New Financial Architecture
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May 28, 2009
May 26, 2009
Accountants in Demand
May 15, 2009
UK firms 'can share IFRS expertise' ...
Mark Allison, chairman of the International Accounting Standards Board, has told Scotland on Sunday that expertise is needed to help firms in North America to switch to International Financial Reporting Standards (IFRS) as currently used in the UK.
Countries including the US, Canada and Mexico are set to transfer to IFRS from their local variations, with various deadlines set for the shift.
The moves are hoped to create an increase in consistency and transparency in international accounting.
Mr Allison said the fact that accounting firms in the UK will "share a common language and culture" with their US counterparts means that there could be opportunities to "provide expertise".
Robert Herz, chairman of the US Financial Accounting Standards Board, recently told Reuters that it could take a long time to implement IFRS in the US, claiming that it could result in more effort than is currently presumed.
April 28, 2009
IASB publishes fair value findings...
Fair value accounting guidance set out by the US Financial Accounting Standards Board (FASB) is consistent with that published by the International Accounting Standards Board (IASB). Read original article.That is the conclusion of a review by the IASB aimed at ensuring consistency in the way such rules are applied.
Following the accelerated 30-day consultation on the issue, relevant guidance from the FASB's Staff Positions on fair value measurement will be included when the IASB publishes an exposure draft on the same subject next month.
Sir David Tweedie, IASB chairman, said: "We have heard a clear and consistent message on financial instruments accounting - fix this once, fix it comprehensively, and fix it in an urgent and responsible manner."
This is why the IASB has set out a six-month timetable for replacing current standards relating to the subject, he added.
Earlier this month, the FASB launched two draft proposals aimed at improving guidance relating to fair value measurement and impairments.
April 22, 2009
Video Advice on Surviving the Recession
Google has launched a new channel on its YouTube video site, dubbed “Survival of the Fastest”. Among the corporate executives, business-school professors and London mayors providing “bite-sized insights” for managers to help them navigate the downturn is Jason Karaian of CFO Europe. He discusses how the recession will reshape relationships among board members and why companies will focus much more on cash in the years to come.
April 14, 2009
To reveal, but not to regulate
IN PUBLIC, bankers have been blaming themselves for their troubles. Behind the scenes, they have been taking aim at someone else: the accounting standard-setters. Their rules, moan the banks, have forced them to report enormous losses, and it’s just not fair. These rules say they must value some assets at the price a third party would pay, not the price managers and regulators would like them to fetch. Unfortunately, banks’ lobbying now seems to be working. The details may be arcane, but the independence of standard-setters, essential to the proper functioning of capital markets, is being compromised. And, unless banks carry toxic assets at prices that attract buyers, reviving the banking system will be difficult. Read original article.On April 2nd, after a bruising encounter with
European ministers instantly demanded that the International Accounting Standards Board (IASB) do likewise. The IASB says it does not want to be “piecemeal”, but the pressure to fold when it completes its overhaul of rules later this year is strong. On April 1st Charlie McCreevy, a European commissioner, warned the IASB that it did “not live in a political vacuum” but “in the real world” and that Europe could yet develop different rules.
It was banks that were on the wrong planet, with accounts that vastly overvalued assets. Today they argue that market prices overstate losses, because they largely reflect the temporary illiquidity of markets, not the likely extent of bad debts. The truth will not be known for years. But banks’ shares trade below their book value, suggesting that investors are sceptical. And dead markets partly reflect the paralysis of banks which will not sell assets for fear of booking losses, yet are reluctant to buy all those supposed bargains.
Standard-setters should defuse the argument by making clear that their job is not to regulate banks but to force them to reveal information. The banks, their capital-adequacy regulators and politicians seem to dream of a single, grown-up version of the truth, which enhances financial stability. Investors and accountants, however, think all valuations are subjective, doubt managers’ motives and judge that market prices are the least-bad option. They are right. A bank’s solvency is a matter of judgment for its regulators and for investors, not whatever a piece of paper signed by its auditors says it is. Accounts can inform that decision, but not make it.
Banks’ regulators have to take responsibility. If they want to remove the mechanical link between drops in market prices and capital shortfalls at banks, they should take the accounts that standard-setters create for investors and adjust them when they calculate capital. They already do this to some degree. But the banks’ campaign to change the rules is making inevitable a split between two sets of accounts, one for regulators and another for investors. The FASB and IASB can help regulators to create whatever balance-sheet they want. But in doing so they must not compromise their duty to investors.
March 18, 2009
G20 must promote IFRS
Convergence to IFRS is essential if the global economy is to receover, according to reports released by the ACCA and the ICAEW. Read original article.Two of the UK's leading accounting bodies, the ACCA and the ICAEW, are calling for leaders to champion the global adoption of IFRS at this April's G20 summit.
The ACCA has released a discussion paper arguing that G20 leaders should endorse the benefits of IFRS because they will bring ‘transparency, comparability and clarity to reporting in the interests of shareholders, business and the wider public’.
ICAEW chief Michael Izza also spoke out, suggesting that convergence towards IFRS is losing momentum and that the new US administration should make a concerted effort to get onto the IFRS roadmap.
"We live in a world where global issues require global solutions", said Izza. "A fragmented financial reporting system will continue to hamper comparability and transparency across borders".
ACCA president Richard Aitken Davis called it a 'major failing' that IFRS is not already the global accounting language for all finance professionals, and argued: "Priority must be placed on ensuring that existing legislative and regulatory measures are implemented and enforced effectively. Rushing through large swathes of new legislation is not the answer"
The G20 leaders’ summit is due to take place in London on 2 April.
March 06, 2009
IASB updates fair value rules ...
The International Accounting Standards Board (IASB) has issued a range of amendments to disclosure requirements relating to fair value rules.Under the changes, firms will now have to supply additional information about the relative reliability of their fair value measurements.
The amendments, which take into account the views of the G20 group of nations, brings International Financial Reporting Standard (IFRS) 7 into line with the equivalent US rule.
Sir David Tweedie, chairman of the IASB, said: "The financial crisis has shown that a clear understanding of how entities determine the fair value of financial instruments, particularly when only limited information is available, is crucial to maintaining confidence in the financial markets."
The changes announced today will boost the clarity of financial reports, Sir David added.
Amendments to IFRS 7 will apply for annual periods beginning on or after January 1st 2009.
Meanwhile, the US Financial Accounting Standards Board is also conducting its own review into how fair value rules can be improved.
February 27, 2009
What do you think of the recent controversy around convergence in the US?
Many thanks to Greg Millman for posing this marvellous question.
I am looking forward to hearing your views on this.
Most International Finance Professionals in
The best argument against the adoption of IFRS, comes from the extra financial burden that this will place on US companies. The timing is not great either. However, future savings will be made by reporting in just one format, and not having to perform reconciliations between different reporting methods. As to the timing, maybe that isn’t so bad either, IFRS implementation will certainly generate a lot of work for finance professionals!
The best way out of a recession in my opinion is to work your way out of it. Wealth creation must come before wealth distribution. We have years of catching up to do.
IFRS has the huge advantage of being a tried and tested platform for the unification of accounting practices across the globe. For stakeholders too, one common reporting language will simplify decision making and make financial statements more transparent.
The other glaring advantage is that it works. USGAAP is rules orientated whilst IFRS is based on a conceptual framework. The “IFRS resistance” often seizes on this phrase as a major downside. I would simply point out that UKGAAP has been based on the same conceptual framework for a very long time. The
Sarbanes Oxley was designed to save USGAAP from a re-run of these high profile corporate failures; however the heavyweight tag team, Sox and USGAAP, could not stop the current financial crisis. Most commentators agree that this crisis emanated from the
Over the last twenty years the
It really is a matter of when, and not if IFRS is adopted in the
February 25, 2009
Digby, Lord Jones to chair new HSBC International Business Advisory Board...
In his first role since leaving as minister for trade, the former director-general of the Confederation of British Industry will advise HSBC on developing its international business services for UK companies.
Lord Jones will also work to establish an educational programme to help UK businesses to "take advantage" of cross-border trade and support overseas trade missions.
Paul Thurston, HSBC's managing director, said Lord Jones was "passionate about British business" and can bring with him "great experience in helping UK businesses connect to foreign markets".
He added: "Many British businesses are looking at opportunities to build their business in overseas markets and HSBC, with our unrivalled global network, is uniquely placed to help them."
The International Federation of Accountants recently announced it was seeking nominations for its boards and committees in 2010.
February 23, 2009
More management ideas
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February 07, 2009
Crisis Group says accounting ‘was not core problem’
Four themes have emerged from the first meeting of the Financial Crisis Advisory Group, set up by the IASB and FASB:
- accounting was not the core problem that caused the financial crisis but fair value played some part especially regarding pro-cyclicalit.
- rules regarding consolidation / de-recognition need to be enhanced.
- fair value rules are too complex and need simplification.
- some participants called for the ability to make transparent and open ‘dynamic’ provisions with IFRS. This would allow entities to establish provisions in good times that could be used in bad times. Others argued that this is a regulatory issue and could be resolved by appropriate reserve allocation to restrict distributable profits.
The group will continue its discussions in February and March. For further information see the IASB website.
US to overhaul mark-to-market accounting
The SEC has recommended against the suspension of fair value accounting standards but identified eight improvements to their application. These include reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets, including situations where market prices are not readily available.
Read the SEC press release.
Obama nominee challenges independence of IASB
New US president Obama’s nominee for the role of SEC chairman, Mary Schapiro, expressed concerns about the adoption of IFRS in the US during her nomination hearing.
While recognising the benefits of a single set of accounting standards used around the world, Schapiro believes that IFRS are not as detailed as the US standards and leave a lot to interpretation. In addition, she has significant concerns about the independence of the IASB and the amount of rigor that exists in the IASB’s standard-setting process. Schapiro indicated that the SEC would proceed with caution and would not necessarily feel bound by the existing roadmap.
View the webcast of Schapiro’s nomination hearing.
February 06, 2009
UK public bodies to receive IFRS help...
The UK Audit Commission has drawn up a financial support package to help public bodies in the country adopt International Financial Reporting Standards (IFRS), it has been revealed.
A total of £3.3 million will be available to help councils, primary care trusts and other bodies make a smooth transition to the new rules which will be introduced in 2010.
Michael O'Higgins, chairman of the commission, said: "All public bodies are feeling the chill. The introduction of the new standard does impose an extra cost on them and we wanted to help. We listen carefully to the bodies we audit and appreciate their financial position."
The support will take the form of a three per cent rebate which will be funded through efficiency savings made by the commission, he added.
NHS trusts will be the first to move to IFRS and as such will receive the cash in December of this year, with councils getting their share 12 months later.
The Audit Commission is an independent watchdog aimed at improving efficiency in the UK's public services.
January 29, 2009
IASB holds first financial crisis advisory group meeting in London
The meeting's agenda included:
General Overview Session and Issues Briefing:
- - Financial Reporting Issues Overview - Sir David Tweedie & Robert Herz
- - Briefing on IASB and FASB Joint and Separate Projects - Gavin Francis & Russell Golden
- - Overview of SEC Report on Mark-to-Market Accounting - James Kroeker
- - Remarks of Other Observers:
- Basel Committee of Banking Supervisors - Sylvie Matherat
- Committee of European Securities Regulators - Fernando Restoy
- International Association of Insurance Supervisors - Monica Mächler
- Japan Financial Services Agency - Junichi Maruyam
After lunch the sessions addressed:
- Issues Discussion.
- Where did financial reporting help identify issues of concern, or create unnecessary concerns, during the credit crisis?
- Where could financial reporting standards have provided better transparency to help either anticipate the crisis or respond to it more quickly?
Go the the IASB website here to access these files in full and for free
January 27, 2009
This puts it in perspective
More than a billion people are using the internet
THE number of people going online has passed one billion for the first time, according to comScore, an online metrics company. Almost 180m internet users—over one in six of the world's online population—live in China, more than any other country. Until a few months ago America had most web users, but with 163m people online, or over half of its total population, it has reached saturation point. More populous countries such as China, Brazil and India have many more potential users and will eventually overtake those western countries with already high penetration rates. ComScore counts only unique users above the age of 15 and excludes access in internet cafes and via mobile devices.
January 14, 2009
IFRS 'facing a critical year'...
Will Rainy, global head of IFRS at Ernst and Young, explained that as an International Accounting Standards Board moratorium on the issuing of new standards has now come to an end, companies using IFRS face a wave of new standards and interpretations.
He said: "With almost 500 pages of new or revised standards and interpretations, companies face a major challenge getting up to speed on and correctly applying the new requirements."
The changes could have an impact on things such as IT systems, merger deals and share-based payment plans as well as accounting, Mr Rainey added.
Yesterday, Fitch Ratings claimed that 2009 will be a pivotal year for accounting. Fair value will be a particular focus, the firm stated.
January 12, 2009
Trade credit insurance tightens
An essential element in the government's forthcoming package to stem the pernicious shrinkage of credit in the economy will be measures to compensate for the devastating impact on many companies of the withdrawal of trade credit insurance.
That probably sounds deeply dull and technical. But please read on, because this stuff matters to all of us.
For smaller companies, the importance of trade credit insurance is often that they can't borrow from banks, unless they've insured their sales to corporate customers.
The banks make this stipulation because it absolves them from having to assess the credit-worthiness of their borrowers in detail - because at least part of the credit risk has been laid off to an insurance company.
So the availability of such insurance is literally a matter of life and death for many businesses.
Woolworths is one of the more extreme examples.
When insurers would no longer provide cover to Woolies' suppliers in the autumn, that was the penultimate nail in the coffin of the ailing general retailer - because suppliers insisted that Woolworths pay cash upfront to them for orders, which meant that Woolies was forced to draw on its borrowing facilities, which in turn took the retailer up to the limit of what its bankers were prepared to lend.
And the rest is the sorry story you know: the demise of a historic high street name that was forced to liquidate everything so that the bankers could get their money back.
The point is that trade credit insurance is central to hundreds of billions of pounds in trade and the provision of finance to companies of all sizes.
When it's withdrawn, as has been happening for months, small companies are unable to fulfil valuable orders placed by big companies and those bigger companies lose access to vital supplies.
So a rational decision by insurers to scale back their cover on sales to companies perceived as vulnerable to our economic contraction is rippling through the economy in a damaging way: cover is being withdrawn because we appear to be in a sharp recession, and its withdrawal is making that recession significantly worse.
Part of the problem is that the insurers seem to me to have massively underpriced the cover they provide. Just as banks charged ludicrously low rates of interest during the years of the credit bubble, so the trade credit insurers insured hundreds of billions of pounds of trade for tiny premiums.
According to statistics from the Association of British Insurers, there were £334m of premiums written by the insurers in 2007, covering £282bn of sales by British companies.
Or, to put it another way: insurers were receiving premiums equivalent to the turnover of a medium-size business to protect more than 20% of the output of the entire British economy.
Scary or what?
Those aggregated premiums were equivalent to a minute 0.1% of the sum insured - down from 0.26% in 1995. Which would only make economic sense in a world where there are never recessions.
One illustration that the premium was too low is that claims received by insurers in 2008 are likely to have been rather more than total aggregated gross premiums received in the previous year, extrapolating from trends in the first nine months of the year.
But the insurers have been protecting themselves from the worst losses by simply withdrawing cover for new orders to companies seen as weak. In other words, unlike insurance provided to you and me on our homes, for example, the trade credit insurers have been able to withhold protection as soon as they detected stormy conditions.
To restate the painful paradox: insurance designed to give confidence to companies that they would be paid by corporate customers is being scaled back in a way that's magnifying the woes of businesses big and small.
What's to be done?
Well, in France, a new system is being implemented whereby taxpayers are sharing the insurance risk with private-sector insurers on supplies to viable companies.
And I would expect the Business Department and the Treasury to implement a similar system of co-insurance by taxpayers.
But that can only be a short-term solution.
In the longer term, the supply of finance to small and medium-size businesses has to be overhauled, so that the viability of those businesses is no longer dependent on insurance that's only available when the sun is shining.
January 03, 2009
IFRS Around the World
Updated Map of Status of International Financial Reporting Standards 3/1/2009
- RED IFRS APPROVED
- ORANGE STATED MOVE TO IFRS ADOPTION - BRAZIL, CANADA...
- YELLOW ADAPTING TO IFRS - USA, MEXICO, CHINA
ORIGINAL POST 27/08/2007
- The US SEC announced that it will issue a Proposing Release this summer that will request comments on proposed changes to the SEC’s rules. The changes would allow the use of IFRSs as issued by the IASB in financial reports filed by foreign companies registered in the US. Currently, foreign companies are required to reconcile their financial statements according to US generally accepted accounting principles (GAAP). The SEC also plans to issue a Concept Release on the question whether all registrants (including US companies) should be able to report under either IFRSs or US GAAP.
- The Council of the Institute of Chartered Accountants of India decided in July to adopt IFRSs with effect from the accounting periods commencing on or after 1 April 2011, for public interest entities such as listed entities, banks, insurance and large entities.
- China announced that its central-level State-Owned Enterprises and large to mid-scale companies will all adopt China’s new accounting standards that comply with IFRSs by the end of 2009. The decision does not include SMEs, which make up the majority of China’s companies.
- The Brazilian Market Regulatory Agency (CVM) published in July an instruction that openly traded Brazilian companies will have until 2010 to present their consolidated statements in accordance with IFRSs. From 2007, listed companies can opt to present their consolidated financial statements based on IFRSs.
- The Korean Financial Supervisory Commission and the Korea Accounting Standards Board unveiled a roadmap for the adoption of IFRSs at a ceremony in Seoul. All companies in Korea, apart from financial institutions, will be permitted to apply IFRSs, as adopted by Korea, by 2009. Full adoption of IFRSs for listed companies, including financial institutions, will become mandatory by 2011.
- Representatives of the IASB have attended the regional standard-setters meeting in Manila and met standard-setters from Brunei, Indonesia, Malaysia, Philippines and Taiwan.
