The staff draft has been prepared by the staff of the IASB and the FASB for the boards’ joint project to develop a common standard on fair value measurement. The staff draft reflects the cumulative tentative decisions made by the boards, concluding with their joint meeting in March 2010. However, work on the project is continuing, and the tentative decisions reached so far are subject to change before the boards issue a common fair value measurement standard.   Stay tuned.

Please click here for more information and to read the staff draft.

Please click here to go to the fair value measurement project page.

Source: IASB.org

On August 17, 2010, the FASB and IASB issued exposure drafts proposing a new approach to lease accounting that would significantly change the way entities account for leases. Once finalized, this

So what is changing?

Lessee Accounting

This proposal maintains the guidance that was released earlier, effectively eliminates off-balance sheet accounting for most of the operating leases. All assets currently leased under operating leases would be brought onto the balance sheet, removing the distinction between finance (i.e. capital leases under U.S. GAAP) and operating leases.

All lessees will record a new asset (“Right-to-use asset”) equivalent to the present value of the future lease payments and a corresponding liability that represents the obligation to pay rental payments.   This accounting is similar to the accounting for the asset retirement obligations, wherein the present value of the liability is accreted until the maturity date and recognized asset will be amortized over the life of the lease term.

This standard will have an impact of higher interest expense (due to the accretion) and grossing up on the statement of financial position (balance sheet).  So the final standard will have a major impact of grossing up the balance sheet for the industries that leases most of its assets (e.g. airline industry).

Lessor Accounting

A dual model for lessor accounting has been released.  Depending on the economic characteristics of the lease, a lessor would apply either:

• a performance obligation approach (i.e. when the lessor maintains control either during the term of the contract or subsequent to the term of the contract) or
• a derecognition approach (for all other leases).

Read the Snapshot on the Leases exposure draft from IFRS.org website (PDF) that provides a very good summary of these proposals.

Links from IFRS.org

Read the exposure draft from IFRS.org website (PDF)

Read the basis of conclusion document from IFRS.org website (PDF)

Link to the “Leases” project page on IFRS.org

Links from FASB.org

Link to the proposed exposure draft under U.S. GAAP

While IFRS creates a need for new financial data, calculations and reporting, the IT systems and processes should also be reviewed, modified, reconfigured, or even new systems implemented.

With each change that is made in the IFRS an entity needs to assess the impact it will have on the collection of the data for financial reporting purposes and the other control processes.

For example – on adopting the Property, Plant and Equipment most of the entities will result in additional componentization or change in the depreciation methodology.  So any entity transitioning to IFRS will need to assess if their current systems can actually capture the information on a go-forward basis for IFRS reporting / disclosures.  In addition, the entity will also need to consider the process that will be carried out for its future impairment testing.

Read The Impact of IFRS on Technology – A Practical Introduction from KPMG website

References: KPMG publication

The Application of IFRS: Segment Reporting – Executive Summary

Read Application of IFRS: Segment reporting – Executive Summary from KPMG website

Publication date: July 2010 Source:  KPMG – IFRS website

The differences set out in this material have been compiled after comparing Canadian GAAP as it exists in 2010 with IFRSs at the same date and after considering a sample of companies’ expectations of the nature and effects of major changes. It should be recognized, however, that differences will vary from entity to entity, even within the same industry. Accordingly, the examples of differences in the accompanying material do not purport to represent an exhaustive list of all the changes that may be encountered.

You can access this guide by clicking here (PDF).

One of the most complex accounting standards in the IFRS accounting literature that is complex and often difficult to apply is IAS 39.

In spring of 2009, the G-20 leaders, the Financial Stability Board, and various stakeholders urged the IASB and the U.S. Financial Accounting Standards Board (FASB) to reduce the complexity of accounting standards for financial instruments and make significant progress towards a single set of high quality global accounting standards.

IASB divided this project of the replacement of the financial instruments standard in into separate phases. The aim is to replace IAS 39 in its entirety by the end of 2010 (see timeline – click to enlarge). As each phase is completed, chapters with the new requirements will be added to IFRS 9, and the relevant portions deleted from IAS 39, i.e. with the completion of this project IFRS 9 will be the only surviving accounting standard for the recognition, classification, measurement, impairment of the financial instruments.

As you see from the above timeline, in November 2009, the IASB published the first phase of IFRS 9 Financial Instruments, which focuses on the classification and measurement of financial assets, with the work on other phases is currently ongoing, and includes financial liabilities, impairment of financial instruments, hedge accounting, and derecognition. To monitor the developments of the of this accounting standard follow this link at the IASB website.

Sources:  IASB.org; Ernst and Young’s publication titled “Key IFRS accounting developments affecting asset managers and funds”

Click here for the online version

Click here for the PDF version

While retaining the primary successful attribute of earlier editions – succinct, clear descriptions of the similarities and differences between the reporting methods and subsequent impacts on companies – the 2009 edition has been updated to include:

• Commentary and insight on recent and proposed guidance, including developments pertaining to the overall convergence agenda;
• More detailed analysis of current differences between the frameworks including an assessment of the impact embodied within the differences;
• An overview of the new IFRS for small and medium-sized entities (IFRS for SMEs) standard;
• Report on the U.S. GAAP codification project; and
• Updates incorporating authoritative standards and interpretive guidance issued through June 30, 2009.

Readers will gain an understanding of these issues and what their next steps should be to ensure their organizations effectively address current and future conversion-related changes.

Read  PWC’s IFRS and U.S. GAAP: similarities and similarities and differences: September 2009

TheIFRS.com observation: This PWC guide goes beyond the basics to discuss the U.S. GAAP / IFRS differences.  For smaller entites this guide might be enough to write their first draft of the white drafts /position papers.  However, for anyone who is not in touch with the technical accounting issues might find the details in this guide hard to understand.  For example, this guide only makes reference to U.S. GAAP codification, with no reference to the old FASB acounting standards.  For individuals still struggling with U.S. GAAP codification click here to read this post.

As the U.S. GAAP codification is still relatively new, I strongly suggest that with the new FASB codification terminology, within brackets also make reference to the old FASB accounting standards.

References: Above mentioned PWC guide from PWC IFRS website

In November 2009, we, the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB), released a joint statement in which they:

•  Reaffirmed their commitment to improving International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP) and achieving their convergence.  
• Agreed to intensify their efforts to complete the major joint projects described in the 2006 Memorandum of Understanding (MoU), as updated in 2008.  
• Described their plans for completing those major projects, including milestone targets for each project.  
• Committed to providing transparency and accountability regarding those milestones by reporting quarterly on their progress and making those reports available on our websites.  

Click here to access this publication (PDF) document

More than 100+ countries are either following or have announced the plans of formally adopting the IFRS.  Even U.S. which does not be left behind in this race has announced the formal plans to possibly adopt IFRS (the SEC is still reviewing this requirement and the final decision would be taken in 2011).  Europe and Australia are already under IFRS.  Canada and India also have formal plans for IFRS adoption in 2011.  Now Japan has joined the race by announcing its plan to adopt IFRS.  So what does it mean for the global standard setters?  All the countries would like to have their own say to modify the accounting rules such that the rules reflect their own business practices.  So as reported in Reuters article - ” Japan seeks bigger say on global accounting rules”, Japan is aiming to build a coalition amongst the Asia-pacific countries.

The excerpt from this Reuters article states:

“In the past, it was as if we were trying to wrestle from outside the ring. But now it’s different. We’ll be using (IFRS). That makes a whole lot of difference,” said Noriaki Shimazaki, a top official in charge of accounting rules at Japan’s biggest business lobby.

“And we also have to think about how we can avoid being knocked out of the ring,” said Shimazaki.

Now the power struggles starts as to who has more say in the development of the IFRS rules at the International Accounting Standards Board (IASB), which is a privately funded accounting standard setter.

Out of 15 seats on its governing board, five are occupied by Europeans and four by the United States and just one from Japan. Some Japanese accountants argue they are under-represented, making them reluctant to follow international rules.

So if Japan can be a leader in the Asia-pacific region, then why not other countries such as China, Australia, India or South Korea. It would be fun to watch this power struggle.  Also what would happen if some rules that are favourable to one country are not favourable to the other country?  So for now let us sit back, relax and enjoy the show.

Please post in your comments as to how you see the future of global accounting standards taking shape.