Accounting and Auditing News Today (ANT) Issue No 37 - 21 September 2007

Welcome to the thirty-seventh 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. Draft Interpretation on Petroleum Resource Rent Tax

The Australian Accounting Standards Board (AASB) has released for comment a draft interpretation proposing that companies account for Australian petroleum resource rent tax as an income tax under AASB 112 “Income Taxes”.

This proposed interpretation is in response to the diverse accounting treatments of Australian petroleum resource rent tax currently being used by oil and gas companies in this country. It also follows the earlier announcement by the International Financial Reporting Interpretations Committee’s (IFRIC) that it would be unable to develop adequate guidance on the definition of an income tax within a reasonable amount of time, due to the variety of taxes that currently exist worldwide to enable an international resolution of this issue.

The draft interpretation is open for comment until 12 October 2007. The AASB intends to discuss the responses at its 14-15 November meeting and if approved the new interpretation will apply to annual reporting periods ending on or after 30 June 2008. The proposed interpretation is available for download from the AASB website.
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The Institute has lodged its submission on the AASB’s ITC 12 “Request for Comment on a Proposed Revised Differential Reporting Regime for Australia and IASB Exposure Draft of a Proposed IFRS for SMEs” with the AASB.

The Institute generally supports the proposed IFRS for SMEs. However, it did express concerns about the AASB proposals for differential reporting in Australia, especially given that a majority of the Institute’s membership supports the reporting entity concept.

The webpage also contains the Institute’s white paper (refer ANT36: 14 September 2007), submission to the IASB and submission to Treasury regarding financial reporting for unlisted companies.
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Members can voice their views on the additional international proposals for auditor independence using an online form developed by the Institute.

Member feedback will form the basis of the Institute’s submission to the International Ethics Standards Board for Accountants (IESBA) regarding proposals to modify the Code of Ethics for Professional Accountants. The deadline for the feedback form responses is 28 September 2007.

Key issues that members may want to comment on include the following proposals:

• Provision of internal audit services to an audit client
• Independence implications related to the relative size of fees received from one assurance client
• Contingent fees for services provided to assurance clients

Please note that it is not necessary to answer every question on the form. Simply answer those that concern you most. The IESBA’s exposure draft and media release can be obtained here.
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The Financial Reporting Council (FRC), responsible for the oversight of the accounting and auditing standard setting processes in Australia, held its most recent meeting on 5 September 2007.

The meeting considered the draft financial statements and annual reports of the AASB and AUASB and these will be finalised out of session. It also agreed on the procedures for filling vacancies to these Boards for the period to June 2008 which will be by way of public advertisement.

The Board also discussed the progress of its auditor independence report which is due to be submitted to the federal government in late October. The Board decided to release two reports currently being prepared for it on independence issues as discussion papers once their authors have completed the drafting.

For more details the FRC bulletin can be downloaded from here.
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The International Accounting Standards Board (IASB) has published for comment ED 9 “Joint Arrangements”, which proposes to change the accounting for joint arrangements by replacing IAS 31 “Interests in Joint Ventures”. The ED represents the first major revision of this standard since it was first issued in 1990 and is aimed at significantly improving the quality of accounting and reporting for these types of arrangements as well as harmonising International and US requirements.

In particular the ED has addressed two significant shortcomings of IAS 31. These are:

• The requirements to account for joint arrangements based on their legal form. The new ED proposes accounting based on the contractual rights and obligations between the parties which it is expected to provide a much more realistic reflection of the activities being undertaken.
• The choice of treatment for jointly controlled entities. The new ED proposes that parties recognise the individual assets to which they have rights and the liabilities for which they are responsible, even if the joint arrangement operates in a separate legal entity. If the parties only have a right to a share of the outcome of the activities then their net interest in the arrangement will be recognised using the equity method. The removal of choice should significantly improve the comparability of financial reports.

As reported in last week’s member’s only Chartered Accountants Tax Bulletin, the Minister for Revenue and Assistant Treasurer recently announced a number of changes to the thin capitalisation rules to address some of the adverse impacts of the adoption of Australian equivalents to International Financial Reporting Standards (AIFRS) which may arise once the transitional period expires.

Included in these changes are permitted departures from AASB 138, AASB 112 and AASB 119 for the purposes of thin capitalisation calculations. There is no proposed impact on a company’s financial report.

The media release can be found here. Members can find the tax bulletin here.
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Q: I heard that the latest Corporations Amendment Act has, amongst other things made changes to directors and executive remuneration disclosures. Is this correct?

A: Yes. The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 was passed by parliament in late June and received royal assent on June 28. The Act put into law a range of changes designed to ease the regulatory burden on business in response to various “red tape” reports issued in 2006.

The Act makes changes in a number of areas including financial services regulations, auditor independence, corporate governance, takeovers and fundraising. Of particular benefit to companies were the changes made to compliance requirements (including simplifying the returns of company particulars and permitting electronic registration of charges) and the changes made to company reporting obligations. These latter changes included:

• incorporating into the Corporations Act the accounting standards requirements for executive and director remuneration disclosure for listed entities to improve consistency and reduce duplication;
• increasing the thresholds used to define a large proprietary company and allow for future changes to the thresholds to be prescribed by regulations (refer ANT25: 29 June 2007)
• changing the notification requirements, payment of annual fees and the company deregistration procedure; and
• allowing companies to make annual reports available on the internet and only require hard copies to be sent to members who request them.

Audit of Self Managed Superannuation Funds Workshop
Throughout October in Adelaide, Sydney, Brisbane, Melbourne & Perth
Now that the new auditing standards apply to SMSF audits, don't miss out on ensuring your audits of SMSFs are compliant with the regulatory requirements.

Technical Conference
Sydney 8 - 10 Oct, Melbourne 8 - 10 Oct. Day 2: Auditing. Examine force of law, AIFRS, APES 320 and the latest technical issues and developments. Take away timely and practical solutions for immediate implementation.

Regional Roadshow
Running in 12 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.

Audit Day
Highlighting key audit topics. Sessions include : Auditing update; Audit of Not for profit and Registered Clubs, Audit Quality Control and independence requirements.
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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.

28 September 2007
APRA Discussion Paper on Refinements to the General Insurance Prudential Framework

1 October 2007
IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities

5 October 2007
IFRIC D21 'Real Estate Sales'

12 October 2007
Draft Interpretation on Petroleum Resource Rent Tax

15 October 2007
IESBA ED "Proposed Revised Section 290 of the Code of Ethics for Professional Accountants, Independence - Audit and Review Engagements, and Proposed Section 291, Independence - Other Assurance Engagements"

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

19 October 2007
Exposure draft of APES 205 "Conformity with Accounting Standards"

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'

11 January 2008
IASB's proposed amendments to IAS 39 - 'Exposures Qualifying for Hedge Accounting'
IASB ED 9 “Joint Arrangements”

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/ANT37_07_09_21.doc. The Technical Standards team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Kerry Hicks CA, Claire Locke CA, Stephanie Kemp CA, Andrew Stringer; Benjamin Lau and Jane Ma - Technical Standards Assistants.