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Welcome to the thirty-first 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. Draft submission on Discussion Paper: Reducing Complexity of Financial Instruments
The Institute together with CPA Australia is preparing a submission on the International Accounting Standards Board’s (IASB)
Discussion Paper (DP) entitled Reducing Complexity in Reporting Financial Instruments for the Australian Accounting
Standards Board (AASB) and the IASB.
The DP is the first stage of the IASB’s project to improve and simplify the reporting for financial instruments. The DP discusses
the main causes of complexity in reporting financial instruments and discusses possible intermediate and long-term approaches to
improve financial reporting and reducing complexity. The possible intermediate approaches suggested include amending the
measurement requirements and simplifying hedge accounting. The long-term solution proposed for reducing measurement-related
complexity is to require fair value for all financial instruments.
Our initial conclusion is to not support an intermediate solution to measurement, as we do not believe that any intermediate
solution would reduce complexity. We do however support an intermediate solution to simplify hedge accounting, with respect to
documentation and effectiveness testing. In relation to the IASB’s long-term measurement objective, we believe that further
analysis is required, in conjunction with the Conceptual Framework project, before a definitive conclusion regarding measurement
of financial instruments can be reached. Member feedback is welcome, so please refer to the draft of our comments on the Institute’s website.
2. Senate enquiry into disclosure regimes for not-for-profits
As detailed in ANT28/2008, the Senate Standing Committee on Economics is conducting a wide-ranging review of disclosure
regimes for not-for-profits. In preparation for drafting a submission, the Institute has prepared a draft position paper, which
can be downloaded from the Institute website. We
welcome member feedback on the topic, as we know that it is an area that concerns many of our members.
The closing date for submissions is 29 August 2008 and we would appreciate any feedback to techsubmissions@charteredaccountants.com.au by
Friday, 22 August 2008.
3. AASB Roundtable update
The AASB held a roundtable discussion this week in relation to ITC 17 Request to Comment on IASB Discussion Paper -
Preliminary View on an improved Conceptual Framework for Financial Reporting: The Reporting Entity. The focus of the
discussion was not only the reporting entity concept in the context of the conceptual framework, but also how this concept
relates to not-for-profits entities, and how control plays a factor in determining the composition of a group reporting entity.
4. Relaunching new standards pages
The Reporting & Assurance Team is currently in the process of updating the ‘Analysis of AASB (Australian Accounting Standards
Board) Standards’ section within the Financial
Reporting page of the Institute’s website.
Did you know this section contains summaries of each AASB standard on issue, as well as AASB interpretations?
This update will be conducted over several weeks, and it is expected to be finalised in September. The first standards which have
been updated and are now available are:
- AASB 3 Business Combinations
- AASB 3 Business Combinations (revised)
- AASB 7 Financial Instruments: Disclosure
- AASB 8 Operating Segments
- AASB 136 Impairment of Assets
5. Update to Members’ Handbook
The August update of the Members' Handbook went live on Monday, including new and revised standards issued to 2 July 2008. The
most recently issued standards replaced some of the accounting standards mandatorily applicable at 30 June 2008.
In response to member feedback and to enhance the Handbook facility for members, the Handbook now includes both the applicable
and new versions of accounting standards online. This facilitates early adoption where allowed, and provides members with
continued access to accounting standards where the operative date continues to run.
As an additional resource, the AASB website has a list of standards applying mandatorily to 30 June 2008.
6. Improvements omnibuses explained
Last week’s ANT ANT announced the release of omnibus amending standards AASB 2008-5 and 2008-6, the Australian equivalents to
the Improvements to IFRSs (International Financial Reporting Standard) standard issued by the IASB in May 2008.
As mentioned in that item (Item 2), the Improvements standards have as their objective the implementation of necessary, but
non-urgent, amendments to IFRSs that would not otherwise be incorporated in another major project.
The changes comprise editorial changes (affecting 11 standards) and issues of recognition, presentation and measurement (which
affect 15 standards).
A complete list of the changes is included in the preface to each omnibus. Members need to be aware of the changes, as they may
affect the “issued but not operative” disclosures in their financial statements under paragraph 30 of AASB 108. For more details
on these disclosures, refer to the Q&A in ANT 28.
As you would expect from the objective of the Improvements standards, most of these changes are not expected to have a
significant impact in Australia. However, we have listed below the presentation, recognition and measurement issues included in
these standards in standard number order. The bold ones are those that have the most potential to be significant, as they either
prescribe or eliminate treatments that could differ from those in use locally.
- Plan to sell controlling interest in a subsidiary (AASB 1 and 5)
- Presentation of finance costs (AASB 7)
- Current/non-current classification of derivatives (AASB 101)
- Definition of recoverable amount (AASB 116)
- Presentation issues associated with sale of assets held for rental (AASB 116)
- Curtailments and negative past service costs (AASB 119)
- Definition of ‘return on plan assets’ (AASB 119)
- Replacement of ‘fall due’ terminology for classifying leave balances (AASB 119)
- Guidance on contingent liabilities (AASB 119)
- Government loans with below market interest rates (AASB 120)
- Components of borrowing costs (AASB 123)
- Measurement of subsidiary held for sale in separate financial
- statements (AASB 127)
- Impairment of investments in associates (AASB 128)
- Disclosures when associates are accounted for at fair value through profit and loss (AASB 128)
- Disclosures when jointly controlled entities are accounted for at fair value through profit and loss (AASB 131)
- Description of measurement basis for financial statements (AASB 129)
- Disclosure of estimates used to determine recoverable amount (AASB 136)
- Advertising and promotional activities (AASB 138)
- Units of production amortisation (AASB 138)
- Reclassification of derivatives into or out of the fair value through profit or loss (AASB 139)
- Designating and documenting hedges at the segment level (AASB 139)
- Effective interest rates on cessation of fair value hedge accounting (AASB 139)
- ‘Investment Property’ definition to include property under construction for future use (AASB 140)
- Discount rates for fair value calculations (AASB 141)
For more details, KPMG has published a detailed summary of the changes, which is available on their website.
The improvements ED (Australian ED 159) also included a further seven issues that have not been included in the final standards
issued. These were considered to be more significant issues and will be addressed by the IASB at a later date.
As noted in last week’s ANT, AASB 2008-5 will apply to annual reporting periods beginning on or after 1 January 2009, and
AASB 2008-6 to annual reporting periods beginning on or after 1 July 2009.
Early adoption is permitted for both standards. Unlike other omnibus standards, Omnibus 2008-5 is structured so that each of its
amendments can be considered separately for early adoption, although in some instances amendments are related and must be adopted
at the same time. Omnibus 2008-6 affects only AASBs 1 and 5, and these amendments must be adopted together (and in conjunction
with the amendment affecting AASB 127 in omnibus 2008-5).
7. AASB omnibus AASB 2008-7 amends AASB 127
The AASB has issued AASB 2008-7, which amends AASB 127 Consolidated and Separate Financial Statements , AASB 1
First-time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 118 Revenue,
AASB 121 The Effects of Changes in Foreign Exchange Rates and AASB 136 Impairment of Assets. These changes were
exposed in Australia as ED 160 Proposed Amendments to AASB 1 and AASB 127 earlier this year.
The amendments allow first-time adopters to use a deemed cost of either fair value or the carrying amount under a previous
accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the
separate financial statements.
Other amendments to note include:
- The removal of the cost method definition from AASB 127, replacing it with a requirement to present dividends as income in
the separate financial statements of the investor
- The requirement for a new parent in a group reorganisation to measure the cost of its investment in the previous parent at
the carrying amount of its share of the equity of the previous parent
- The removal from AASB 118 of the requirement to deduct pre-acquisition dividends from the cost of an investment in a
subsidiary, jointly controlled entity or associate. All dividends are now recognised by the investor as income. This is matched
by an amendment to AASB 136 stating that such a dividend may be an indicator of impairment
This Standard applies to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted for annual
reporting periods beginning on or after 1 January 2005 but before 1 January 2009.
AASB 2008-7 can be viewed in full on the AASB website .
8. AASB not-for-profit report
The AASB has issued a report on not-for-profit entity implications of the IASB's proposed changes to its conceptual framework in
respect of private sector businesses. This report may help with preparing comments to the AASB and/or the IASB on ED 164 An
improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and
Constraints of Decision-useful Financial Reporting Information and ITC 17.
9. AASB Action Alert – July 2008
The AASB has released its latest
Action Alert detailing the outcomes of its latest meeting on 30-31July 2008.
For a summary of the meeting highlights, refer to ANT 29, item 5.
The next meeting of the AASB will be held on 27 August 2008.
10. IASB’s annual improvements ED
The IASB has released for public comment an exposure draft (ED) of proposed amendments to eight International Financial Reporting
Standards (IFRS) under its annual improvements project.
The proposed amendments include:
- Added guidance to the Appendix of IAS 18 Revenue on how to determining whether an entity is acting as a principal or
as an agent
- Changes of wording to clarify the meaning
- Remove unintended inconsistencies between IFRSs
The amendments are proposed to be effective for annual periods beginning on or after 1 January 2010 (with an exception for
amendments arising from the revised standards on IFRS 3 Business Combinations, which is effective 1 July 2009). Early
adoption is permitted.
Comments are due on 7 November 2008. To view the media release and download the exposure draft, go to the IASB website.
11. IASB ED on simplifying EPS
The IASB has released for public comment its ED Simplifying Earnings Per Share - proposed amendments to IAS 33 which
proposes to simply the calculation of earnings per share (EPS) and eliminate the differences between the methods required by
IFRSs and US accounting standards to calculate EPS in order to increase transparency for users of financial statements.
The proposals aim to achieve convergence by: -
Providing a clear principle to determine which instruments should be included in the EPS calculation
- Clarifying the EPS calculation for particular instruments, such as contracts to sell or repurchase an entity’s own share and
participating instruments; and
- Simplifying the EPS calculation for instruments that are accounted for at fair value through profit or loss
Comments are due on 5 December 2008. To view the media release and download the exposure draft, go to the IASB website.
12. Supplementary Garnaut Draft Report to be released 5 September
Professor Ross Garnaut will release his Supplementary Draft Report on Friday 5 September 2008 at the National Press Club in
Canberra.
The Supplementary Draft Report will provide the Review’s proposals for emissions reduction trajectories and targets for Australia
within an international context.
The Report will be informed by the economic modelling results of the Review’s joint assessment with the Australian Treasury of
unmitigated and mitigated climate change.
The address will be televised live on ABC1 from 12.30pm, and the report will also be available at the Garnaut Review webpage from this time.
Booking enquiries to attend the address should be made directly to the National Press Club.
Corporate Trustees
Q: Do the accounts of a trustee company need to disclose the assets and liabilities of a trust?
A: ASIC (Australian Securities and Investment Commission) Digest superseded Info SINFO 2450, issued in 1999 and titled
Corporate trustee financial statements and trust liabilities, provides guidance on this issue. It directs the reader to
Statements of Accounting Concepts (SAC) 4, Definition and Recognition of the Elements of Financial Statements. INFO 2450
states: “Applying the concepts set out in the SACs would not usually result in the recognition of the trust's
liabilities (and the offsetting right of indemnity asset) in the corporate trustee's financial statements, especially if the
trust's assets exceed its liabilities. This is because it is not probable that the corporate trustee will be obliged to make a
future sacrifice of economic benefits. If the recognition criteria have not been met, the corporate trustee's financial
statements should contain adequate disclosure in the form of notes, providing details of the assets and liabilities of the
trust”.
While this guidance refers to pre-AIFRS (Australian International Financial Reporting Standards) SAC 4, the equivalent AIFRS
Framework for the Preparation and Presentation of Financial Instruments document contains asset and liability definitions
that are essentially the same. Therefore, AIFRS adoption does not impact on the appropriate accounting treatment for these
trusts. For guidance on what constitutes adequate note disclosure, reference should now be made to AASB 137 Provisions,
Contingent Liabilities and Contingent Assets.
A copy of this guidance is available on our website. ASIC is in the process of updating this guidance to refer to the revised AIFRS standards.
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.
1 August 2008
AASB ED 163 Proposed Amendments to AASB 1049 for Consistency with AASB 101
22 August 2008
AASB IASB Discussion Paper on Reducing Complexity in Reporting Financial Instruments
25 August 2008
AASB ED 164 An improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative
Characteristics and Constraints of Decision-useful Financial Reporting Information.
AASB ITC 17 Request for Comment on IASB Discussion Paper Preliminary Views on an improved Conceptual Framework for Financial
Reporting: The Reporting Entity
29 August 2008
AASB IASB Discussion Paper on Preliminary Views on Amendments to IAS 19 Employee Benefits
APESB ED 04/08 Forensic Accounting Services
Parliament of Australia Senate Economics Committee: Inquiry into the Disclosure regimes for charities and not-for-profit
organisations
30 August 2008
AUASB ED 5/08 ASA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of a Financial Report
AUASB ED 6/08 ASA 260 Communication with Those Charged with Governance
AUASB ED 7/08 ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its
Environment
AUASB ED 8/08 ASA 330 The Auditor’s Procedures in Response to Assessed Risk
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.
Chartered Accountants Technical
Conference
Throughout October in Sydney and Melbourne. Addresses the latest legislation changes and technical details in separate streams
for business and practice. The need–to–know updates that will make a difference to your growth.
Chartered Accountants Audit of Self Managed Super
Funds Workshop
Throughout October in Sydney, Melbourne, Adelaide, Perth and Brisbane. With the increase in the number of reviews and audits of
self managed super funds to 11,000 and new competency requirements in effect, here’s your chance to understand those requirements
and ensure you comply.
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.
We welcome new subscriptions. To subscribe, unsubscribe or to update your mailing details, please visit the newsletters section of the
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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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