Accounting and Auditing News Today (ANT) Issue No 48 - 7 December 2007

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

1. AUASB meeting highlights – 3 December 2007

The Auditing and Assurance Standards Board (AUASB) met in Melbourne on Monday. Matters covered included:

• Proposed Guidance Statement GS 006 “Electronic Publication of the Auditor’s Report” was approved for issue, subject to some minor changes, and is expected to be issued before the end of 2007. This Guidance Statement replaces AGS 1050 “Audit Issues Relating to the Electronic Presentation of Financial Reports”. In common with other Guidance Statements, GS 006 will be effective from the issuance date.
  
  
• The Board considered respondents’ submissions to Exposure Draft 4/07 ASRE 2400 “Review Engagements”. The Board had requested feedback on, amongst other matters, whether users supported the proposed one standard in two parts, or two separate standards. (The two parts of the proposed standard were “Review of Financial Reports” and “Review of Other Historical Financial Information”.)
  
  
• There were seven detailed submissions, including a joint one from the Institute and the other two professional accounting bodies, all of which recommended the issuance of two separate standards.
  
  
• The Board gave preliminary approval to two standards being issued – ASRE 2400 “Review of Financial Reports” and ASRE 2405 “Review of Other Historical Financial Information”. Some minor changes were requested, and final approval is expected to be sought from the Board out of session, before Christmas. Should this occur the two new standards will be applicable for financial reporting periods commencing on or after 1 April 2008.
  
  
• A revised draft of a proposed Guidance Statement – “Audit Implications of the Use of Service Organisations for Investment Management Services” was reviewed. It is expected to be approved at the Board’s meeting in February 2008, and will be effective for financial reporting periods commencing on or after 1 July 2008.
  
  
• The project addressing proposed ASAE 3500 “Performance Engagements” – which is a revision of AUS 806 "Performance Auditing" and AUS 808 "Planning Performance Audits" continues. Consultations are continuing with interested parties and an exposure draft is anticipated early in 2008.
  
  
• Other projects currently underway:
  • a proposed Guidance Statement to address the audit requirements of self-managed superannuation funds
  • an update of Guidance Statement AGS 1002 - “Bank Confirmation Requests”
  • an update of Guidance Statement AGS 1014 - “Privity Letter Requests”

On Tuesday the AUASB held a consultative meeting in Melbourne with more than 30 stakeholders, including the Institute, auditing firms, regulators, other standard setters, academics and other professional accounting bodies. The Board presented a summary of its current and future work program, which includes:

• the “Clarity” revisions of the suite of auditing standards, to be in place for audits of financial reporting periods commencing on or after 1 January 2010
• audit implications of new reporting standards for public sector reporting
• assurance standards and guidance on Sustainability Reporting (including Greenhouse Emissions Reporting)
• completing the revisions of the Guidance Statements

The Institute and other stakeholders encouraged the Board to address the needs of practitioners in applying the standards to SMEs engagements, and also mentioned that it is imperative to give attention to the assurance needs around emissions and sustainability reporting, as well as the assurance requirements around the expansion of XBRL (eXtensible Business Reporting Language) reporting.
Top

The next meeting of the Australian Accounting Standards Board (AASB) will be held in Melbourne on 12-13 December 2007. Items listed for consideration on the agenda include:

• presentation on IFRS for SMEs field testing and initial discussions on AASB’s differential reporting proposals
• draft revised AASB 3 “Business Combinations” for approval
• draft amending standard regarding the terminology in AASB 101 “Presentation of Financial Statements”
• draft standard for approval on Land Under Roads
• invitation to comment for issue on not-for-profit entity definition
• draft revisions of Interpretation 1038 “Contributions by Owners Made to Wholly-Owned Public Sector Entities”
• consideration of issues papers and feedback from Roundtables regarding Superannuation Entities
• consideration of submissions on ED 157: Joint arrangements, ED 158: Proposed changes to AASB 139 “Financial Instruments: Recognition and Measurement” and ED 159: Annual Improvements and drafting submissions to the IASB

As highlighted in ANT46: 23 November 2007, AASB 7 “Financial Instruments – Disclosures” came into force for annual reporting periods beginning on, or after, 1 January 2007 (that is, ending 31 December 2007).

The standard’s new requirements cover a broad range of financial instruments and are therefore likely to affect most of the reporting entities to which the standard applies. The standard imposes a significant number of new disclosures, which centre upon the way in which management manages and controls its exposure to the risks inherent in financial instruments.

Many of the risk information disclosures are not immediately available in the financial records and so auditors are encouraged to contact their clients early to ensure that they are adequately prepared to meet these new requirements. This will include ensuring that they understand the nature of the disclosures required (including the need for comparatives), and have adequately documented policies and processes in place (including relevant internal controls) to produce both the qualitative and quantitative risk disclosures required.

Auditors are also reminded that the adoption of AASB 7 will affect their audit planning. Its impact on areas such as planning, understanding the entity and environment, assessing risk, audit documentation, and communication with those charged with governance will need to be considered and documented. There is also the specific auditing standard ASA 545 “Auditing Fair Value Measurements and Disclosures” to consider.

For more information, refer to the AASB 7 section of the Institute website.
Top

The Institute and other professional bodies contracted a mid-tier accounting firm to conduct field testing with three Australian entities to determine the impact of the proposed IFRS for SME standard.

The participating entities included those which produce general purpose financial reports and those produced special purpose financial reports, enabling the bodies to field test entities transitioning to IFRS for SMEs from various points. Some common themes, relating to the IASB’s objectives were prevalent in the results. These include:

• more clarity is required in the area of offsetting deferred tax, accounting for contingent consideration and in the financial assets and financial liabilities area
• understanding was limited in relation to the 'relevant and reliable' concept regarding the selection of accounting policies
• disclosure reductions were minimal for reporting entities and disclosures increased substantially for non-reporting entities adopting minimal disclosures
• additional disclosures made by non-reporting entities did not always meet user needs
• scope of the standard could increase in certain areas, for example, those noted in the first bullet point above and
• a potential exists for independence concerns for auditors assisting clients on the transition to IFRS for SMEs

The International Auditing and Assurance Standards Board (IAASB) recently issued proposed redrafted ISQC 1 on quality control, as part of its project to clarify its international standards. The exposure draft can be found here.

The proposed standard redrafts ISQC 1 in accordance with the IAASB's new drafting conventions designed to improve the clarity of its pronouncements, describing action in the present tense and separating requirements and guidance. In addition to the redrafting there are some minor changes to the substance of the standard which we anticipate the APESB will incorporate into the Australian equivalent to ISQC 1; APES 320 “Quality Control for Firms”. These changes:

• incorporate revised definitions of network firm and engagement team
• elevate some current guidance paragraphs to requirements. They include more detailed requirements for an engagement quality control review (mandatory for listed entity audits), practice monitoring and complaints and allegations

Please email claire.locke@charteredaccountants.com.au any comments on the proposed amendments and or the draft submission by Friday 14 December 2007. Comments are due to the IAASB by 31 December 2007, and given the Christmas break we plan to submit the comments on Thursday 20 December 2007.
Top

The Institute has lodged submissions to the Australian Accounting Standards Board (AASB) on the following exposure drafts:

AASB ED 157: Joint Arrangements
The Institute is concerned that the proposals in this ED will not necessarily improve the quality of joint venture reporting in the short term and will not achieve convergence with US GAAP across all entities.

AASB ED 158: Proposed changes to AASB 139
The Institute agreed with the proposals to identify specific risks that qualify for hedge accounting, as a means to improving the clarity and understandability of the current standard.

AASB ED 159: Annual Improvements
While the Institute supports in principle the IASB annual improvements process in dealing with necessary minor amendments to accounting standards, some reservations were expressed in the Institute submission about the contents of ED 159.

Proposed AASB rejection statement on dividend imputation
The Institute supports the AASB's view that franked dividends should be recognised on a net basis, but has asked the AASB to reconsider the issuing of an interpretation on this topic rather than issuing a rejection statement.

AASB Consultation Paper: Review of AAS 25
The Institute disagrees with consolidation of subsidiaries by superannuation entities as it is not considered that consolidated information is necessary for users in making decisions about the allocation of scarce resources.
Top

The Institute has lodged a submission to the International Auditing and Assurance Standards Board (IAASB) on their proposed future technical strategy which was released as a consultation paper in early October 2007 (refer ANT41: 19 October 2007).

The Consultation Paper set out a proposed strategy for the Board for the period 2009-2011 which focused on contributing to the effectiveness of the world’s capital markets, assisting with the implementation of standards and addressing the needs of SMEs.

In response to this consultation paper the Institute submission suggests that the IAASB should move towards developing an auditing and assurance standard addressing the reporting of energy use and greenhouse gas emissions, and provide guidance on the application of auditing standards to SMEs. Overall, the Institute considers that the IAASB’s future strategy as sound.

View the Institute submission here. For past auditing and assurance submissions, visit the Past EDs section of the Institute’s Auditing & Assurance website.
Top

The Institute supports the initiatives to implement the proposed National Greenhouse and Energy Reporting System, a topical matter of significant public interest. However, the Institute is concerned that the obligation to report in accordance with the National Greenhouse and Energy Reporting Act 2007 (Act) does not require the data to be audited by an independent auditor.

The Institute is of the view that this is a significant oversight. Given that the data will ultimately form the foundation for an Australian Emissions Trading Scheme, it is vital that trust and credibility be built into the system from the very beginning. The absence of a robust and rugged assurance requirement to accompany the obligation to report has the potential to impair such a trading scheme.

View the Institute submission here. For current auditing and assurance EDs, visit the EDs open for comment section of the Institute’s Auditing & Assurance website.
Top

The Regulatory Discussion Group (RDG) of which the Institute is a member is conducting a survey on financial reporting deadlines. The survey aims to explore industry sentiment about the current timeframes within which accounts must be finalised.

The survey is available here. Interested readers should complete the survey by 21 December 2007.
Top

Q: My client is a not-for-profit reporting entity and would like to avail itself of the AASB 124 ‘Related Party Disclosures’ exemption for not-for-profit public sector entities. My client is not part of government, but provides services to the public. Are the terms “not for profit” and “public sector” defined?

A: The term “Not for profit” is defined in a number of AASB standards including AASB 136 paragraph Aus6.2 as ‘an entity whose principal objective is not the generation of profit’.

The term ‘public sector’ is not a defined term within these standards, although it is commonly understood to mean “controlled by government, or otherwise part of government at federal, state or local level”.

To determine which entities fit within the term “public sector”, some practitioners rely on the Australian Bureau of Statistics (ABS), which classifies all entities as being either public sector or other sectors for the purposes of preparation of the national accounts.

Another point of reference is the definition contained in the International Federation of Accountants’ IPSASB's Interim Terms of Reference document which states:

‘The term “public sector” refers to national governments, regional (e.g., state, provincial, territorial) governments, local (e.g., city, town) governments and related governmental entities (e.g., agencies, boards, commissions and enterprises)’

Further guidance can also be found in the international accounting standards. Where these standards refer to the public sector they use the term ‘state controlled’ entities which are “entities controlled by national, regional or local government” The AASB’s ED 153, containing the proposed amendments to AASB 124, appears to use the terms ‘public sector entities’ and ‘state controlled entities’ interchangeably.

In conclusion, the interpretation of the terms 'not for profit' and 'public sector' is subject to professional judgement based on the applicable facts and circumstances. However it is considered that the exemption in relation to related party disclosures in the 'not for profit public sector' would generally apply only to those not for profit entities controlled by government.
Top

Audit Day
Throughout December in 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.

New Employees Workshop 2008
Throughout February in Brisbane, Melbourne, Sydney, Parramatta, Newcastle & Albury. Five day workshop. Give your new employees the practical experience and real-life skills they need to deliver professionally at the New Employees Workshop.

Chartered Accountants SMSF Conference
As the number of Self Managed Superannuation Funds continue to grow, so do the number of opportunities. Build on your knowledge with exceptional speakers, case studies and examples.

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.

Corporate Accountants Toolkit Series
Access the latest updates in accounting standards and the impact of these changes on financial reporting requirements by purchasing Module 1 and Module 2 of the Corporate Accountants Toolkit.

Audit of SMSF DVD
*NEW PRODUCT* If you were unable to attend the recent sell-out workshops in October/November, don’t miss out on this opportunity to view highlights plus added extras at your convenience.
Top

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 website: Financial Reporting EDs and Audit and Assurance EDs

Forward all ED submission/comment emails to techsubmissions@charteredaccountants.com.au.

11 January 2008
IASB Proposed Amendments to IAS 39 “Financial Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting”
IASB ED 9 "Joint Arrangements"
IASB Proposed Improvements to International Financial Reporting Standards

18 January 2008
ED 06/07 Proposed amendments to Auditor Independence Requirements in APES 110 “Code of Ethics for Professional Accountants”

4 April 2008
ED 07/07 Proposed Standard APES 225 “Business Valuation”

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.

Do you know someone interested in receiving ANT?
We welcome new subscriptions. To subscribe, unsubscribe or to update your mailing details, please visit the newsletters section of the Institute website.

More information is available at our Institute website: www.charteredaccountants.com.au.

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.