Accounting and Auditing News Today (ANT) Issue No 31 - 10 August 2007

Welcome to the thirty first edition of Accounting & Auditing News Today for 2007. What follows is a brief update on changes and proposed changes in the financial reporting sphere.

1. ASX releases revised corporate governance principles

The ASX Corporate Governance Council has released a revised version of its "Corporate Governance Principles and Recommendations", first issued in 2003. The revisions follow consideration of feedback received from over 100 public submissions on the proposed changes which were exposed for public comment late last year.

No major changes have been made as the bulk of the submissions received showed strong support for the ASX's existing principles-based approach to corporate governance and the "if not why not" reporting approach. However minor changes have been made to take into account recent Government reforms and current reporting trends. A summary of the key changes are available in the ASX media release.

The new document applies to financial years commencing on or after 1 January 2008.
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The August Update to the Members' Handbook, which is due to 'go live' on 12 August 2007 will include new and revised accounting and auditing standards, including Omnibus ASA 2007-1 and auditing standards compiled to 6 July 2007.

The CD update to the Members' Handbook, distributed in late July, does not include these recent auditing standards/compiled standards. However, the new functionality in the CD Rom will allow you to download these new/compiled standards onto your hard drive shortly after the August Update 'goes live' on the Institute website at http://www.charteredaccountants.com.au/handbook.

Those members who require the Members' Handbook on their hard drive and who wish to receive the CD Rom must update their profile on the Institute's website. To view a step-by-step guide on how to do this, click here. The next CD release will be in December.
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The Institute has prepared a draft submission on the IFRS for SMEs exposure draft. The draft submission for the IASB is available for download here.

The submission for the AASB ITC 12 is available for download here.

All comments should be sent to techsubmissions@charteredaccountants.com.au.
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The AASB Action Alert providing details of the Board's 1-2 August meeting is now available for download from the AASB website.

A comprehensive summary of this meeting was included in ANT30 (3 August 2007).
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The International Accounting Standards Board (IASB) met on 17-20 July 2007 and their update summarising the decisions can be downloaded the IASB website.

Matters discussed included:

• Post-employment benefits
• Conceptual framework
• Vesting conditions and cancellations under AASB 2

• Redeliberation of IAS 37 continued

• Annual improvements process: The Board considered nine issues for inclusion in the annual improvements process:
  • Plan to sell the controlling interest in a subsidiary: amendment to IFRS 5
  • Accounting for replanting obligations: amendment to IAS 41
  • Disclosure of estimates of recoverable amount: IAS 36 para 134(d)
  • Classification of leases of land and buildings: IAS 17 paras 8 to 12
  • Dividends declared after the balance date: IAS 10 para 13
  • Plan administration costs: IAS 19 para 7s and 107
  • Components of borrowing costs: IAS 23 para 6
  • Earnings per share disclosures in interim reports: IAS 34 para 11
  • Reporting compliance with IFRS: additional disclosures for entities that do not give an unreserved statement of compliance with IFRS, but refer to IFRS in the basis of preparation of the financial report
  • Transitional provisions and comment periods: full retrospective application of these amendments will be required except where impracticable, with early adoption permitted. The comment period on the amendments will be 90 days, with an exposure draft planned for October 2007

• IAS 27 "Consolidated and Separate Financial Statements": The Board directed the staff to draft an amendment to IAS 27 to clarify that para 37 does not apply to the formation of a new parent entity for an existing group when there are no changes in substance resulting from the revised organisation structure

• Short term convergence - joint ventures: The Board tentatively decided to draft an exposure draft of a new IFRS for joint arrangements rather than a revision of IAS 31

The International Auditing and Assurance Standards Board (IAASB) has released exposure drafts of a further nine redrafted standards as part of its ongoing "audit clarity" project.

The redrafted standards include proposed revised versions of its two Quality Control Standards ISQC1 "Quality Control for Firms that Perform Audits and Reviews of Financial Statement, and Other Assurance and Related Services Engagements" and ISA 220 "Quality Control for an Audit of Financial Statements".

It has also made proposed changes to five audit reporting standards, ISAs 700, 705, 706, 800 and 805 which deal with the audit of general purpose, special purpose and summary financial reports as well as updating the standards dealing with initial engagements (ISA 510) and audit sampling (ISA 530).

The comment closing dates are staggered:

• 31 October 2007: EDs of proposed ISA 510 (Redrafted) and ISA 530 (Redrafted)
• 30 November 2007: EDs of proposed ISA 700 (Redrafted), ISA 705 (Revised and Redrafted), ISA 706 (Revised and Redrafted), ISA 800 (Revised and Redrafted) and ISA 805 (Revised and Redrafted)
• 31 December 2007: EDs of proposed ISQC 1 (Redrafted) and ISA 220 (Redrafted)

This latest batch of EDs leaves only 7 ISA's remaining to be reviewed for clarity and EDs for these are expected before the end of 2007. The Board expects to have revised and reissued all 35 of its ISAs by the end of 2008.
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The Accounting Professional & Ethical Standards Board (APESB) has announced the appointment of Kate Spargo as chairperson for a three-year period. Ms Spargo has a strong business background and extensive experience as a company director and business consultant which will be valuable to the APESB in its role of setting ethical standards for the accounting profession.
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The Trustees of the International Accounting Standards Committee (IASC) Foundation announced this week the appointment of Stephen Cooper, Managing Director and Head of Valuation and Accounting Research at UBS Investment Bank, to the International Accounting Standards Board (IASB). Mr Cooper will join the IASB as a part-time member in August 2007 and has been appointed for the five years ending on 30 June 2012.

For more information, click here.
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The Trustees of the International Accounting Standards Committee (IASC) Foundation announced this week the reappointment of four Trustees for a second three-year term until 31 December 2010. The Trustees are: Oscar Fanjul, Tsuguoki (Aki) Fujinuma, Alicja Kornasiewicz and Antonio Vegezzi. The Trustees also announced an international public search to replace four Trustees who are not eligible for reappointment or are retiring as Trustees.

For more information, click here.
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The UK Accounting Standards Board (ASB) has recently issued a briefing paper on the IASB's discussion paper on insurance contracts. The paper reflects its concerns that the ramifications of the proposals extend further than only the insurance industry and identifies a number of issues where the IASB's thinking developed in the insurance discussion paper could have very important consequences for financial reporting in other sectors. More details and a copy of the briefing paper can be found here.
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Q: A firm has already served as the auditor of a non-listed company for four financial years using the same lead engagement partner, when the client goes through an IPO in March 2008. What are the rotation requirements for the lead engagement partner?

A: Since the company has become a listed entity, the partner is now subject to the rotation requirements, which date from their appointment to the then non-listed client.

The lead engagement partner has acted in that role for each of the 2004, 2005, 2006 and 2007 years, before the rotation provisions of Section 290 of the Code of Ethics apply to the 2008 audit of the financial year beginning 1 July 2007.

Accordingly, the lead engagement partner can continue to act in that role for the 2008 year, but should rotate off for the 2009 audit.

Eligibility to play a significant role in the audit in each financial year:

2004 - yes
2005 - yes
2006 - yes
2007 - yes
IPO - March 2008
2008 - yes
2009 - no

Para 290.154 provides that the time served is from the commencement of the financial period in which the lead engagement partner, the audit review partner (if any) or Engagement Quality Control Reviews (EQCR) served in those roles, not the date the audit client listed. In accord with the international standard, Para 290.155 also provides for two additional years when an audit client becomes a listed entity.

However, the Corporations Act does not specifically address the situation where an audit client becomes a listed entity. The Act's rotation requirements (s324DA, DB, DC and DD) applied to a financial year commencing on or after 1 July 2006, to listed entities, where an individual played a significant role in the audit for 5 successive financial years. Further under the Commentary to the CLERP 9 transitional arrangements applying to the rotation obligations, "where a person has already conducted three or more successive annual audits for a listed company or scheme at the time that the legislation takes effect, they, their audit firm and the client company or scheme will need to be aware that the auditor must be replaced for the audit following the date at which the rotation provisions take effect (that is, two years following commencement of the Act)" i.e. two years following 1 July 2004.

Accordingly it would appear that the legislation was intended to be prospective in its application regarding the rotation requirements (on 1 July 2006) but recognised the role played by the lead engagement partner and audit review partner prior to 1 July 2006. It would thus be prudent to consider all the time served as a lead engagement partner, audit review partner (if any) or EQCR from the commencement of the financial period in which the individual served in those roles, not the financial period in which the client listed. In all such circumstances when a person is not rotated after the pre-defined five (5) year period equivalent safeguards, including the possible obtaining of an extension under the Corporations Act, should be applied to reduce any threats to an acceptable level.
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Regional Roadshow
Running in 10 key regional centres throughout October 2007, the Regional Roadshow is a two-day event that provides the very latest changes and strategies for tax, accounting and auditing.

National Audit Conference 2007 DVD
If you didn't attend the National Audit Conference in June 2007 - don't miss out on this opportunity to view the conference at your convenience informing you and your colleagues.

Technical Conference
(October, Sydney & Melbourne)
All the latest practical information at your fingertips.
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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@charteredaccountants.com.au.

31 August 2007
APES ED 03/07 "Proposed Amendment to Network Firms in Section 290: Independence - Assurance Engagements of APES 110 Code of Ethics for Professional Accountants"

1 September 2007
AASB SME ITC "A Proposed Revised Differential Reporting Regime for Australia and the IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities"

3 September 2007
AASB ED 156 "Proposals Arising from the Short-term Review of the Requirements in AAS 27, 29 and 31"

12 September 2007
PAIB (IFAC) "Preface to IFAC's International Management Accounting Statements and International Good Practice Guidance"

14 September 2007
APES ED 04/07 "Terms of Engagement"

15 September 2007
ISA 200 (revised and redrafted) 'Overall Objective of the Independent Auditor, and the Conduct of an Audit in accordance with International Standards on auditing'
ISA 500 (redrafted) 'Considering the Relevance and Reliability of Audit Evidence'

5 October 2007
IFRIC D21 'Real Estate Sales'

19 October 2007
IFRIC D22 'Hedges of a Net Investment in a Foreign Operation'

26 October 2007
AASB ITC 13 'Preliminary Views on Insurance Contracts'

31 October 2007
IASB proposed IFRS for SMEs field test questionnaires

16 November 2007
IASB Discussion Paper "Preliminary Views on Insurance Contracts"

30 November 2007
ISA 700 (Redrafted) 'The Independent Auditor's Report on General Purpose Financial Statements'
ISA 705 (Revised and Redrafted) 'Modifications to the Opinion in the Independent Auditor's Report'
ISA 706 (Revised and Redrafted) 'Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the Independent Auditor's Report'
ISA 800 (Revised and Redrafted) 'Special Considerations-Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement'
ISA 805 (Revised and Redrafted) 'Engagements to Report on Summary Financial Statements'

31 December 2007
ISQC 1 (Redrafted) 'Quality Control for Firms that Perform Audits and Reviews of Financial Statement, and Other Assurance and Related Services Engagements'
ISA 220 (Redrafted) 'Quality Control for an Audit of Financial Statements'

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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TECHNICAL/XFILES/ARTICLES/ANT/ANT31_07_08_10.doc. The Technical Standards team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Stephanie Kemp CA, Claire Locke CA, Andrew Stringer; Benjamin Lau and Jane Ma - Technical Standards Assistants.