Friday, August 31, 2007
Resources
Thursday, August 30, 2007
Mail order looks beyond the printed page
 Female shoppers account for the bulk of Littlewoods' online buyers |
In the second of a series of features on current retail trends, BBC News business reporter Gavin Stamp examines the mail order industry's efforts to master internet shopping. Read original article.
Not everyone may openly admit to filling their cupboards and wardrobes by mail order.
The reality is that millions of us do - and mail order transactions are worth more than £9bn a year.
But the industry has been suffering something of an identity crisis in recent years.
The rapid growth of Tesco and other supermarkets into clothes and household appliances - staple mail order goods - has squeezed smaller retailers.
At the same time, the transformation of shopping habits by the internet has left the trusty catalogue looking somewhat dated as a retail proposition.
The industry has been on the back foot in the face of these trends with sales - excluding door-to-door transactions - at their lowest level in a decade.
"The drop is due to a consumer preference for non-mail order, not by a diminishing preference for remote shopping," says Richard Hyman, from retail specialist Verdict Research.
But could the solution to these problems reside in one of its main origins - the seemingly unstoppable march of e-commerce?
Verdict certainly thinks so, saying firms can exploit the opportunities offered by the internet to attract younger, wealthier customers who will shop more frequently and spend more.
Internet revolution
While some mail order firms may have been slow to grasp the commercial potential of the internet, many are now evangelical about its impact.
"Historically,l mail order has very much been viewed as a Northern thing and aimed at the lower end of the socio-economic scale," says Patrick Jolly, chief executive of Findel, a leading player in the sector for more than 40 years.
"The advent of the internet is driving cultural and social changes within the UK and a much broader demographic is comfortable with home shopping."
Online orders now account for 50% of Findel's mail order sales, while one in three sales at Littlewoods Shop Direct - the UK's market leader - is made online.
Littlewoods, which was formed in 2005 by the merger of the Littlewoods store chain and the home shopping business of Great Universal Stores, expects online orders to account for half of all sales by 2009 - equivalent to £750m in annual turnover.
"This is a consumer-led shopping phenomenon," says its chief executive, Mark Newton-Jones.
Led by young women buying clothes online and by text in increasing numbers, demand is being driven by choice, price and convenience.
Catalogues critical
But despite the internet's growth as a selling tool, the industry believes the tried-and-tested catalogue still has plenty of life in it yet.
Littlewoods says the two platforms are working in tandem while Findel has launched catalogues for two online-only businesses it bought last year.
"Nothing works as well as sending the catalogue, regardless of what percentage of orders we take through the web," says Richard Bell, head of marketing for clothing firm Boden.
I don't think you will truly be able to do without the catalogue for some time yet. The catalogue is still the king 
Sending out 30 million catalogues a year is a costly and energy-intensive business, and Mr Bell acknowledges he would like the internet to become the firm's "primary selling tool".
But even though 65% of Boden's orders now arrive via the internet, it appears there is nothing quite like a glossy brochure featuring attractive models to get customers' attention.
"I don't think you will truly be able to do without the catalogue for some time yet," Richard Bell says.
"The catalogue is still the king."
Mail order firms at all ends of the spectrum face the challenge of trying to migrate their customers online without undermining sales.
Findel, which has bought six mail order businesses in the past 18 months, says brand loyalty and product differentiation will be key to driving sales.
Having a highly-functional website is also key to attracting new customers.
To this end, Boden is looking at ways of showcasing "live" stock while Littlewoods' sites carry video streaming, outfit matching services and price comparisons.
Littlewoods believes emerging web technology will enable it to offer personalised shopping, approximating a virtual High Street experience.
"This new technology will make the whole experience of online shopping more interactive for the consumer," says Mark Newton-Jones.
"Consumers will be able to adapt a website to suit their needs. If you only want to look at clothing in a size 12, that's all you will see."
The internet is also helping firms' expand its horizons. Boden's website helped it develop its fast-growing US business, which now accounts for 30% of total sales.
Only next year will it establish an actual physical presence across the Atlantic, with a warehouse in Pennsylvania.
High Street dilemma
But this two-pronged formula does appear to have its limitations.
For some people, the second-hand experience offered by mail order - in whatever format - will never match up to the real thing of pounding the High Street and its changing rooms.
Boden recently opened a second store and is mulling more openings.
"There is still a significant number of people who do not want to buy mail order, for whatever reason," Richard Bell admits.
"If you want to grow the business - and there is a large number of people who are resistant to any form of home shopping - then retail is the way we are going to get them."
Littlewoods, meanwhile, still has 28 stock clearance outlets.
But many mail order firms such as Freemans, now owned by German firm Otto, abandoned the High Street long ago.
By doing so, they avoided the high fixed costs of operating stores, which can become a massive burden if the economy turns sour.
Mail order firms are somewhat less dependent on impulse spending - the first to be reined in during a downturn - than High Street stores.
Findel's Patrick Jolly says mail order firms have generally performed better than their "bricks and mortar" counterparts in the past year but they are not immune to economic trends.
They also feel the pinch when rising borrowing costs depress consumer spending.
"When money's tight, money's tight," says Boden's Richard Bell. "Everyone's going to find the same thing."
When to exit a failing venture
| Standard economic theory treats human beings as rational, calculating machines, but behavioral economics holds that the machine often breaks down. Businesspeople, no less than others, are subject to cognitive biases that can undermine their objectivity—particularly in emotionally traumatic and potentially career-destroying decisions to exit foundering businesses or cancel struggling projects. | |||||||
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| Distortions and deceptions in strategic decisions | Hidden flaws in strategy |
Wednesday, August 29, 2007
IFRS around the world
RED IFRS APPROVED- ORANGE STATED MOVE TO IFRS ADOPTION - BRAZIL, CANADA...
- YELLOW ADAPTING TO IFRS - USA, MEXICO, CHINA
UPDATED 3/1/2009
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.
- The IASC Foundation held its third IFRS conference in Zurich on 23 and 24 May. Nearly 400 people from 42 countries attended. ‘Delegates appreciate the opportunity to discuss theirspecific circumstances with Board members and senior staff’, said Michael Wells, Senior Manager of the IASC Education Initiative, who organised the conference. ‘Our conferences are aimed at anybody who is involved in or affected by IFRSs’, underlined Wells. ‘It provides the opportunity to meet and discuss IFRS developments with IASB members and project managers.’ The Zurich conference was opened by Sir David Tweedie, Chairman of the IASB. The first day was dedicated to presenting views on IFRSs from the analyst and preparer community.Presentations were given by senior representatives from Novartis, UBS and Standard & Poors,followed by discussion rounds. Keynote speaker for the conference was the Chief Accountant of the US Securities and Exchange Commission (SEC), Conrad Hewitt. His speech focused on the underpinnings of the international financial reporting system. Of particular interest were the next steps the SEC intends to take relating to the acceptance of IFRSs.The second day focused on the IASB’s active agenda projects. The programme began with a general presentation on the Board’s recent activities followed by five intensive break-out sessions on developments in major projects: the conceptual framework, the reporting entity,consolidations and joint ventures, financial statement presentation, and business combinations.‘Feedback is invaluable, and has been very positive’, said Wells. He added ‘We listened to comments from past conferences, and this year extended the duration of break‑out sessions to allow more interaction. Furthermore, we held separate half-day pre-conference workshops on specialised aspects of financial reporting.’ In August this year the conference and workshops will, for the first time, take place in Asia, being hosted in Singapore. ‘We have decided to change location every year to underline the Foundation’s global objective’, said Wells. But this is not the only effort to be inclusive. ‘We also offer discounts of up to 70 per cent to people from emerging and developing countries’, he added.
IASC Foundation®: IFRS® Conference
Wednesday 23 May and Thursday 24 May 2007
The Swissôtel Zürich (Switzerland)
Telephone: +44 (0)20 7017 5509 Fax: +44 (0)20 7017 7824
Email: registration@iascfconference.org Web: www.iascfconference.org
IFRS
IFRS conference
in Zurich
IASC Foundation, IFRS Conference
29 and 30 August 2007, Singapore
For further information visit: www.iascfconference.org
In the next issue
Chinese perspective—the adoption of IFRSs
XBRL and IFRSs—all change in financial reporting?
Spotlight—Robert Bruce talks to new Board members
Getting engaged—the IASB’s consultation process
Project update—financial statement presentation
European Print Media makes a move on the US
As print readership declines at home, Europe's news outlets are using their Web portals to expand into the U.S. market. Can they survive?
For many Brits, reading a daily newspaper remains a ritual of life as indelible as sipping a morning cup of tea or complaining about the weather. From down-market tabloids such as News Corp.'s (NWS) The Sun and Trinity Mirror's (TNI.L) The Daily Mirror, to the traditionally high-brow broadsheets such as The Times of London (also News Corp.) and Telegraph Media Group's The Daily Telegraph, Britain boasts a remarkable 13 daily national newspapers with a combined daily circulation of almost 3 million.
The industry has been hit hard, though, by declining advertising revenue over the last decade, as more and more readers turn to the Internet for breaking news. In response, British media outlets are increasingly looking abroad for expansion—especially to the U.S.—to shore up their bottom lines and exploit a growing thirst for credible international news coverage around the world.
Global Readers Flock to Web Sites
Stark numbers help explain why. According to the London-based Audit Bureau of Circulations, domestic British newspaper circulation during the six-month period from February, 2007, to July, 2007, fell 2.04% vs. a year earlier. But Web site traffic is on the upswing. Guardian Unlimited, for instance, the online portal for Britain's The Guardian newspaper, pulled in 16 million unique users globally in May, 2007, up 10.3% from a year earlier and a solid 122% higher than four years ago.
Even more impressive, nearly 6 million of the Guardian's visitors came from the U.S., compared with 4.4 million from Britain. "The strategy is to use the Web site to become a global brand," says Carolyn McCall, chief executive of the Guardian Media Group, the parent company of The Guardian newspaper. "By gaining as much exposure as possible, we can diversify our revenue, expand our reach, and increase our journalistic opportunities."
The Guardian has been ahead of the curve in reaching out to a non-British audience. That opportunity came to the fore during the aftermath of the second Iraq war, when the newspaper's left-of-center editorial stance against the conflict helped boost its global audience, particularly in the U.S.
The Guardian's U.S. Moves
Now, The Guardian is looking to cash in on its growing North American presence, adding additional reporters to its U.S. editorial team and targeting U.S. advertisers. In a project expected to take 18 months, the newspaper hopes to turn its Web site into the "leading liberal voice," by providing content directly tailored to a part of the U.S. audience not served by more conservative domestic publishers.
For McCall, this strategy remains "low-risk," despite the prospect of increased competition with the likes of The New York Times (NYT) and The Washington Post (WPO). Yet some media analysts caution that European publishers can fall on their faces if they get too ambitious in the huge and saturated U.S. market.
"The problem is when European media outlets go after the mainstream U.S. audience," says Paul Zwillenberg, head of the media practice at London-based OC&C Strategy Consultants, who argues that targeting niches is a wiser bet. "Operations like The Guardian, which already has a presence in the U.S., can be successful by expanding their existing products."
News-Hungry U.S. Audience
That's the approach taken by The Times, owned by Rupert Murdoch's News Corp., which took the unusual step in 2006 of launching a U.S. print edition distributed solely in New York and Washington. According to editor Robert Thomson, the newspaper's North America edition taps into growing interest for coverage of global current affairs. "U.S. readers want and need sophisticated global political and economic coverage," he says. The Times also has revamped its Web site to entice more international readers.
This increased focus on a U.S. audience isn't just limited to newspapers either. The enduring BBC—affectionately known at home as "Auntie"—has thrown down the gauntlet to its American rivals by expanding its 24-hour news channel, BBC World News, to compete in the U.S. against CNN (TWX) and Fox News (NWS).
The strategy comes on the back of the runaway success of the BBC news Web site, which pulls in 6.4 million unique U.S. visitors each month, according to London-based Internet researcher Nielsen//NetRatings. So far, pickups of the BBC's 24-hour news channel have been confined mainly to cable operators in the Northeast. But the company remains hopeful about extended distribution. "We have seen a real interest in international news in the U.S.," says Jeremy Hillman, editor of BBC World. "There's a large appetite for the sort of news we produce."
Research statistics suggest as much. According to a study by Virginia-based Luntz Maslansky Strategic Research, 47% of those polled in the U.S. rated international TV news coverage as either fair or poor. Among sources of global news coverage, respondents ranked BBC highest for credibility and No. 2 for reputation, after CNN. Rivals such as Fox, MSNBC (GE), and local news shows were far behind.
"If BBC World News targets a specific market, rather than catering for a mass audience, it could be quite successful," says OC&C's Zwillenberg.
Translating Success into English
The appeal of the U.S. market hasn't gone unnoticed by other European media companies, some of whom are trying to push into English-language media to grab new audiences in the U.S. and other English-speaking countries. The most successful to date has been German weekly news magazine Der Spiegel (a content partner for BusinessWeek.com), owned by Axel Springer (SPRGN.DE), whose English-language Web site, launched in 2004, has seen rapid growth.
According to Matias von Blumencron, Der Spiegel's online editor, the expansion has been key not only to increasing the magazine's brand presence overseas, but also to boosting online advertising revenue by targeting English-language consumers. "By expanding our activities, it has given us a chance to show our international audience that we are a voice from Central Europe with a specific point of view," he says, adding that approximately a quarter of Der Spiegel's 4.58 million unique monthly online visitors are now generated from the magazine's English-language Web site.
Despite such bullish talk, success in the brutally competitive U.S. media industry is by no means assured. Last year's $4.6 billion sale of the Knight-Ridder newspaper chain to the McClatchy Co. (MNI), as well as the recently agreed-to $16 billion buyout of Tribune Co. (TRB), demonstrates the perilous state even of well-entrenched media firms as they adjust to declining circulations and the growing impact of the Web.
It's a tough time in the media business, and everybody is looking for growth outside their shrinking home markets. For European media giants, America is too tempting a target to overlook. But some are bound to get burned trying.
Tuesday, August 28, 2007
Publicis Buys Communication Central Group, China's Biggest Indie Ad Agency
Advertising group Publicis is still on the acquisition trail to beef up its digital marketing faculties .
The Paris-based outfit has bought Communication Central Group (CCG),
CCG, which has offices in
Publicis is aiming to increase revenue from digital to 25 percent by 2010.
In December, it spent $1.3 billion to acquire Digitas, which had previously worked closely with CCG.
Last month, it bought Business Interactif, a French agency, for $182 million; and it is rolling out as “Digitas
The latest deal, overnight, gives it big clout in the
CCG CEO and founder Neil Runcieman will become president and managing director of Digitas Greater China.
China and the Web :
At the end of 2006, China had 26% of the world's malware-infected computers, more than any other country, according to a report from Symantec. Read full article here.
Carrefour China in bribes probe
|
Carrefour has been expanding internationally |
Workers at French supermarket chain Carrefour are being probed by Chinese authorities on suspicion of bribery. Read original article.
Eight employees are alleged to have given contracts to fresh food suppliers in exchange for bribes, said reports.
Carrefour confirmed that it recently unveiled "practices in contradiction with Chinese laws".
It added that it was working closely with the authorities to help shed light on the investigation, but stressed that it only applied to "isolated cases".
The firm said that in order not to undermine the ongoing investigation it would reveal no further details.
Carrefour, which is the world's second-biggest retailer, has been keen to expand in
- 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.
- The IASC Foundation held its third IFRS conference in Zurich on 23 and 24 May. Nearly 400 people from 42 countries attended. ‘Delegates appreciate the opportunity to discuss theirspecific circumstances with Board members and senior staff’, said Michael Wells, Senior Manager of the IASC Education Initiative, who organised the conference. ‘Our conferences are aimed at anybody who is involved in or affected by IFRSs’, underlined Wells. ‘It provides the opportunity to meet and discuss IFRS developments with IASB members and project managers.’ The Zurich conference was opened by Sir David Tweedie, Chairman of the IASB. The first day was dedicated to presenting views on IFRSs from the analyst and preparer community.Presentations were given by senior representatives from Novartis, UBS and Standard & Poors,followed by discussion rounds. Keynote speaker for the conference was the Chief Accountant of the US Securities and Exchange Commission (SEC), Conrad Hewitt. His speech focused on the underpinnings of the international financial reporting system. Of particular interest were the next steps the SEC intends to take relating to the acceptance of IFRSs.The second day focused on the IASB’s active agenda projects. The programme began with a general presentation on the Board’s recent activities followed by five intensive break-out sessions on developments in major projects: the conceptual framework, the reporting entity,consolidations and joint ventures, financial statement presentation, and business combinations.‘Feedback is invaluable, and has been very positive’, said Wells. He added ‘We listened to comments from past conferences, and this year extended the duration of break‑out sessions to allow more interaction. Furthermore, we held separate half-day pre-conference workshops on specialised aspects of financial reporting.’ In August this year the conference and workshops will, for the first time, take place in Asia, being hosted in Singapore. ‘We have decided to change location every year to underline the Foundation’s global objective’, said Wells. But this is not the only effort to be inclusive. ‘We also offer discounts of up to 70 per cent to people from emerging and developing countries’, he added.
IASC Foundation®: IFRS® Conference
Wednesday 23 May and Thursday 24 May 2007
The Swissôtel Zürich (Switzerland)
Telephone: +44 (0)20 7017 5509 Fax: +44 (0)20 7017 7824
Email: registration@iascfconference.org Web: www.iascfconference.org
IFRS
IFRS conference
in Zurich
IASC Foundation, IFRS Conference
29 and 30 August 2007, Singapore
For further information visit: www.iascfconference.org
In the next issue
Chinese perspective—the adoption of IFRSs
XBRL and IFRSs—all change in financial reporting?
Spotlight—Robert Bruce talks to new Board members
Getting engaged—the IASB’s consultation process
Project update—financial statement presentation
International Financial Reporting Standards - wikipedia
From Wikipedia, the free encyclopedia
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International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB).
Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS.
IFRS are used in many parts of the world, including the European Union, Hong Kong, Australia, Russia, South Africa, Singapore and Pakistan. Nearly 100 countries currently require or permit the use of, or have a policy of convergence with, IFRSs. [1]
For a current overview see IAS PLUS's list of all countries that have adopted IFRS.
The Australian Accounting standards, previous to 1 January 2005, were based around accounting standards developed by the Australian Accounting Standards Board (AASB). As a result of pressure towards international harmonisation, the AASB had been working towards a convergence between the Australian Standards and the IFRS. From 1 January 2005, the Australian equivalent of IFRS have been fully implemented as AASB 101 - 141. It is a requirement that all reporting entities adopt the standards as they have replaced the previous Australian generally accepted accounting principles.
Due to the accounting standards operating halfway through the year, the requirements can be summarised as follows:
- Year ended 30 June 2004—Prepare under pre IFRS standards and state in notes the expected effect of the adoption of IFRS
- Year ended 30 June 2005—Prepare under pre IFRS standards and prepare a reconciliation to IFRS standards
- Year ended 30 June 2006—Prepare under Australian Equivalents to IFRS standards
All publicly traded EU companies have been required to prepare their consolidated accounts using IFRS since 2005. Prior to 2005 there were around 350 publicly listed companies that used IFRS — since 2005 the figure has been around 7,000.
In order to be approved for use in the EU, standards must be endorsed by the Accounting Regulatory Committee (ARC), which includes representatives of member state governments and is advised by a group of accounting experts known as the European Financial Reporting Advisory Group. As a result IFRS as applied in the EU may differ from that used elsewhere.
Parts of the standard IAS 39: Financial Instruments: Recognition and Measurement were not originally approved by the ARC. IAS 39 was subsequently amended, removing the option to record financial liabilities at fair value, and the ARC approved the amended version. The IASB is working with the EU to find a way to an acceptable way to remove a remaining anomaly in respect of hedge accounting.
As the standards are part of European law the approved standards and approved subsequent changes must be published in the Official Journal of the European Union. On October 13th 2003 the first publication of the standards was included in PB L 261. Changes to the earlier published IAS and IFRS can be monitored using the webpage of the Directorate Internal Market of the European Union on the implementation of the IAS in the European Union.
From 2007 companies traded on the Alternative Investment Market in the UK will be required to prepare their accounts using IFRS.
The government of Russia has been implementing a program to harmonize its national accounting standards with IFRS since 1998. Since then twenty new accounting standards were issued by the Ministery of Finance of Russian Federation aiming to align accounting practices with IFRS. Despite of these efforts essential differences between national accounting standards and IFRS remain. From 2004 all commercial banks are obliged to prepare financial statements in accordance with both national accounting standards and IFRS. Full transition to IFRS is delayed and is expected to take place from 2010.
Turkish Accounting Standards Board translated IFRS into Turkish in 2006. As of 31 December 2006 Turkish companies listed in Istanbul Stock Exchange are required to prepare IFRS reports.
In 2002 at a meeting at Norwalk, Connecticut, the IASB and the US Financial Accounting Standards Board agreed to harmonise their agenda and work towards reducing differences between IFRS and US GAAP (the Norwalk Agreement). In February 2006 FASB and IASB issued a Memorandum of Understanding including a programme of topics on which the two bodies will seek to achieve convergence by 2008.
The United States Securities and Exchange Commission currently requires all overseas companies listed in the US to prepare their results either under US GAAP or according to their local requirements with a footnote reconciling their local GAAP to US GAAP. This imposes expense on companies which are listed on exchanges both in the US and another country. The SEC has proposed a change to its rules to remove the reconciliation requirement for foreign issuers which prepare accounts under IFRS, indicatively from 2009.[2]. US registered companies will still be required to use US GAAP.
Convergence projects with FASB
- Government grants
- Joint ventures
- Impairment
- Income tax
- Investment properties
- Research and development
- Subsequent events
- Derecognition (Asset and/or liabilities)
- Financial instruments (replacement of existing standards -> Merge all 3 standards)
- Intangible assets
- Liabilities and Equity
IFRSs are considered a "principles-based" set of standards in that they establish broad rules as well as dictating specific treatments.
International Financial Reporting Standards comprise:
- International Financial Reporting Standards (IFRS)—standards issued after 2001
- International Accounting Standards (IAS)—standards issued before 2001
- Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC)—issued after 2001
- Standing Interpretations Committee (SIC)—issued before 2001
There is also a Framework for the Preparation and Presentation of Financial Statements which describes some of the principles underlying IFRS
The following IFRS statements are currently issued:
- IFRS 1 First-time Adoption of International Financial Reporting Standards
- IFRS 2 Share-based Payment
- IFRS 3 Business Combinations
- IFRS 4 Insurance Contracts
- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
- IFRS 6 Exploration for and Evaluation of Mineral Resources
- IFRS 7 Financial Instruments: Disclosures
- IFRS 8 Operating Segments (effective Jan. 1st, 2008)
- IAS 1: Presentation of Financial Statements
- IAS 2: Inventories
- IAS 7: Cash Flow Statements
- IAS 8: Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Practices
- IAS 10: Events After the Balance Sheet Date
- IAS 11: Construction Contracts
- IAS 12: Income Taxes
- IAS 14: Segment Reporting
- IAS 15: Information Reflecting the Effects of Changing Prices
- IAS 16: Property, Plant and Equipment
- IAS 17: Leases
- IAS 18: Revenue
- IAS 19: Employee Benefits
- IAS 20: Accounting for Government Grants and Disclosure of Government Assistance
- IAS 21: The Effects of Changes in Foreign Exchange Rates
- IAS 22: Business Combinations
- IAS 23: Borrowing Costs
- IAS 24: Related Party Disclosures
- IAS 26: Accounting and Reporting by Retirement Benefit Plans
- IAS 27: Consolidated Financial Statements
- IAS 28: Investments in Associates
- IAS 29: Financial Reporting in Hyperinflationary Economies
- IAS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions
- IAS 31: Financial Reporting of Interests in Joint Ventures
- IAS 32: Financial Instruments: Disclosure and Presentation
- IAS 33: Earnings Per Share
- IAS 34: Interim Financial Reporting
- IAS 35: Discontinuing Operations
- IAS 36: Impairment of Assets
- IAS 37: Provisions, Contingent Liabilities and Contingent Assets
- IAS 38: Intangible Assets
- IAS 39: Financial Instruments: Recognition and Measurement
- IAS 40: Investment Property
- IAS 41: Agriculture
- Preface to International Financial Reporting Interpretations (Updated to January 2006)
- IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities (Updated to January 2006)
- IFRI Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (Issued February 2006)
- IFRIC 8 Scope of IFRS 2 (Issued February 2006)
- IFRIC 9 Reassessment of Embedded Derivatives (Issued April 2006)
- IFRIC 10 Interim Financial Reporting and Impairment (Issued November 2006)
- IFRIC 11 IFRS 2—Group and Treasury Share Transactions (Issued November 2006)
- IFRIC 12 Service Concession Arrangements (Issued November 2006)
- SIC 7 Introduction of the Euro (Updated to January 2006)
- SIC 10 Government Assistance—No Specific Relation to Operating Activities (Updated to January 2006)
- SIC 12 Consolidation—Special Purpose Entities (Updated to January 2006)
- SIC 13 Jointly Controlled Entities—Non-Monetary Contributions by Venturers (Updated to January 2006)
- SIC 15 Operating Leases—Incentives (Updated to January 2006)
- SIC 21 Income Taxes—Recovery of Revalued Non-Depreciable Assets (Updated to January 2006)
- SIC 25 Income Taxes—Changes in the Tax Status of an Entity or its Shareholders (Updated to January 2006)
- SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease (Updated to January 2006)
- SIC 29 Disclosure—Service Concession Arrangements (Updated to January 2006)
- SIC 31 Revenue—Barter Transactions Involving Advertising Services (Updated to January 2006)
- SIC 32 Intangible Assets—Web Site Costs (Updated to January 2006)
References to IFRS standards given in the standard convention, for example (IAS1.14) refers to paragraph 14 of IAS1, Presentation of Financial Statements
Content of financial statements
IFRS financial statements consist of (IAS1.8)
- a balance sheet
- income statement
- either a statement of changes in equity or a statement of recognised income or expense (“SORIE”)
- a cash flow statement
- notes, including a summary of the significant accounting policies
Comparative information is provided for the previous reporting period (IAS 1.36). An entity preparing IFRS accounts for the first time must apply IFRS in full for the current and comparative period although there are transitional exemptions (IFRS1.7).
Consolidated financial statements
The ultimate parent company of a group must produce consolidated financial statements including all of its subsidiaries (IAS27.9). A subsidiary is an entity which is controlled by another entity; control is the power to govern the financial and operating policies (IAS27.4). In preparing consolidated financial statements, balances, transactions, income and expenses with other group members are eliminated (IAS27.24).
Acquisition accounting and goodwill
All business combinations are accounted for by applying the purchase method, requiring that one entity is identified as acquirer (IFRS3.17).
The acquiring entity assesses the fair value of the separate assets, liabilities and contingent liabilities in the business it has acquired; this can include identification of intangible assets, for example customer relationships, which are not commonly recognised except on acquisitions (IFRS3.36)
The difference between the cost of the business combination and the fair value of the assets and liabilities acquired represents goodwill (IFRS3.51). Goodwill is not subject to amortisation, but is assessed for impairment at least annually (IFRS3.54 and IAS36.10). Impairment is charged to the income statement. (IAS36. 60). Impairment provisions on goodwill are not subsequently reversed (IAS36.124).
Property, plant and equipment is measured initially at cost (IAS16.15). Cost can include borrowing costs directly attributable to the acquisition, construction or production if the entity opts to adopt such a policy consistently (IAS23.11).
Property, plant and equipment may be revalued to fair value if the entire class of assets to which it belongs is so treated (for example, the revaluation of all freehold properties) (IAS16.31 and 36). Surpluses on revaluation are recognised directly to equity, not in the income statement; deficits on revaluation are recognised as expenses in the income statement (IAS16.39 and 40).
Depreciation is charged to write off the cost or valuation of the asset over its estimated useful life to down to the recoverable amount (IAS16.50). The cost of depreciation is recognised as an expense in the income statement (IAS16.48). The depreciation method and recoverable amount is reviewed at least annually (IAS16.61). In most cases the method is “straight line”, with the same depreciation charge from the date when an asset is brought into use until it is expected to be sold or no further economic benefits obtained from it, but other patterns of depreciation are used if assets are used proportionately more in some periods than others (IAS16.56).
Joint ventures, associates and other investments
Joint ventures are investments other than subsidiaries where the investor has a contractual arrangement with one or more other parties to undertake an economic activity that is subject o joint control (IAS31.3).
Joint ventures may be accounted for using either
- proportionate consolidation, accounting for the investor’s share of the assets, liabilities, income and expenses of the joint venture (IAS31.30).
- equity method. The investment is stated initially at cost and adjusted thereafter for the investor’s share of post-acquisition changes in net assets. The income statement includes the investor’s share of profit or loss of the investment (IAS31.38).
Associates are investments, other than joint ventures and subsidiaries, in which the investor has a significant influence (the power to participate in financial and operating policy decisions) (IAS28.2). It is presumed that this will be the case if the investment is greater than 20% of the investee unless it can be clearly demonstrated not to be the case (IAS28. 6). Associates are accounted for using the equity method.
Investments other than subsidiaries, joint ventures and associates are accounted for at their fair values unless (IAS39.9 and 46):-
- they have fixed or determinable maturity periods and are expected to be held to maturity, in which case they are stated at amortised cost (providing a constant rate of return until maturity;
- there is no reliable market value, in which case they are measured at cost.
Inventory is stated at the lower of cost and net realisable value (IAS2.9).
Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing items to their present location and condition (IAS2.100. Where individual items are not identifiable, the “first in first out” (FIFO) method is used, such that cost represents the most recent items acquired. “Last in first out” (LIFO) is not acceptable (IAS2.25).
Net realisable value is the estimated selling price less the costs to complete and costs to sell (IAS2.6).
Receivables (debtors) and payables (creditors)
Receivables and payables are recorded initially at fair value (IAS39.43). Subsequent measurement is stated at amortised cost (IAS39.46 and 47). In most cases, trade receivables and trade payables can be stated at the amount expected to be received or paid; however, it is necessary to discount a receivable or payable with a substantial credit period (see for example IAS18.11 for accounting for revenue).
If a receivable has been impaired its carrying amount is written down its recoverable amount (the higher of value in use and its fair value less costs to sell). Value in use is the present value of cash flows expected to be derived from the receivable (IAS36.9 and 59).
Borrowing is stated at amortised cost using the effective interest method. This requires that the costs of arranging the borrowing are deducted from the principal value of debt and are amortised over the period of the debt (IAS39.46).
Provisions are liabilities of uncertain timing or amount (IAS37.10). Provisions are recognised when an entity has, at the balance sheet date, a present obligation as a result of a past event, when it is probable that there will be an outflow of resources (for example a future cash payment) and when a reliable estimate can be made of the obligation (IAS37.14). Restructuring provisions are recognised when an entity has a detailed plan for the restructuring and has raised an expectation amongst those affected that it will carry out the restructuring (IAS37.72).
Revenue is measured at the fair value of consideration received or receivable (IAS18.9).
Revenue for the sale of goods cannot be recognised until the entity has transferred to the buyer the significant risks and rewards of ownership of the goods (IAS18.14).
Revenue for rendering of services is accounted for to the extent that the stage of completion of the transaction can be measured reliably (IAS18.20).
Employee costs are recognised when an employee has rendered service during an accounting policy (IAS19.10). This requires accruals for short-term compensated absences such as vacation (holiday) pay (IAS19.11). Profit sharing and bonus plans require accrual when an entity has an obligation to make such payments at the reporting date (IAS19.17).
Where an entity receives goods or services in return for the issue of its own shares or equity instruments it accounts for the fair value of those goods or services as an expense or as an asset (IFRS2.7). Where it offers options and other share based incentives to its employees it is required to assess the market value of the instruments when they are are first granted and then to charge the cost over the period in which the benefit vests (IFRS2.10).
Taxes payable in respect of current and prior periods are recognised as a liability to the extent they are unpaid at the balance sheet date (IAS12.12).
Deferred tax liabilities are recognised for taxable temporary differences at the balance sheet date which will result in tax payable in future periods (for example, where tax deductions have been claimed for capital expenditure before the cost of depreciation has been charged in the income statement) (IAS12.39). Deferred tax assets are recognised for deductible temporary differences at the balance sheet date (for example, tax losses which can be used in future periods) to the extent that it is probable that these will reverse in future and that there will be taxable profits against which they can be offset (IAS 12.44).
IFRS cash flow statements show movements in cash and cash equivalents. This includes cash on hand and demand deposits, short term liquid investments readily convertible to cash and overdrawn bank balances where these readily fluctuate from positive to negative (IAS7.6 to 9). IFRS cashflow statements do not need to show movements in borrowings or net debt.
Cash flow statements may be presented using either a direct method, in which major classes of cash receipts and cash payments are disclosed, or using the indirect method, whereby the profit or loss is adjusted for the effect of non-cash adjustments (IAS7.18).
Items on the cash flow statement are classified as operating activities, investing activities and financing activities (IAS7.10).
Leasing (accounting by lessees)
Leases are classified:-
- finance leases, being a lease which transfers substantially all the risks and rewards incidental to ownerships to the lessee. Finance leases are recognised on the balance sheet as an asset (the asset being leased) and as a liability (liability to the lessor) (IAS17.4, 20 and 25)
- operating leases, a being lease other than a finance lease. The cost of an operating leases is recognised in the income statement as the asset is used (IAS17.4 and 33)
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction (IFRS1 App A).
Amortised cost uses the effective interest method to provide a constant rate of return on an asset or liability until maturity (IAS39.9)
Framework for the Preparation and Presentation of Financial Statements
The Framework for the Preparation and Presentation of Financial Statements states basic principles for IFRS.
The framework states that the objective of financial statements is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions.
The Framework can divide into the following sections:
- Purpose and status
- Scope
- Objective
- Underlying assumptions
- Qualitative characteristics of financial statements
- Elements of financial statements
- Recognition of elements of financial statements
- Measurement of the elements of financial statements
The underlying assumptions used in IFRS are:
- Accrual basis - the effect of transactions and other events are recognised when they occur, not as cash is received or paid
- Going concern - the financial statements are prepared on the basis that an entity is a going concern and will continue in operation for the foreseeable future
Note that matching is not a fundamental assumption for IFRS. IFRS follows a balance sheet approach:-
Equity at year-end = calculation base on IFRS.
Net profit = Equity at year-end minus Equity at the beginning of the year
Qualitative characteristics of financial statements
The Framework describes the qualitative characteristics of financial statements as being
- Understandability
- Relevance
- Reliability and
- Comparability.
Elements of financial statements
The Framework sets out the statement of financial position (balance sheet) as comprising:-
- Assets - resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
- Liabilities - a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits
- Equity - the residual interest in the assets of the entity after deducting all its liabilities
- Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or reductions in liabilities.
- Expenses are decreases in such economic benefits.
Recognition of elements of financial statements
An item is recognised in the financial statements when:-
- it is probable that a future economic benefit will flow to or from an entity and
- when the item has a cost or value that can be measured with reliability.
- International Accounting Standards Board (2007): International Financial Reporting Standards 2007 (including International Accounting Standards (IASs™) and Interpretations as at 1st January 2007), LexisNexis, ISBN 1422418138
- Original texts of IASs/IFRSs, SICs and IFRICs adopted by the Commission of the European Communities and published in Official Journal of the European Union http://ec.europa.eu/internal_market/accounting/ias_en.htm#adopted-commission
- ^ IASB:"IFRS around the world", http://www.iasb.org/About+Us/About+IASB/IFRS+Around+the+World.htm, Retrieved on 2007-02-06
- ^ SEC: "SEC proposed rulemaking"http://www.sec.gov/spotlight/ifrsroadmap.htm, Retrieved on 2007-07-14
- ^ IASB: "IASB Work Plan" http://www.iasb.org/Current+Projects/IASB+Projects/IASB+Work+Plan.htm, Retrieved on 2007-04-19
- The International Accounting Standards Board - Has short summaries of all IFRS standards, news and status of projects in progress
- PwC IFRS page with news and downloadable documents
- KPMG IFRS group with news and downloadable documents
- Ernst & Young IFRS page with news and downloadable documents
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