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Welcome to the fourteenth edition of Accounting & Assurance News Today for 2008. What follows is a brief update on changes and proposed changes in the financial reporting and assurance sphere.
1. NSW Associations submission lodged
The Joint Accounting Bodies have lodged their submission on the proposed NSW incorporated associations legislation. We strongly suggested that a co-ordinated nationwide approach to regulating the not-for-profit sector, embracing companies limited by guarantee as well as associations, would be better than each State having its own separate regime, before going on to comment on the detail of the Bill.
The text of the submission can be viewed at the Institute website.
2. AASB applies now!
AASB 7 ‘Financial Instruments – Disclosure’ becomes mandatorily applicable for financial years beginning on, or after, 1 January 2007 (in other words, year end 30 June 2008 for many Australian companies) – replacing both AASB 130 ‘Disclosures in the Financial Statements of Banks and Similar Financial Institutions’, and the disclosure requirements contained in paragraphs 51-95 of AASB 132 ‘Financial Instruments: Disclosure and Presentation’.
Aiming to improve the information provided in the financial report, the disclosures are designed to give shareholders insights into how management manages and controls financial risks. All reporting entities and all types of financial instruments – including the basic ones like cash, accounts receivable and accounts payable – are covered by these disclosures, giving AASB 7 wide-ranging application.
The message from members who have already prepared their AASB 7 disclosures is: BEWARE. These disclosures are far more comprehensive than the previous requirements, requiring entities to collate more information. Comparative information for the 2007 financial year also needs to be prepared and audited, and there is no exemption for parent entity disclosures – both of which further add to the information collection requirements.
Members involved in the preparation and audit of financial reports therefore need to ensure that they – and their clients – are adequately prepared for the requirements of this standard, and are actively engaged in collecting the information that they will require in order to produce the required disclosures with comparatives.
A copy of the standard is available on the AASB website and also in the Members’ Handbook. The AASB website also includes access to the IASB’s “Basis for Conclusions” and “Implementation Guidance” to assist members applying the standard's requirements.
Other information available to assist members in applying the standard includes Charter articles in February 2007 and March 2008, specimen disclosures contained in the specimen financial reports by the major firms, as well as technical conference papers. For more details on these resources, visit the AASB 7 section of our website.
Members are reminded that adoption of AASB 7 also requires the mandatory adoption of AASB omnibus 2005-10. The AASB website contains a complete list of the versions of the standards applicable for 30 June 2008, which includes compilations of all omnibus amending standards applicable to this date.
To access this table, visit the
AASB website, select ‘AASB standards’, then click on the link in the introductory panel to ‘Standards applying mandatorily to 30 June 2008’. Members should refer to this table to ensure they are applying the correct versions of the standards.
3. AASB releases ITC 15
The Australian Accounting Standards Board (AASB) is inviting comment on ITC 15 Request for Comment on the International Public Sector Accounting Standards Board (IPSASB) Exposure Draft ED 34 ‘Social Benefits: Disclosure of Cash Transfers to Individuals’ or Households and IPSASB Consultation Paper ‘Social Benefits: Issues in Recognition and Measurement’ .
IPSASB ED 34 proposes particular disclosure requirements for public sector entities (generally governments) in respect of their cash transfer social benefits. It defines a cash transfer as a “social benefit, which is either provided directly in cash, or is an expense paid through the tax system, to protect individuals or households against certain social risks where use of the resources transferred is at the discretion of the individual or household”. Examples of these cash transfers are social security pensions, child benefits and unemployment benefits.
The IPSASB Consultation Paper distinguishes three types of social benefits – namely, collective goods and services, individual goods and services, and cash transfers to individuals or households. The paper raises the following questions:
- (In respect of each of these types of social benefits) whether a present obligation to provide them arises at any time and, if so, when
- (In respect of cash transfers to an individual or household) whether and, if so, when, a present obligation arises if contributions of resources to the government are required for the individual or household to become entitled to benefits
- (In relation to cash transfer programs that require individuals or households to revalidate their entitlement to benefits from time to time), whether revalidation is a criterion for the recognition of any such liabilities or a factor to take into account in the measurement of the liabilities
- whether a social benefit program should be treated as an in-substance ‘executory contract’.
The AASB is seeking comment on both documents by 16 June 2008 for comment to the IPSASB by 15 July 2008.
In developing its project on social benefits, the IPSASB has concluded that financial statements alone may not provide users with enough information to assess the long-term viability of social benefit programs. It has, therefore, launched a new project to develop a framework for reporting on the long-term fiscal sustainability of governmental programs and finances. The IPSASB welcomes comments on the project brief by July 15, 2008. Further information about these projects is on the IFAC website.
4. AASB releases IASB discussion paper on IAS 19
AASB released an IASB Discussion Paper on the Preliminary Views on Amendments to IAS 19 Employee Benefits. The paper sets out the IASB’s preliminary views on how the accounting for some post-employment benefits, including pensions, could be improved. Criticisms leveled at the existing standard include:
- the deferral of the recognition of gains and losses leads to misleading figures in the statement of financial position
- the multiple options for deferring recognition lead to poor comparability across companies
- the lack of clarity in the definitions of benefit promises lead to inconsistencies and poor comparability for those benefit promises that include a promised return on contributions linked to an asset or an index
- the required measurement method is inadequate for those benefit promises that include a promised return on contributions linked to an asset or an index.
The IASB’s preliminary views on how to address those main issues are:
- to remove the options for deferred recognition of gains and losses in defined benefit plans, i.e. remove the “corridor approach”
- to introduce a new classification of benefit promises into contribution-based promises and defined benefit promises, with a new measurement attribute for contribution-based promises.
Comments are due to the AASB by 29 August 2008 and the IASB by 26 September 2008. For further details, see the IASB media release.
5. IPSASB releases update to IPSAS 4
The IPSASB has updated its International Public Sector Accounting Standard (IPSAS) 4 ‘The Effects of Changes in Foreign Exchange Rates’ to bring it into line with the latest version of IAS 21. It clarifies the requirements for public sector entities to convert foreign currency transactions and balances into their reporting currency.
The revised IPSAS 4 can be downloaded without charge from the IFAC website. To view the media release, go to http://www.ifac.org/MediaCenter/?q=node/view/554.
6. IFAC seeks input on performance measurement in public sector
The International Federation of Accountants (IFAC) Professional Accountants in Business Committee is conducting an
online survey of professional accountants and others who work in the public sector on the ways in which public sector entities set objectives, measure performance, and report on results. The survey seeks to identify similarities and differences in performance measurement structures and the extent to which these structures help public sector entities meet their objectives. The survey takes 10-15 minutes to complete, and responses are requested by April 30, 2008.
7. APRA and ASIC – new authorisation requirements for foreign insurers
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) are jointly reminding direct offshore foreign insurers (DOFIs) and intermediaries holding an Australian financial services licence (AFSL) such as local insurance brokers about the new authorisation requirements for foreign insurers that come into effect on 1 July 2008.
DOFIs wishing to continue operating in the Australian market must be authorised by APRA, following the passage of the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007 on 13 September 2007.
Electronic copies of the media release are available on the APRA website.
Classification of members’ shares in co-operatives (Part 2)
Q: I understand that in most trading co-operatives, members’ shares will be classified as liabilities under AASB 132 ‘Financial Instruments: Presentation’ and Interpretation 2 ‘Members’ Shares in Co-operative Entities and Similar Instruments’. Will this change with the recent amendments to these pronouncements relating to puttable instruments?
A: Last week’s ANT discussed the issue of the classification of members’ shares in co-operatives. This is not expected to change with the amendments for puttable instruments.
Recent amendments to AASB 132 and Interpretation 2, made through the omnibus amending standard AASB 2008-2, provide an exception to the normal rule that a financial instrument must be classified as a liability if the issuer has a contractual obligation to deliver cash or another financial asset to another entity.
The new exception is for puttable instruments, being those instruments where the holder has the right to put the instrument back to the issuer. However, the exception only applies when the conditions in the revised standard are met, which include the condition that the holder must be entitled to a pro-rata share of the entity’s net assets.
In co-operatives that are obliged to cancel membership for failure to meet the active membership test, and hence must then repay the member’s share capital, the amount repaid to the member equates to the paid up capital, rather than a share of net assets. This does not meet the conditions in the revised standard.
Listed below are the notable upcoming open domestic and international accounting and assurance exposure drafts. Members are encouraged to prepare their own submission on each document and submit them to the Institute (techsubmissions@charteredaccountants.com.au) no later than one week before the closing date shown.
22 April 2008
APESB ED 01/08 ‘Compilation of Financial Information’
25 April 2008
IFRIC Draft Interpretation D23 ‘Distributions of Non-cash Assets to Owners’
IFRIC Draft Interpretation D24 ‘Customer Contributions’
30 April 2008
IAASB Proposed ISA 402 (Revised and Redrafted) and proposed ISA 265
31 May 2008
IAASB Proposed ISAE 3402
16 June 2008
AASB ITC 15 Request for Comment on IPSASB Exposure Draft ED 34 ‘Social Benefits: Disclosure of Cash Transfers to Individuals or Households’ and IPSASB Consultation Paper ‘Social Benefits: Issues in Recognition and Measurement’
For further exposure drafts, refer to our exposure drafts webpage.
Business Forum 2008
Throughout April, May and June in Brisbane, Melbourne, Sydney, Adelaide, Perth and Canberra. What’s your strategy for the year ahead? Join industry leaders and your peers as vital topics are addressed, key technical updates explored, and new ideas and options examined.
Accounting for Income Tax Workshop
Throughout May and June in Brisbane, Melbourne, Sydney, Adelaide and Perth. Prepared by Deloitte, this workshop will equip you with knowledge and tools to apply to your work place. Build on your understanding of accounting for income taxes (AASB 112) and identify your obligations in time for the June 2008 year-end.
Audit of Self Managed Superannuation Funds Workshop
Throughout May and June in Brisbane, Melbourne and Sydney. Now that there are competency requirements for auditors of self managed super funds, don’t miss out on ensuring your audits are compliant with the regulatory requirements.
Please continue to help us to improve the newsletter by sharing your comments on articles featured in this newsletter, or any financial reporting and auditing issues and experiences that might be of interest to other members. Responses should be emailed to "Your Input" (techsubmissions@charteredaccountants.com.au) and may be published in future editions of ANT.
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