Accounting Standards

Inching towards international accounting standards in the US

In Canada, the Accounting Standards Board (AcSB) has already taken the first steps of convergence with international standards by outlining the plan under which publicly accountable enterprises will transition completely to IFRS. The change will occur over the next 5 years, and the Board expects the changeover process to be complete by fiscal years beginning in 2011, although it could still be pushed back if circumstances require it.

In the US, the SEC has recently proposed that foreign companies will not have to reconcile their IFRS financial statements to US GAAP:

If the current SEC proposal is approved, foreign companies registered with the SEC that use IFRS, which is published by the International Accounting Standards Board, wouldn’t have to provide a separate reconciliation report starting in 2009.

This is a great development and real progress towards convergence. Foreign companies will likely jump wholeheartedly on this proposal, as it will allow them to save significant costs. This means less work for the professionals, but so be it. The work is redundant and does not add value in the slightest. It is inefficient to have to present financials in two different sets of GAAP.

The SEC seeks comment on the proposal, in particular regarding the possible need for additional disclosure or information on areas where the two sets of GAAP don’t agree, and whether this might require too much knowledge on the part of users of the IFRS statements.

In particular:

Should issuers and auditors consider guidance related to materiality and quantification of financial misstatements?

This struck me, because if there are significant differences on these two very fundamental audit issues, perhaps convergence is farther off than I’d originally hoped.

Accounting Standards

7 quick facts about the new financial instruments standard

The Canadian Accounting Standards Board (AcSB) has finalized some new sections of the Handbook which include guidance on accounting for financial instruments. Financial instruments include investments, hedges, derivatives, and loans and receivables.

  1. The Canadian standard attempts to harmonize our GAAP in a way with FASB Statement 133, “Accounting for Derivative Instruments and Hedging Activities,” and IAS 39, “Financial Instruments: Recognition and Measurement.”
  2. The standard is balance sheet focused: It is an attempt to get the financial position right and flow the change through the statement of operations (income statement). It is expected to result in new assets and liabilities for most businesses implementing the standard.
  3. The default measurement basis is fair value. There are exceptions: Loans, receivables and investments intended to be held to maturity should be recorded at amortized cost, and equity investments for which no market value is readily available should be recorded at cost.
  4. The Canadian standard has been modeled closely on the IFRS, which is more comparable to Canadian GAAP in general and newer than the US standard.
  5. The new standard will require companies to reassess existing contracts as well as explicit hedges. A previous standard on hedge accounting has been in effect since 2003. The new standards may require changes to the way certain hedges are accounted for.
  6. The new standard is effective for periods beginning on or after October 1, 2006 for public companies and non-profits, and October 1, 2007 for private companies.
  7. The standard will improve, as an example, comparability between companies that are approaching their foreign exchange risk differently. Clearly there is a possibility that a company hedging the risk is in a different position than one not.

FIN 48, auditor confidentiality, and increasing the minimum wage

Since the last one went so well, and since there have been many posts this week on my fellow accountant blogs that I’d like to highlight, here’s another quick round-up of three interesting nuggets:

Dan Meyer of Tick Marks talks about a new standard in the US called FIN 48, which requires companies making assumptions regarding tax-related policies to document and disclose those assumptions and provide a range of possible outcomes.

He asks the natural next question: “With IRS personnel theoretically able to look up these disclosures, will companies be less willing to take aggressive positions?” It’s a good question, and I think we know the answer! I wonder if the same type of standard will show up in Canadian GAAP before we converge with international standards. (Wonder how that convergence thing is going – haven’t heard much lately!)


Shell and reporting sustainability

This piece in the Globe and Mail was interesting:

Shell was early with “sustainability reporting” (their first annual sustainability report was published in 1998). They currently have a goal to have their (self-reported) greenhouse gas emissions 5 per cent below 1990 levels by 2010, similar to the Kyoto Protocols.

The story was about Shell’s CEO lauding the Kyoto Protocol and expressing his wish that there was a strong worldwide framework within which the oil industry could work with governments to control carbon emissions. But I’m interested in the standards:

The company is using the Global Reporting Initiative guidelines, the best known international standard for reporting on GHG emissions. So Shell is also more transparent than some. Shell claims to have invested $1-billion (U.S.) in renewables since 2000, notably in a major offshore wind project in the North Sea.

Is anyone auditing this report? Or Shell’s claim of investing $1B USD in renewable energy? I took a look at 2005’s Sustainability Report and found no auditor’s report. There is an impressive External Review Committee, with representatives from Transparency International and the Danish Institute for Human Rights. They describe their procedures and identify three guiding principles: materiality, completeness, and responsiveness to stakeholders.

Sounds like a great opportunity for an audit of both non-financial and financial information.

Accounting Blogs

‘Tis the season for giving links

Dan Meyers of Tick Marks is caught up in the spirit of giving in his own way – he’s revisiting his special 12 Blogs of Christmas from last year around this time and giving us all a refresher on the more memorable posts from the accounting blogosphere from the year nearly ended.

Since my blog wasn’t around this time last year I wasn’t featured, so I’m going to help Dan out and highlight what I think are the best posts I’ve made in the 10 months or so I’ve been blogging about the accounting and audit professional industry:

  • Income trust tax loophole gaining popularity
    One of my most popular posts in terms of number of comments, I discussed the tax law and theory surrounding income trusts in Canada, which quickly became one of the most controversial aspects of the still relatively new Conservative government here.
  • Terrorist accounting
    I’m still pretty proud of this little nugget, even though as I was writing it I was a little worried it might offend more than it entertained. It’s a flight of fancy as I try to get inside the head of a terrorist organization’s bean counter. It was timely and creative, if nothing else!
  • UFE results dreams begin
    Surprisingly my most visited post, possibly due to its primo position in Google’s search results, it was short but sweet and captured the growing anxiety I was feeling as UFE results day approached. I think most people who click on the link in Google are hoping for a wilder dream than the one I described!
  • Global ethics and international accounting standards
    Probably my most ardent foray into accounting related activism, the post details the struggle the Publish What You Pay campaign has had in lobbying for an international standard mandating companies in certain industries report payments they make to governments, in an effort to put an end to the injustice of corruption in the third world.
  • The CA Advantage – marketing the profession
    The profession debuted a new ad campaign highlighting the skills a CA can bring to an organization, and I compared it to the successful marketing of a rival designation here in Canada, the Certified Management Accountants.