Accounting and Auditing News Today (ANT) Issue No 48 - 15 December 2006

1. AASB meeting highlights - 13-14 December 2006

The latest meeting of the Australian Accounting Standards Board was held in Melbourne on 13-14 December 2006. Highlights of the meeting included the following:

Insurance: Received a staff update on the IASB proposals on insurance contracts, and the implications for Australian constituents, in particular, health insurers and roadside assistance entities.

Segment Reporting: Discussed the scope paragraph of IFRS 8 'Operating Segments', and agreed to apply it in the Australian context. Adopting this scope requirement means that for-profit entities, such as unlisted and large proprietary companies, that have not or are not in the process of issuing securities in a public market would not longer be required to make segment disclosures. The AASB is expected to approve AASB 8 'Operating Segments' and a consequential amending standard at its February 2007 meeting. AASB 8 will supersede AASB 114 'Segment Reporting'.

GGS Interim Reporting: The interactions of AASB 134 'Interim Financial Reporting' and AASB 1049 'Financial Reporting of General Government Sector by Governments' were discussed, and it was agreed to amended AASB 134 to scope out interim reporting requirements for GGS.

Administered Items: It was decided not to proceed with this project, including the proposals in the draft Exposure Draft 'Disclosure of Administered and Fiduciary Items Held by Not-for-Profit Public Sector Entities'.

Interpretation: Group and Treasury Shares: AASB Interpretation 11 'AASB 2 - Group and Treasury Share Transactions' was approved, based on IFRIC 11 ' IFRS 2 - Group and Treasury Share Transactions'. AASB 1048 'Interpretation and Application of Standards' was also approved reflecting the inclusion of AASB Interpretation 11.

Rejected Issue: AASB 112 'Income Taxes - Scope: Australian Petroleum Resource Rent Tax': Agreed to seek the recommendation of an Interpretations Advisory Committee to the AASB on whether the PRRT falls within the scope of AASB 112 for specific inclusion in the Rejected Issue Notice.

Emission Rights: Agreed to request the IASB to accelerate its deliberations on the topic.

Services Concessions: Agreed to consider IFRIC's Interpretation on services concession arrangements for approval at the February meeting of the AASB. An Interpretations Advisory Committee of the AASB is to be formed to make recommendations to the AASB on the financial reporting implications for entities outside the scope of the proposed Australian Interpretation.

Corporate and Financial Services Regulation: Agreed the general direction of a submission on the financial reporting proposals contained in 'The Corporate and Financial Services Regulation Review - Proposals Paper' released by the Parliamentary Secretary to the Treasurer.

Differential Reporting/SMEs: Tentatively agreed a tiered approach to general purpose financial reporting under the Corporations Act that includes: AIFRS; the proposed SME Exposure Draft; other 'non-reporting' entities that prepare and lodge; and disclosure relief for subsidiaries. The proposed SME public accountability concept is being further considered in the context of not-for-profit entities and public sector entities. The IASB's SME proposals will be released in the Australian context in 2007 with an explanation of the implications for the Australian financial reporting, in particular the reporting and non-reporting entity classification, and general purpose and special purpose financial reporting. These issues will be further discussed at the February meeting.

Review of AAS 27, AAS 29 and AAS 31: Reviewed the draft Basis for Conclusions, and discussed issues relating to land under roads and heritage assets. A draft exposure draft will be considered in the 1st quarter of 2007.

Common Control Transactions: Provided an Australian perspective on common control transactions as input to the IASB Agenda decision-making process.

Non-exchange Revenue: Following the approval of a standard 'Revenue from Non-exchange Transactions' by the International Public Sector Accounting Standards Board (IPSASB), the AASB agreed to seek the cooperation of the NZ Financial Reporting Standards Board in the development of a joint standard based on the IPSASB standard.

IPSASB Exposure Drafts: Agreed the overall direction of submissions to the IPSASB on ED 30 'Impairment of Cash-generating Units' and ED 31 'Employee Benefits'.

Contributed by Colin Parker, FCA, Principal GAAP Consulting http://www.gaap.com.au, and a member of the AASB.
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2. The Institute's draft submission on ED 151

A draft Submission to the Australian Accounting Standards Board on its recently issued Exposure Draft 151 'Australian Additions to, and Deletions from, IFRSs' is available here.

In summary, the Institute draft Submission argues that there should be minimal differences between Australian equivalents to IFRS (AIFRS) and IFRS. Mostly those differences will be due to either the need to adopt some Australian regulatory references as the Australian Corporations Act requires compliance with AIFRS, and necessary amendments for the Not-for-Profit (including the Public) Sector.

Submissions are due by 31 January 2007, so any Comments that Members have would be welcomed by 26 January 2007 and can be emailed to keith@icaa.org.au.
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3. Do you respond to exposure drafts?

The Faculty of Economics and Commerce of the University of Western Australia would like to invite you to take about five minutes of your time to respond to their survey studying the reasons behind the current low response rate to the EDs of proposed accounting standards.

Both the International Accounting Standards Board (IASB) and the Australian Accounting Standards Board (AASB) have a due process where there is an opportunity to comment on proposed accounting standards. As part of this process the AASB asks constituents to respond to both the AASB and the IASB on the content of exposure drafts. Response to the AASB is generally required about 1 month prior to the closing date for comments to the IASB. This allows time for the AASB to consider the views of Australian constituents in formulating its own response on the exposure draft to the IASB.

This survey is aimed at gathering evidence on the extent to which members of the accounting profession participate in the due process and whether this has changed with the adoption of IFRS. The faculty would appreciate if you are able to take about five minutes to complete the survey as the results of the survey may well influence the due process approach adopted by the AASB now that Australia has adopted IFRS.

One lucky respondent to the survey will win a gourmet food hamper valued at $150. The faculty is particularly keen to get responses from members who have never made a submission to the AASB or who did so before the adoption of IFRS but have not done so since then.

If you would like to participate in this study please click on this link: http://survey.xrar.com.au/index.php?sid=86.
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4. IASB publishes discussion paper on fair value measurements

In response to requests from constituents for more guidance in the area of fair value measurement, the IASB has published a discussion paper on this topic for public comment.

The paper seeks to provide guidance on the meaning of the term fair value as it is used in IFRS and provide a consistent basis for its measurement. The IASB believes establishing a concise definition of fair value and a single source of guidance for all fair value measurements required by IFRSs will both simply IFRSs and improve the quality of fair value information included in financial reports.

The discussion paper is open for comment until 2 April 2007 and the IASB then expects to issue an ED on fair value measurement in 2008.

For more information, visit the IASB website at http://www.iasb.org.
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5. New IAASB ED's issued

The International Auditing and Assurance Standards Board (IAASB) has issued a further three new exposure drafts (EDs) as part of its ongoing 'clarity project" which revises and updates its standards in accordance with its new clarity drafting conventions.

The three proposed International Standards on Auditing (ISAs) are:

• ISA 320 (Revised and Redrafted), 'Materiality in Planning and Performing an Audit';
• ISA 450 (Redrafted), 'Evaluation of Misstatements Identified during the Audit'; and
• ISA 260 (Revised and Redrafted), 'Communication with Those Charged with Governance'.

The new ED's will be addressed by the AUASB at their next meeting.
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6. IPSASB ED on External Assistance

The International Public Sector Accounting Standards Board (IPASB) has issued a new ED 'Financial Reporting under the Cash Basis of Accounting - Disclosure Requirements for Recipients of External Assistance'. The purpose of the ED is to improve the disclosure of financial information about the external assistance and development aid received by governments and government agencies. Amongst a number of proposed new disclosures, the ED requires recipients' financial statements to disclose the total amount of external assistance received, used, and available during the reporting period.

The ED may be downloaded at http://www.ifac.org/EDs, and comments are requested by 31 March 2007.
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7. Is the Annual Report Dead?

The Institute, in conjunction with Melbourne University, recently hosted a Roundtable discussion, which brought together four of the nation's leading authorities in the accounting and financial services profession to discuss the question: "Is the Annual Report Dead?"

The new Federal Government proposals designed to cut red tape could see the end of the traditional annual report, with many companies now considering posting their reports online, while providing the option of a print copy to those shareholders who request it.

The panel postulated other changes that should be taken into consideration, including:

• engaging the standard setters to discuss what information the users are actually seeking rather than second-guessing what they believe the users consider relevant,
• developing a more shareholder friendly report,
• moving to the new XBRL format, which is a language and taxonomy for capturing financial information for improved analysis abs communication and
• moving the annual report to the company websites, which will be structured to assist people getting the headline news and the option of drilling down through detailed layers

8. English Institute questions use of fair value accounting

The Institute of Chartered Accountants in England & Wales (ICAEW) has recently released a paper on Measurement in Financial Reporting as part of its Thought Leadership Program. The 83 page Paper explores the growing use of Fair Values in Accounting (Financial Reporting) Standards and raises fundamental questions about the basis of measurement in financial reporting. Given the IASB's recent discussion Paper on Fair Value Measurements (see Item 5 above), the ICAEW Paper is timely.

Interestingly the Paper does not conclude that a single basis of measurement is appropriate. Instead it argues that the measurement basis needs to be considered on a practical basis so as to provide the most useful information on a cost effective basis. In particular the Paper suggests that the answers to what measurement basis should be used may well vary for different items in the financial statements, for different entities, for differential purposes of financial reporting, and in different institutional settings.

This model clearly supports the philosophies behind our own Business Practice Guide that uses a simplified combination of historical cost and market value accounting depending on the particular transaction items.

A copy of the ICAEW Paper including a questionnaire seeking feedback on measurement reporting issues can be obtained from http://www.icaew.co.uk/index.cfm?route=127760.
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9. Deloitte releases IFRS model financial statements for 2006

Deloitte has released a preliminary version of IFRS Model Financial Statements for 2006. This preliminary version provides an aid to those companies currently working on their December 2006 financial statements. The final version is expected to be published in January 2007. To download a copy of the statements, go to the Deloittes website at http://www.iasplus.com/fs/fs.htm.
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10. Query of the week - AFS Licensees & Reporting Requirements

Q: I have a client that holds an Australian Financial Services license and am confused about the reporting requirements.

A: AFS Licensees are required to lodge a profit and loss statement, balance sheet (Form FS70) and audit report (Form FS71) with ASIC annually.

When preparing the financial statements of the entity, the licensee must determine whether the entity is a reporting entity or not. Whilst the current legislation allows for a non-reporting entity to prepare 'special purpose' financials, ASIC, as the primary user, is requiring Licensees to lodge 'general purpose' financials (i.e. adopting all the Accounting Standards). This arises as ASIC Form FS 70 requires the annual financial statements of AFS licensees to comply with the accounting standards via s989C and Reg. 7.8.13(1). FS 70 allows for the rare circumstances in which an AFS licensee is not a reporting entity, but ASIC's Information Release 00/025, "Reporting requirements for non-reporting entities" states that ASIC believes that licensed securities dealers and futures brokers would only be non-reporting entities in rare and exceptional circumstances such as a securities dealer who is not carrying on business and has no proper authority holders. The auditor needs to review this decision to ensure the reporting entity assessment is reasonable.

The auditor can use an audit program for a services entity (large or small) depending on the size and complexity of the licensee's operations. This program will need to be modified to include work steps related to compliance with the financial requirements of the licence and the licensee's ability to continue to meet its obligations (s990 K(2)) as these matters are included in the audit report. ASIC's Policy Statement 166, "Licensing: Financial Requirements" covers financial requirements for licensees, including audit. It is available from ASIC at http://www.asic.gov.au. Paragraph 166.27 onwards lists those matters that ASIC requires assurance on in the audit report.

In October 2004, the AUASB issued AGS 1068, Audit Requirements for Australian Financial Services Licensees under the Corporations Act 2001 to assist members auditing these entities.

Note that the auditor of an AFS Licensee needs to be a Registered Company Auditor.

Note also that ASIC have issued an updated Form FS71 'Audit Report' dated 1 October 2006. More details will be available in next week's ANT.
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11. EDs: comment closing dates

Outlined below are the comment closing dates for all current exposure drafts. Members are encouraged to prepare their own submission on each document and submit them to the Institute no later than one week before the closing date shown.

For more information, refer to the Institute's Technical Standards' exposure drafts web page

Forward all ED submission/comment emails to techsubmissions@icaa.org.au.

15 December 2006
IAESB - 'Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes' http://www.ifac.org/Eds
Treasury - Comparative review of the Australian Auditor Independence Requirements
http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1184

22 December 2006
Corporate & Financial Services Regulation Review Proposals Paper
http://www.treasury.gov.au/contentitem.asp?NavId=002&ContentID=1189

29 December 2006
IFAC - Proposals request on Explanatory Guide to assist small and medium practices apply International Standard on quality Control (ISQC) 1
http://www.ifac.org/Downloads/SMP_Quality_Control_Guide_Request_for_Proposal.p df

31 January 2006
AASB ED 151 - 'Australian Additions to, and Deletions from, IFRSs'
http://www.aasb.com.au

15 February 2007
IAASB EDs
ISA 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit;
ISA 450 (Redrafted), Evaluation of Misstatements Identified during the Audit;
ISA 260 (Revised and Redrafted), Communication with Those Charged with Governance.
http://www.ifac.org/Guidance/EXD-Outstanding.php

28 February 2007
IPSASB ED 30 "Impairment of Cash-Generating Assets"
IPSASB ED 31 "Employee Benefits"
http://www.ifac.org/EDs

31 March 2007
IPSASB ED ' Financial Reporting under the Cash Basis of Accounting - Disclosure Requirements for Recipients of External Assistance'
http://www.ifac.org/EDs

2 April 2007
IASB Discussion Paper on Fair Value Measurements
http://www.iasb.org/News/Press+Releases

Technical Query Service
The Institute's Technical Standards Team responds to inquiries from members on auditing and financial reporting issues. This service provides general assistance and guidance only. Members have the responsibility to apply their own professional judgment. The service can be contacted on (02) 9290 5702.

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TECHNICA/XFILES/ARTICLES/ANT/ANT ANT48_06_12_15.doc. The Technical Standards team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Stephanie Kemp CA, Claire Locke CA, Keith Reilly CA, Andrew Stringer; Benjamin Lau and Jane Ma - Technical Standards Assistants.