IFAC Issues Policy Position Paper on Enhancing Organizational Reporting

The International Federation of Accountants (IFAC), has issued Policy Position Paper 8, Enhancing Organizational Reporting, to emphasize the importance and usefulness of reporting broad-based information beyond traditional financial reporting.

IFAC is of the view that it is in the public interest for organizations to report more broad-based information  that is important to, and useful for, stakeholders, whether inside of or external to an organization; and  that: (i) promotes transparency and accountability; (ii) provides a more complete view of an organization’s  position, performance, and longer term potential and sustainability; and (iii) provides critical information  for stakeholders in making decisions, in particular with respect to those aspects of an organization’s  operations that are not fully reflected in financial statements.

 IAASB Proposes Standards to Fundamentally Transform the Auditor’s Report

The International Auditing and Assurance Standards Board (IAASB) has published the Exposure Draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs). Comments deadline is November 22, 2013.

The Exposure Draft includes a new proposed ISA titled Communicating Key Audit Matters in the Independent Auditor’s Report. This proposed ISA directs auditors of financial statements of listed entities to communicate in their report those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements.

Among other enhancements, the IAASB is also proposing requirements for auditors to include specific statements about going concern in their reports, to make an explicit statement about the auditor’s independence from the audited entity and, for listed entities, to disclose the name of the engagement partner in the auditor’s report.

The International Public Sector Accounting Standards Board (IPSASB) has published a series of five exposure drafts on accounting for interests in other entities, and are open for comment until  28 February 2014.

The exposure drafts are based on IFRS 10 ‘Consolidated Financial Statements’,  IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘Disclosure of Interests in Other Entities’, IAS 27 ‘Separate Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’.  Some of the differences between the proposals and the IASB’s requirements include:

• Modification of the scope exemptions from the requirement to prepare consolidated financial statements, including focusing on the information needs of users
• Provide modified guidance on when an entity would be considered an ‘investment entity’ that is exempt from consolidation, and to extend the requirement to measure investments on the fair value basis to the consolidated financial statements of a controlling entity of an investment entity, even if it is itself not an investment entity
• Inclusion of additional guidance on when the definitions of ‘power’ and ‘control’ may be met in the public sector context, focused on concepts such as regulatory control, economic dependence, special voting rights, and considering ‘benefits’ rather than ‘returns’ (including the assessment of non-financial benefits)
• Modifying the measurement of an investment in an associate or joint venture at initial recognition in some cases, and requiring an investor to have a ‘quantifiable ownership interest’ before the equity method is applied
• Permit an entity to use the equity method in its separate financial statements to account for its interests in controlled entities, joint ventures and associates
• Changing the associated disclosure requirements to reflect public sector needs.

IPSASB releases proposals for public sector entities moving to accrual accounting

The IPSASB has released an exposure draft ED 53 First-Time Adoption of Accrual Basis International Public Sector Accounting Standards outlining the first-time adoption process for accrual basis International Public Sector Accounting Standards (IPSASs). Among other proposals, the exposure draft would provide public sector entities with exemptions from full compliance with IPSASs during a transition period, including allowing entities three years to recognise certain assets and liabilities, permitting the use of a deemed cost for historical costs in some cases, and an optional exemption from comparative information. The exposure draft is open for comment until 15 February 2014.

AOSSG Islamic Finance Working Group comments on the IASB’s Leases ED

The AOSSG Islamic Finance Working Group supports the IASB’s Leasing proposals but points at issues where more clarification would be needed from the viewpoint of Islamic accounting.

The 2010 Exposure Draft ED/2010/9 Leases contained some guidance which was particularly important for ijarah muntahia bittamleek (lease contracts followed by a legally separate contract to transfer ownership of the underlying asset) and which would have clearly resulted in many (if not most) ijarah muntahia bittamleek being treated as a sale. The elimination of that guidance may instead lead to confusion and may result in disparate reporting of ijarah muntahia bittamleek that are economically similar.

The working group also points out that superseding SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease is problematic from an Islamic viewpoint in connection with sukuk ijarah where an entity transfers an asset to a special purpose entity which will ‘sell’ proportionate ownership of the asset to investors/financiers. The investors/financiers then lease the asset to the original transferor entity. The principles in SIC 27 are currently crucial in assessing whether a sukuk ijarah should be accounted as a financial instrument under IAS 39/IFRS 9 or as a sale and leaseback under IAS 17. The loss of SIC 27 may have negative repercussions, especially since sukuk ijarah structures form a substantial portion of the Islamic capital market in many jurisdictions.

 Framework-based teaching material

The IFRS Foundation Education Initiative is preparing a series of comprehensive Framework-based IFRS teaching materials to assist IFRS teachers to educate IFRS learners more effectively. The material is designed to support IFRS teachers to develop in students the ability to make the judgements that are necessary to apply IFRS and the IFRS for SMEs and to prepare students for lifelong learning. The staff of the Education Initiative is also arranging a series of Framework-based teaching workshops jointly with international and regional academic accounting associations.