Financial reporting news: simplification gathers pace

A new discussion paper looks at possible solutions to complexity in the reporting of financial instruments. By Nick Topazio, financial reporting specialist, CIMA.

INTERNATIONAL

Single measurement method could be antidote to complexity

The International Accounting Standards Boards has published a discussion paper as a first step towards reducing complexity in the reporting of financial instruments.

The discussion paper analyses the main causes of complexity and proposes intermediate approaches to addressing them.

The paper also sets out arguments for and against a possible long-term approach that would use one measurement method for all types of financial instrument.

Read the IASB press release.

Board proposes axing deferred recognition of pension losses

The IASB has issued a discussion paper which sets out its preliminary views on improving the accounting for some post-employment benefits, including pensions.

The main proposals are:

• to remove the sometimes controversial options for deferred recognition of gains and losses in defined benefit plans
• to introduce a new classification of benefit promises into contribution-based promises and defined benefit promises, with a new measurement attribute for contribution-based promises.

The IASB will deliberate the issues and publish an exposure draft of proposed amendments to IAS 19 with a view to issuing a revised standard by 2011.

The proposals are open for consultation until 26 September 2008.

Read the IASB press release.

Change to share-based payment reporting standard

An IASB amendment has clarified treatment of certain cancellations of options granted to employees. This follows similar changes issued in January 2008 by the board.

Under FRS 20 and IFRS 2 - where share options are granted to employees - the value of the option at the grant date is treated as an expense. This expense will be over the period where services are received from the employees in exchange for options – normally the period until the options can be exercised.

Where an option can’t be exercised because vesting conditions are not met - for example, if a performance target is not met, or the employee leaves the employment - the cost of the options is reversed. However, if the employer cancels the options, the full value of the options is charged to the profit and loss account.

The IASB has issued an amendment which would clarify that options that are cancelled by the employee (other than on leaving employment) should be treated in the same way as cancellations by the employer.

Read the ASB press release.

New auditing standard on management responsibilities

The International Auditing and Assurance Standards Board has issued a new standard - ISA 580. It requires auditors to ask management to provide written representations on two fundamental matters:

• that management has fulfilled its responsibility for the preparation and presentation of the financial statements
• that management has provided the auditor with all relevant information, and that all transactions have been recorded and are reflected in the financial statements.

Read the IFAC press release.

UNITED KINGDOM

New head for the government finance profession

Jon Thompson has replaced Dame Mary Keegan as head of the UK government finance profession. He will combine this post with his role as director general corporate services at the department for children, schools and families.

Read the Treasury press release.

Smaller company threshold to increase by 20%

The UK ASB will update the Financial Reporting Standard for Smaller Entities. The anticipated changes are a result of the Companies Act 2006.

No changes will be made to FRSSE requirements for Generally Accepted Accounting Practice. The most significant changes include a 20% increase in the thresholds for qualifying as a smaller company, a requirement to report political and charitable donations separately, and an increase in the threshold for reporting these donations to £2,000.

The ASB intends to published a revised FRSSE by the end of May.

For more information, see the ASB press release.

May 2008

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