographical areas in which it operates and its major customers.

The proposed amendments follow on from a Post-implementation Review (PIR) of IFRS 8 that was carried out to assess whether the Standard works as intended. The PIR confirmed that the Standard generally functions well but identified some areas that could benefit from improvements. 

The proposed improvements in the Exposure Draft include amendments:

  • to clarify and emphasise the criteria that must be met before two operating segments may be aggregated;
  • to require companies to disclose the title and role of the person or group that performs the function of the chief operating decision maker; and
  • to require companies to provide information in the notes to the financial statements if segments in the financial statements differ from segments reported elsewhere in the annual report and in accompanying materials.

The Board has also proposed to amend IAS 34 Interim Financial Reporting to require companies that change their segments to provide restated segment information for prior interim periods earlier than they currently do.

The Exposure Draft, Improvements to IFRS 8 Operating Segments (Proposed amendments to IFRS 8 and IAS 34), can be accessed here. The consultation is open for comments until 31 July 2017.