Accounting and Auditing News Today (ANT) Issue No 41 - 19 October 2007

1. ED 157: Joint Arrangements

The Australian Accounting Standards Board (AASB) has released for comment Exposure Draft ED 157 'Joint Arrangements', the Australian equivalent of ED 9 of the same title issued by the IASB in September. The ED, resulting from the IASB's short-term convergence project, proposes some significant changes to AASB131/IAS 31 'Interests in Joint Ventures' in order to address important deficiencies that have been identified in the quality of financial reporting for these types of arrangements.

In particular, the ED proposes to shift the accounting focus for these arrangements from their legal form to that of the contractual rights and obligations between the parties. This is expected to provide a more realistic picture in the financial statements of those involved in the joint arrangements of the activities being undertaken. It proposes the removal of an entity's choice to account for interests in a jointly controlled entity using either the equity accounting or the proportionate consolidation methods. It requires 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 Institute is keen to provide a submission to the AASB on this issue. Members are encouraged to send their comments to the Insititute through email: techsubmssions@charteredaccountants.com.au. Comments close 30 November 2007 in order for it to meet the IASB comment deadline of 11 January 2008. The media release can be downloaded from the AASB website. A copy of the ED can also be downloaded from http://www.aasb.com.au/workprog/openeds.htm.
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2. ED 158: Proposed changes to AASB 139

The AASB has released ED 158, which proposes amendments to AASB 139 'Financial Instruments: Recognition and Measurement', in relation to exposures qualifying for hedge accounting. The proposed changes would clarify what can be designated as a hedged item in a hedge accounting relationship. The exposure draft identifies the risks within a financial instrument, such as interest rate risk, foreign currency risk, credit risk and pre-payment risk, that can be designated as a hedged item. Additionally, the exposure draft clarifies the portions of cash flows in a financial instrument that can be designated as a hedged risk.

Comments are due to the AASB by 30 November 2007 in order for it to meet the IASB comment deadline of 11 January 2008. The media release can be downloaded from the AASB website. A copy of the ED can also be downloaded from http://www.aasb.com.au/public_docs/acc_eds/ACCED158_10-07.pdf.
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3. ED 159: Proposed amendments to accounting standards

The AASB has released ED 159 'Proposed Improvements to Accounting Standards', which proposes to amend 27 Australian Accounting Standards. ED 159 incorporates the IASB's ED 'Proposed Improvements to International Financial Reporting Standards', which was released in October 2007 under its inaugural annual improvement project.

All proposals are published in a single ED, which serves to streamline the standard-setting process, thereby removing the confusion associated with the issuing of several piecemeal changes.

The proposals include:

• Restructuring - to purge IFRS 1 'First-time Adoption of International Financial Reporting Standards' of redundant transitional provisions
• Changes of wording - to clarify meaning
• Removal of unintended inconsistencies between IFRSs

The Institute is keen to provide a submission to the AASB on this issue. Members are encouraged to send their comments to the Insititute through email: techsubmssions@charteredaccountants.com.au. Comments close 30 November 2007 in order for it to meet the IASB comment deadline of 11 January 2008. For further information, view the media release.
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4. AUASB meeting agenda - 22-23 October 2007

The next meeting of the Auditing and Assurance Standards Board (AUASB) will be held in Melbourne on 22-23 October 2007. Agenda items include:

• GS 005 Using the Work of an Actuary
• GS <> Audit Implications of the Use of Service Organisations for Investment Management Services
• GS 00X Audit Requirements for Australian Financial Services Licensees under the Corporations Act 2001 (previously AGS 1068)
• SMSF Audits
• Performance Engagements
• Compliance Engagements
• Pronouncements Framework
• IAASB Matters
• Clarity Project
• Revision of Guidance Statements
• Consultative Meeting Planning

5. Release of revised AASB 1048

The AASB has released a revised version of AASB 1048 'Interpretation and application of Standards' applicable to reporting periods ending on or after 30 September 2007.

The changes update Table 1 - the list of Interpretations required to be complied with in order to give an explicit and unreserved statement of compliance with IFRS - to include the five Interpretations (AASB Interpretations 1, 12 ,13, 14 and 113) that have been revised by the AASB in the last three months.

The applicable dates are specified in the revised Table 1 which can be viewed on the accounting standards page of the AASB website.
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6. Revised AASB 1049 'Whole of government reporting'

The format of Federal, State and Territory 'Whole of Government'" financial reports are set to undergo significant changes, with the release by the AASB of a revised version of AASB 1049 'Whole of Government and General Government sector financial reporting'. The new standard harmonises the requirements between the government finance statistics (GFS) and GAAP for 'whole of government' financial reports, and represents the culmination of a project to make these reports auditable and comparable both between various jurisdictions and with the relevant budget statements.

The new standard replaces the previous version of AASB 1049 issued in September 2006, which applied only to the general government sector. The new standard, like its predecessor, is applicable to financial reporting periods beginning on, or after, 1 July 2008.

While changes have not been made to recognition and measurement principles, the new standard does allow for the specific needs of government users by addressing differences between GAAP and GFS to reduce potential confusion to the users of these statements.
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7. Institute submission on PRRT lodged

The Institute has lodged its submission to the AASB on their proposed interpretation 10XX Australian Petroleum Resource Rent Tax. The Institute did not express a strong view on whether PRRT should be accounted for as a tax or a royalty, but was concerned of the international ramifications of the AASB interpreting an International standard. The Interpretation can be viewed in full at http://www.charteredaccountants.com.au/A120046735.
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8. IAESB releases new IEPSs

The International Accounting Education Standards Board (IAESB) has released two new International Education Practice Statements (IEPs). These Statements seek to assist International Federation of Accountants (IFAC) members, associates and other educators in:

• Development of educational ethics programs

This is contained within IEPS 1 'Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes'. This statement guides IFAC members and associates in the development and fostering of professional values, ethics and attitudes. It is hoped that the ethical judgment and decision-making abilities of professional accountants will be enhanced. Particular emphasis is given to the mode of delivery of ethics education, whether it be through workplace learning and assessment, or continued professional development programs.

• Implementation of the IT knowledge component of a professional accounting education program

9. IAASB issues new ISA 600

The International Auditing and Assurance Standards Board (IAASB) has released a set of new requirements designed to enhance the quality of audits of groups of financial statements. These requirements are contained in ISA 600 (Revised and Redrafted), 'Special Considerations - The Audit of Group Financial Statement (Including the Work of Component Auditors)'. Primarily, ISA 600 assists the group engagement partner in taking responsibility for the direction, supervision and performance of the group audit and the issue of an auditor's report that is appropriate in the circumstances. It is also the IAASB's response to the mounting public expectations for continual improvement in auditing standards.

So as to assist the group engagement team in obtaining sufficient and appropriate audit evidence upon which to base the group audit opinion, ISA 600 specifies the type of work that the group engagement team (or the component auditors who may be acting on their behalf) should perform on the financial information of significant components. There is also an additional requirement that the group engagement team be appropriately and adequately involved in the work of component auditors.

ISA 600 becomes effective for audits of financial reports commencing on, or after, 15 December 2009.

ISA 600 (Revised and Redrafted) can be downloaded from the IFAC online bookstore .
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10. IAASB consults on proposed future technical strategy

The IAASB is seeking comments from constituents regarding its proposed future strategy as a basis for its work program. It has released a consultation paper (http://www.ifac.org/Guidance/EXD-Details.php?EDID=0096) that proposes a focus on:

• Contributing to the effective operation of the world's capital markets
• Assisting with the implementation of standards
• Addressing the needs of small and medium sized enterprises

The Institute is keen to provide a submission to the IAASB on this issue. Members are encouraged to send their comments to the Institute through email: techsubmissions@charteredaccountants.com.au. Comments close 30 November 2007.
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11. Query of the week - wholly owned subsidiaries and SRS Act changes

Q: My client was previously a wholly-owned large proprietary company which had entered into a deed of cross guarantee with its parent. Accordingly, it gained relief from the preparation and lodgment of financial statements using class order 98/1418, which required it to lodge a form 389 "Annual notice by wholly-owned entity relieved from financial reporting obligations."

With the recent Corporations Act changes, the entity is now small. The deeds of cross guarantee still exist - so do we still have to lodge the relevant form each year?

A: No. Lodgement of Form 389 is a condition of relief under Class Order 98/1418. As the company would no longer be relying on CO 98/1418 for relief from the requirement to prepare and lodge financial reports, lodgement of Form 389 is no longer required.
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12. Training and development at the Institute

Audit of Self Managed Superannuation Funds Workshop
Throughout October and November 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.

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.

Superannuation Day
Throughout November in Adelaide, Sydney, Brisbane, Melbourne & Perth
Explore essential SMSF updates and insights, now that 'Better Super' reforms are in place. Delve into the planning issues and pitfalls, focusing on how to identify the triggers.

National Future of Professional Practice
16 November 2007, Sydney
Identify key practice management issues and opportunities that impact your business.

Audit Day
Throughout December in Adelaide, Sydney, Brisbane, Melbourne & Perth
Highlighting key audit topics. Sessions include: Auditing update; Audit of Not for profit and Registered Clubs, Audit Quality Control and independence requirements.

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.
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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.

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

31 October 2007
AUASB ASRE 2400 'Review of Financial Reports and Other Historical Information'
ISA 510 (redrafted) 'Initial Audit Engagements - Opening Balances'
ISA 530 (redrafted) 'Audit Sampling'
IASB proposed IFRS for SMEs field test questionnaires

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

30 November 2007
AASB EDs
ED 157: Joint Arrangements'
ED 158: 'Proposed changes to AASB 139'
ED 159: 'Proposed Amendments to Accounting Standards'
http://www.aasb.com.au/workprog/openeds.htm

AASB Consultation Paper on Consolidation of Subsidiaries by Superannuation Entities

IAASB Consultation Paper on Proposed Future Technical Strategy

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'
ED 33 'Amendments to IPSAS 4, The Effects of Changes in Foreign Exchange Rates'
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 Reporting and Assurance 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/ ANT41_07_10_12.doc. The Reporting and Assurance team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Kerry Hicks CA, Claire Locke CA, Stephanie Kemp CA, Andrew Stringer; Benjamin Lau, Jane Ma and Adrian Tam - Reporting and Assurance Assistants.