EU enforcers make common cause

The European Securities and Markets Authority (ESMA), was formed to ensure the effective and consistent application of European Securities and Markets legislation and more specifically that of International Financial Reporting Standards in financial statements. ESMA has highlighted the areas of focus for European national regulators when performing their reviews of December 2012 financial statements. Which of the following areas is not an area of focus for the European regulators?

Contingent Liabilities

Defined benefit obligations

Financial instruments

Impairment of non-financial assets

As a result of the financial crisis, transparency of information related to financial instruments has become a top priority for investors, issuers and regulators. IFRS 7, Financial Instruments: Disclosures, requires entities to disclose certain information to users. Which of the following disclosures is incorrect in terms of the disclosures required by IFRS 7?

Disclosures by class of financial instruments that are appropriate to the nature of the information disclosed

The significance of financial instruments for the entity`s financial position and performance

The nature and risks arising from financial instruments to which the entity is exposed only at the end of the reporting period

How the entity manages risks relating to financial instruments

As a result of the sovereign debt crisis, the investors' focus has been on how this crisis impacted on the financial performance and financial position of listed financial institutions. Which of the following disclosures is not being monitored by ESMA?

Non-sovereign exposures by type including qualitative and quantitative  information about credit risk

The recycling of profits made on non derivative financial assets

Country-by-country disclosures, including quantitative disclosures on gross and net exposures to sovereign debt

The impact of credit derivatives used in managing material exposures to financial instruments

IAS 39, Financial instruments: Recognition and Measurement, requires that entities assess whether there is any objective evidence that a financial asset is impaired. An impairment loss is recognised if and only if such evidence exists. When does objective evidence of impairment exist?

As a result of a loss event and when that loss event has an impact on estimated cash flows

When a loss event only has occurred

When an event has had an impact on estimated cash flows

Where an investment`s fair value is below cost in the short term

IAS 39 states that a significant or prolonged decline in the fair value of the investment below its cost is additional objective evidence of impairment. What guidance does IAS 39 give on the determination of what constitutes a 'significant or prolonged' decline in fair value?

A period of greater than 12 months

The decline has to be for 2 or more consecutive accounting periods

No guidance is given

The decline in fair value has to be significant in the context of the overall value of the financial assets and liabilities

There are currently different practices in judgements made on the level of provisioning and disclosures for re-negotiated loans. What does IAS 39 state is the accounting treatment of a loan which is renegotiated on substantially different terms.

An extinguishment of the original financial liability and the recognition of a new financial liability

Disclosure of the new terms is all that is required

The current carrying value is retained

The new financial liability is accounted for at fair value with no gain or loss calculated on the original liability

The current economic situation increases the likelihood that the carrying amounts of assets might be higher than their recoverable amounts. The market value of many listed companies has fallen below their book value, which potentially indicates impairment and thus the need for an impairment test. What aspect of the financial statements should entities pay particular attention to,according to ESMA?

The valuation of goodwill and intangible assets with indefinite life spans

The valuation of intangible assets

The valuation of goodwill and intangible assets generally

The valuation of goodwill

The IFRIC is discussing the notion of high quality corporate bonds currently and ESMA believes that entities should wait for a clarification to come from IFRIC and should not change their approach to determining discount rates as regards post employment benefit obligations. In the meantime, ESMA emphasises that there is a particular need for transparency in this area. What event has caused ESMA to issue the above advice?

There is no longer a deep market in high quality corporate bonds

The IASB is reviewing IAS 19

Entities have been using cost of capital to discount liabilities

The market yields on government bonds have been used in error by entities

The measurement of provisions involves significant management judgment and could in the current market circumstances be subject to more uncertainty. The strong link between provisions and the risks an entity is subject to makes a case for high-quality disclosures. What have European enforcers found as regards the disclosures relating to provisions?

That they represent realistic assessments of risks facing the entity

That only aggregated and boilerplate information is provided

That the disclosures are comprehensive

That they are in compliance generally with IAS 37

IAS 36 requires detailed disclosures on estimates used to measure the recoverable amount of cash-generating units (CGU) to which significant goodwill or intangible assets with indefinite lives is allocated. ESMA emphasises the need to use assumptions that represent realistic future expectations and would expect issuers to provide entity specific information related to assumptions used, when preparing discounting cash flows (such as growth rates, discount rate and consistency of such rates with past experience) and sensitivity analyses. Which of the following IFRS requires similar disclosures on the assumptions made about the future, and other major sources of estimation that have a significant risk?

IAS 1 Presentation of Financial Statements

IAS 7 Statements of Cash Flows

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

IAS 10 Events after the Reporting Period

EU enforcers make common cause

As a result of the sovereign debt crisis, the investors' focus has been on how this crisis impacted on the financial performance and financial position of listed financial institutions. Which of the following disclosures is not being monitored by ESMA?

IAS 39, Financial instruments: Recognition and Measurement, requires that entities assess whether there is any objective evidence that a financial asset is impaired. An impairment loss is recognised if and only if such evidence exists. When does objective evidence of impairment exist?

IAS 39 states that a significant or prolonged decline in the fair value of the investment below its cost is additional objective evidence of impairment. What guidance does IAS 39 give on the determination of what constitutes a 'significant or prolonged' decline in fair value?

There are currently different practices in judgements made on the level of provisioning and disclosures for re-negotiated loans. What does IAS 39 state is the accounting treatment of a loan which is renegotiated on substantially different terms.

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