Technical update, pt 1 | Publications | Members

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by Various 31 Oct 2003 Topic: Technical update

FASB In September the FASB issued an exposure draft, Employers' Disclosures about Pensions and Other Postretirement Benefits, aimed at improving financial statement disclosures for defined benefit plans. The project was initiated by the FASB earlier this year in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. The proposed change would replace existing FASB accounting guidance. To provide the public with better and more complete information, FASB plans to require that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. For the first time, companies would be required to provide financial statement users with a breakdown of plan assets by category, such as equity, debt and real estate. The expected rates of return and target allocation percentages, or target ranges, for these asset categories would also be required in financial statements. Cash flows would include projections of future benefit payments and an estimate of contributions to be made in the next year to fund the pension and other postretirement benefit plans. In addition to expanded annual disclosures, the FASB seeks to improve the information available to investors in interim financial statements. Companies would be required to report the various elements of pension and other benefit costs on a quarterly basis. The proposed guidance would be effective for fiscal years ending after 15 December 2003, and for the first fiscal quarter of the year following initial application of the annual disclosure requirements. The exposure draft is available via the FASB's website (www.fasb.org). FASB has also added a limited scope project to its agenda that will lead to an Interpretation of FASB Statement No. 87, Employers' Accounting for Pensions. The project will address the measurement of obligations under so-called 'cash balance' pension plans. Current accounting guidance does not specifically address the types of benefit arrangements that exist in many cash balance pension plans. Key objectives of the project will be to define the characteristics of the plans that the proposed guidance would apply to - i.e. what a 'cash balance' plan is for purposes of the proposed Interpretation - and to provide an accounting method that can be used consistently by companies to measure their pension obligations to employees. IASB At the end of September the IASB announced that it aimed to conclude, in the following two months, its work on revising the 14 IASs included in the Improvements project (see list below). The Board intends that these revised versions should be applied for annual periods beginning on or after 1 January 2005, though earlier application is encouraged. The 12 IASs that were included in the exposure draft of May 2002 are to be formally issued in revised form as a single publication. Some of the revised standards will be finalised a few weeks before others but cannot be published until all are completed. The Board is posting each revised standard on its website as and when the Board has approved it for issue. Although the standard will then be in virtually final form, it will be subject to review and possible minor editorial changes and corrections because of the interrelationship of the standards (for example, amended cross-references) up to the point when the Board has approved the last standard for issue. The Board emphasises that the revised standards are not provided as part of any exposure process. They are provided solely to increase the time available to prepare for their introduction. The texts will be available in the secure on-line services area of the IASB's website, for access by subscribers to the IASB's Comprehensive Subscription Service. Improvements standards (new titles) included in exposure draft of May 2002: - IAS 1, Presentation of Financial Statements - IAS 2, Inventories - IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors - IAS 10, Events after the Balance Sheet Date - IAS 16, Property, Plant and Equipment - IAS 17, Leases - IAS 21, The Effects of Changes in Foreign Exchange Rates - IAS 24, Related Party Disclosures - IAS 27, Consolidated and Separate Financial Statements - IAS 28, Investments in Associates - IAS 33, Earnings per Share - IAS 40, Investment Property. Improvements standards included in exposure draft of June 2002: - IAS 32, Financial Instruments: Disclosure and Presentation - IAS 39, Financial Instruments: Recognition and Measurement. IFAC IFAC has released a new exposure draft of an International Public Sector Accounting Standard (IPSAS) dealing with the impairment of public sector assets, including assets that are not held for cash-generating purposes. Developed by IFAC's Public Sector Committee (PSC), ED 23, Impairment of Assets, complements IPSAS 17, Property, Plant and Equipment, and strengthens and enhances the guidance on financial reporting of these assets. ED 23 proposes requirements for the identification, recognition, measurement, reversal and disclosure of an impairment loss in general purpose financial statements of public sector entities. Guidance in the exposure draft will also provide useful information about an asset's value in use and changes in that value as input for asset management and resource allocation purposes. Also featured in the exposure draft are appendices with examples of indicators of impairment and the measurement of impairment loss. Additionally, it includes the PSC's basis for conclusion on key issues and a comparison of the proposed requirements of this ED with IAS 36, Impairment of Assets, on which it is based. 'This ED was developed in conjunction with the Governmental Accounting Standards Board (GASB) in the United States,' commented Ian Mackintosh, PSC chairman. 'I believe that both the PSC and GASB benefited from this process, which is illustrative of the benefits that the PSC and national standards setters can derive from working together on issues of mutual interest.' Copies of the ED may be downloaded from IFAC's website (www.ifac.org/EDs). The deadline for receipt of comments is 31 January 2004. Comments can be sent via e-mail to EDComments@ifac.org or faxed to the attention of Paul Sutcliffe at +1 212 286 9570. IFAC has published an international collection of award-winning articles addressing some of the most significant issues confronting professional accountants in business. Entitled Articles of Merit: 2003, the book features articles selected by IFAC's Professional Accountants in Business (PAIB) Committee as part of its annual Articles of Merit Award Program for Distinguished Contribution to Management Accounting. 'Putting Strategy into the Balanced Scorecard' by Peter Brewer of the Institute of Management Accountants was the winning article. It highlights how companies fail to connect their strategy with performance measurement and how the most important step in creating a balanced scorecard is defining the strategy. Additional award-winning articles in the booklet focus on topics such as: - contract management - implementing e-business strategies - corporate governance and management accountants - cost management and creating value - accounting treatment of business combinations, and - environmental management accounting. The book may be downloaded at no cost from the IFAC on-line bookstore (www.ifac.org/store). EC The European Commission has adopted a regulation endorsing IASs, including related interpretations (SICs), and therefore confirming the requirement for their compulsory use from 2005 under the terms of the general IAS Regulation adopted by the European Parliament and the Council in 2002. The Commission's adoption of this implementing regulation follows the Accounting Regulatory Committee's unanimous endorsement of IASs in July. It includes all existing IASs and SICs, except for IASs 32 and 39 and related SICs 5, 16 and 17. IAS 32 and 39, which deal with the accounting and disclosure of financial instruments, are not included because they are currently in the process of being revised by the IASB, in co-operation with European accounting experts. Internal market commissioner, Frits Bolkestein, said: 'Adoption by the Commission of this regulation, endorsing most of the existing International Accounting Standards and publishing them in the EU's official languages, will help the 7,000 or so listed EU companies affected to get ready for 2005, when their consolidated accounts will have to be in line with IAS. That will put an end to the current Tower of Babel in financial reporting, improve competition and transparency and make the free movement of capital much easier. Meanwhile I encourage the IASB and interested parties to conclude their dialogue on IASs 32 and 39, so that the Commission will then be in a position to consider these standards too, in time for 2005.' The 2002 IAS regulation adopted by the Council and the European Parliament requires listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with IASs from 2005 onwards. But, before the IASs become legally binding under the regulation, they must first be endorsed by the Commission, after consulting member states in the Accounting Regulatory Committee and receiving the views of EFRAG - the European Financial Reporting Advisory Group - a group composed of accounting experts from the private sector. This endorsement is precisely what the Commission has now done, in the case of all IASs except 32 and 39, with the adoption of this latest regulation. Member states have the option of extending the requirements of the IAS regulation to unlisted companies and to the production of individual accounts. Unlike directives, EU regulations have the force of law without requiring implementation into national legislation. FEE FEE has published a discussion paper making recommendations for strengthening public oversight of the European audit profession. It details the necessary components of a robust public oversight system, and calls for the swift introduction of a European co-ordination mechanism, which would develop common principles for member state oversight systems. FEE believes its paper goes beyond the European Commission's communication of May this year, Reinforcing Statutory Audit in the EU, and calls on the EC to implement its proposals quickly. The main conclusions of FEE's discussion paper are that: - FEE supports the organisation of a robust oversight of the auditing profession in the public interest. It prefers mechanisms combining the profession and independent non-practitioners, with non-practitioners in the majority - public oversight structures are best organised at member state level - there is a need for an EU mechanism to co-ordinate the national systems and to address cross-border issues - FEE believes that the creation of a body that would function as an EU co-ordinator of national audit oversight mechanisms should be prioritised by the EC - the EU co-ordination of audit oversight mechanisms would: develop proposals for common principles and essential features for the organisation of national public oversight arrangements; suggest improvement to arrangements and procedures for oversight at member state level; and provide a formal mechanism for exchange of information and co-ordination of oversight in cross-border cases - the European co-ordination structure should be established as a legal entity to be effective and to build confidence - the European co-ordination structure should be visibly structured in the public interest and involve all stakeholders appropriately - the co-ordination structure would also help in working with the oversight systems to be developed in the USA and elsewhere, facilitating the elimination of unnecessary and burdensome duplication of oversight arrangements and supporting appropriate convergence of good practices. The discussion paper on European Co-ordination of Public Oversight can be accessed from FEE's website (www.fee.be). UK *Financial reporting* UITF consultation The Urgent Issues Task Force is seeking views on an amendment to UITF Abstract 17, Employee Share Schemes. The UITF has decided to consult further on a related amendment to Abstract 17 before finalising revisions to UITF Abstract 13, Accounting for ESOP Trusts, which was published in May to bring the accounting into line with new proposals on accounting for purchases and sales of own shares. Under Abstract 17, the profit and loss account charge in respect of employee share schemes is determined either as the intrinsic value or, where purchases of shares have been made by an ESOP trust at fair value, by reference to the cost or book value of shares that are available for the award. The UITF proposes that Abstract 17 be amended in order to reflect the consequences of reporting shares held by an ESOP trust as deductions from shareholders' funds rather than as assets. Views are invited on whether an intrinsic value approach should be adopted for all share awards. *Employment law* Teleworking The DTI has published new guidance to outline the responsibilities of employers who make use of teleworking. Figures produced by the DTI suggest that the number of teleworkers has risen by about two-thirds in the last four years. The guidance reflects the collective thinking of the CBI, the TUC and CEEP UK (representing public sector employees) and it has been agreed at European level further to the Joint Agreement on Teleworking reached by the European Social Partners last year. Amongst the main points covered by the guidance are: - data security - health and safety (e.g. the need for a risk assessment of work) - support so that the employee does not feel isolated from the organisation - career development issues, including training, and - financial matters such as expenses and allowances. In addition to setting out relevant legal requirements, the guidance includes illustrations of 'best practice'. The DTI emphasises the benefits that flexible working arrangements, such as teleworking, can bring to both employees and employers. A copy of the guidance can be found on the DTI's website. Workplace stress The Health Safety Executive has issued its first enforcement notice against an NHS Trust for failure to protect employees from occupational stress. The Trust was given until 15 December 2003 to assess and reduce stress levels in the working environment, failing which it would be exposed to penalties under the Health & Safety at Work Act 1974. It is striking that a relatively high profile public sector organisation, which presumably in general operates sound practices, should be in receipt of an enforcement notice. This development illustrates the increasing significance of 'stress at work' in the employment field. Given the number of days of absence from work nationwide that are attributed to 'stress', the problem is one to which employers in both private and public sectors need to be alert. Disability discrimination The Employment Appeal Tribunal recently highlighted the importance of employers taking a proactive approach towards employees who become disabled, by holding that the legal duty to make reasonable adjustments can be interpreted as incorporating a risk assessment. In Mid-Staffordshire General Hospitals NHS Trust v Cambridge, it was said that the duty is to take such steps as are reasonable to prevent the employee from being at a disadvantage. In effect, an employer needs to inform itself, for example by obtaining a proper assessment of the employee's conditions and prognosis, of the effect of the disability on the employee's ability to perform the duties of the job, the effect of the physical features of the workplace on the employee and his or her ability to perform the duties. The employer should then consider what adjustments might be made to reduce or remove disadvantages to which the disabled employee was subjected. Vicarious liability In Dubai Aluminium Co Ltd v Salaam, the House of Lords outlined the principles that are relevant to the question of when an employee acts 'in the ordinary course of employment' so as to make the employer legally liable for the employee's wrongful acts. Recent case law has extended the circumstances in which vicarious liability is imposed upon employers. In Dubai, the key point was that an employer is liable if the wrongful conduct is so closely connected with acts that the employee was authorised to do that the conduct may fairly and properly be regarded as done by the employee in the ordinary course of employment. Holiday pay The Employment Appeal Tribunal has ruled that 'rolled-up' holiday pay does not necessarily infringe the Working Time Regulations 1998. In Marshal's Clay Products Ltd v Caulfield, the EAT set out useful guidelines. 'Rolled-up' holiday pay must be clearly incorporated into the individual contract of employment. The allocation of the percentage, or amount, of holiday pay must be clearly identified in the contract, and preferably also in the payslip. That figure must amount to a true addition to the contractual rate of pay. Records of holidays taken must be kept and reasonably practicable steps must be taken to require workers to take their holidays before the end of the relevant holiday year.