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Welcome to the twenty-fourth 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. AASB meeting highlights – 25-26 June 2008
The Australian Accounting Standards Board (AASB) met on 25 and 26 June 2008. The following outlines the key areas of discussion:
Superannuation Plans and ADFs
The Board agreed that the proposed standard should contain specific disclosures and cross reference to disclosure requirements of other standards. It was also agreed that only limited parent disclosures should be required.
Social Benefits
The Board discussed its submission on International Public Sector Accounting Standards Board (IPSASB) Exposure Draft 34 and agreed that the disclosure proposals were not appropriate but that the project should continue in conjunction with the IPSASB’s conceptual framework project.
Service Concessions
An educational session was held on service concessions, which addressed the IPSASB’s Accounting and Financial Reporting for Service Concession Arrangements Consultation Paper.
Cost of a subsidiary
The Board agreed to some minor changes to the draft standard, which are expected to be approved out-of-session.
Conceptual framework
The Board agreed to issue as an AASB exposure draft the International Accounting Standards Board’s (IASB) Exposure Draft: An improved Conceptual Framework for Financial Reporting.
Reporting Entity
The Board agreed to issue as Invitation to Comment 17 the IASB’s Discussion Paper: Preliminary Views on an improved Conceptual Framework for Financial Reporting.
Income tax
An educational session on the IASB’s income tax project was presented to the Board. Although the aim of the project is convergence with US GAAP, some differences will still remain, such as accounting for uncertain tax positions. An exposure draft is expected to be issued in late 2008.
Annual improvements
The Board agreed to some minor changes to the draft standards, which are expected to be approved out-of-session.
Criteria for Not-for-Profit departures from IFRS
An updated issues paper will be presented to the joint AASB and New Zealand Financial Reporting Standards Board meeting in July 2008 outlining the criteria for departing from IFRS.
Interpretations
In relation to the domestic interpretation issues in progress, the Board proposed to revisit the non-reporting entities project in six months and to not refer the split investments in associates in consolidated financial statements issue to the International Financial Reporting Interpretations Committee.
Differential Reporting
The Board was given a summary of the tentative decisions to date. No further decisions were made.
2. AASB seeks technical team project manager
The AASB is seeking a project manager to join its technical team. The role would involve supporting the ongoing technical program of the AASB by conducting technical and policy-related research on accounting matters.
Applicants should have at least four years experience in an accounting, auditing or academic environment and have an interest in technical policy development.
For further details, see the AASB website.
3. Promoting better investment decisions
Recognising that professional accountants in business play an important role in helping their organisations deliver long-term value, IFAC’s Professional Accountants in Business (PAIB) Committee has released new guidance on the use of discounted cash flow analysis and net present value in evaluating investments. Entitled ‘Project Appraisal Using Discounted Cash Flow’, this guidance was released as part of the PAIB Committee's new program to develop International Good Practice Guidance on financial and management accounting topics.
The paper deals with eight key principles that are widely accepted as good practice in project appraisal using discounted cash flow (‘DCF’). These principles and their application are explained, which enables the DCF outcome to be used to support decisions for managerial purposes. Where relevant, some of the principles also have public and non for profit sector applications. Where the DCF and NPV are used for financial reporting purposes, members should refer to the relevant accounting standards for the requirements.
The document can be downloaded from the IFAC website.
Auditing & Assurance News | |
4. APRA releases new superfund audit report
The Australian Prudential Regulation Authority (APRA) has released a revised version of the audit report on the financial statements and compliance for a reporting entity contained in approved form titled 'Superannuation Industry (Supervision) Act 1993 (SIS Act) Section 35C - Approved Form’. The new report applies to reporting periods commencing on or after 1 July 2007 (i.e. 30 June 2008 year ends) and replaces the previous audit report which was applicable to reporting periods commencing on or after 1 July 2006.
This form is now available on the APRA website.
5. ATO makes changes to contravention reporting by SMSF auditors
The Australian Taxation Office (ATO) has also made changes to its procedure that auditors of self managed superannuation funds (SMSFs) must follow to report contraventions to the ATO – see the ATO website
6. ASIC views on 30 June reporting
The Australian Securities and Investments Commission’s (ASIC) Chief accountant Lee white has reminded preparers and auditors of financial reports of the potential pitfalls that are likely to arise in their 30 June reports as a result of the current market turbulence and the liquidity squeeze.
He said ‘It is essential that companies understand the risks they face and adequately assess and measure them, as well as having appropriate responses in place. Disclosure should be a strong focus and priority.’
In particular he highlighted the following areas which are likely to require particular attention this financial year: -
The use of and disclosure of off balance sheet arrangements
- Impairment of asset values
- Determining fair market values
- Going concern
- Significant judgements and sources of estimation uncertainty
- Classification of debt
- Foreign currencies
Mr White reminded preparers and auditors of the importance that the new disclosures required by AASB 7 Financial Instruments Disclosures will play in helping to keep markets well informed about the existence and management of financial risks. He also said that ASIC will be focusing on the reported timing recognition of revenue and deferred expenses in its annual review of financial reports
For more details visit the ASIC website.
7. Greenhouse reporting starts on 1 July
From Tuesday 1 July, businesses emitting large amounts of greenhouse gases will be required to monitor and measure the emissions ahead of reporting them to the Government by October next year as part of Australia’s new National Greenhouse and Energy Reporting System. The Department of Climate Change has developed an online calculator for business to use to asses whether they are caught by the new laws – see the department website
8. APRA finalises general insurance prudential framework
APRA has released its final general insurance refinements package following extensive industry consultation over the past year.
Further details are available on the APRA website.
9. Greenhouse results for 2006 released
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The Minister for Climate Change and Water, Senator Penny Wong has released Australia’s greenhouse emission results for 2006 and a preliminary result for 2007. The reports are now available from the Department of Climate Change website.
Senator Wong also took the opportunity to announce that the government will be issuing a Green Paper on the design of the emissions trading scheme in July 2008.
ASSESSING INTERNAL CONTROLS
Q: I have heard that I now have to look at internal control even on a small audit where I intend to apply a substantive approach throughout. Is this correct?
A: Indeed it is. Back in 2004, several of the auditing standards were re-drafted and reissued to encourage auditors to improve their focus on assessing risk. The requirements of these standards were adopted as force of law standards in April 2006, and as such became mandatory for financial years ending on or after I July 2006 (i.e. 30 June 2007 year ends).
The standard that is particularly relevant is ASA 315 Understanding the Entity and its environment and assessing the risk of material misstatements. Under ASA 315, it is now a black letter mandatory requirement to "obtain an understanding of the entity and its environment including its internal control, sufficient to identify and assess the risks of material misstatement of the financial report whether due to fraud or error, and sufficient to design and perform further audit procedures" (para 5). Para 52 also states in black letter, "The auditor shall obtain an understanding of internal control relevant to the audit".
Consequently, you can no longer just ignore internal control and do a completely substantive audit.
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.
30 June 2008
AASB ITC 16 Request for Comment on IPSASB Consultation Paper Accounting and Financial Reporting for Service Concession Arrangements
4 July 2008
APESB ED 03/08 Conformity with Auditing and Assurance Standards
15 July 2008
IPSASB ED 34 Social Benefits: Disclosure of Cash Transfers to Individuals or Households and IPSASB Consultation Paper Social Benefits: Issues in Recognition and Measurement
16 July 2008
APESB ED 02/08 Reporting on Prospective Financial Information Included in a Disclosure Document
This list does not represent a complete list of the exposure drafts on issue. For all other open exposure drafts, refer to our dedicated exposure draft website.
CFO of the Future Series
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Audit Conference 2008 DVD
Recorded at the conference in April 2008, view highlight sessions at your convenience, including fraud, audit sampling, quality control, problem audit opinions and more.
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.
Accounting & Assurance News Today is an initiative of the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia.
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This is an initiative of, and has been prepared by the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia. While every effort has been made to ensure the accuracy of the information contained therein, neither the Institute nor its employees shall be liable on any grounds whatsoever in respect of decisions or actions taken as a result of using this publication. The information provided is a general guide only and should not be used, relied on or treated as a substitute for specific professional advice or referral to the relevant specific standard.
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