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Welcome to the thirty-ninth 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 agenda – 10 October 2008
The agenda and
selected board papers for the
Australian Accounting Standards Board (AASB) meeting on 10 October 2008 are now available. Key items for discussion include:
- Superannuation plans and Approved Deposit Funds (ADFs) – continue consideration of draft exposure draft (ED)
- Criteria for modifying the International Financial Reporting Standard (IFRS) for Not-for-profits (NFPs) – verbal update
- Conceptual framework – consider draft submission to International Accounting Standards Board (IASB) on ED 164 and ITC 17
- Discontinued operations and first-time adoption – consider EDs for issue
- Process for adopting IFRSs – consider issues paper
- Interpretations – consider recommendations of superannuation contributions tax panel
2. IASB meeting agenda – 13-17 October 2008
The International Accounting Standards Board (IASB) will be having its next meeting on 13-17 October 2008 at its London offices.
The agenda includes the following items (in alphabetical order):
- Annual Improvements: IAS 39 – Definition of a derivative
- Consolidation
- Derecognition
- ED of proposed amendments to IFRS 2 and IFRIC 11 – Groupcash-settled share-based payment transactions
- Expert Advisory Panel on Valuing Financial Instruments in Markets that have become Inactive: update
- Fair Value Measurement
- Financial Instruments with Characteristics of Equity
- IAS 39: Application of the Effective Interest Rate Method
- IFRS for Private Entities
- Insurance Contract: Education session
- Reclassification of Financial Instruments
- Technical Plan
- US Consolidation amendments: Education session
To download a full copy of the agenda, go to the IASB
website.
3. FRC August and September meeting highlights
The Financial Reporting Council (FRC) met on 12 August 2008 and 9 September in Sydney. The meetings discussed the following
principal matters:
- IASB Update by Sir David Tweedie (IASB Chairman)
Sir David provided an update of the IASB’s work programme explaining that the next 12 months will determine accounting standards
for the next 10 years, with 9 key IASB projects scheduled to be substantially finished by 2011. A summary of these projects and
their expected completion dates are available on the FRC
website.
- Outcomes of G100/FRC Review of Australia’s Experience in Implementing IFRS
The FRC and G100 commissioned PricewaterhouseCoopers (PwC) to survey G100 members on their experience with IFRS. 36 responses
were received from a variety of industries and the initial findings were considered at a FRC/G100 workshop on 11 August attended
by Sir David Tweedie. Preliminary findings supported the principles based approach to standard setting but the workshop resolved
to form a working group to consider and make recommendations to the IASB on a range of disclosure issues. PwC’s final report was
considered by the FRC’s September meeting and is expected to be publicly released shortly
- Standard Business Reporting (SBR) Project Update
Program Director Paul Madden provided an update of this project, which is aimed at reducing the regulatory reporting burden on
the business. The presentation raised issues regarding the IFRS assurance process, specifically relating to ensuring the SBR
taxonomy faithfully represents the IFRS XBRL one. Treasury is to prepare a paper addressing this issue for FRC signoff in
November, and a draft outline of the paper was considered by the FRC at the September meeting.
The IASB is hoping to finalise a standard for emissions trading by 2010. However Sir David assured the meeting that if the
standard was not finalised by then, there would be sufficient implementation flexibility to allow Australia to apply the draft
standard while remaining IFRS compliant.
- Public Sector Accounting Workshop
Mr. Tim Youngberry, First Assistant Secretary with the Department of Finance and Deregulation, led a discussion on public sector
accounting issues. On 5 November 2008, a workshop will be held where key participants will discuss issues including transport
neutrality, ex-post versus ex-ante reporting, Government Finance Statistics (GFS) reporting requirements, and New Zealand’s
approval of Public Sector Auditing Standards.
Further details of the meetings are available on the FRC
website.
4. IASB credit crisis response
The IASB is keenly aware of its need to play a leading role in dealing with financial issues raised by the international credit
crisis and has issued a press release summarising the current status of its response to the credit crisis and its proposed next
steps.
In particular it remains committed to the need to clarify IFRS in response to new market developments, and to date its response
has focused primarily on the recommendations of the Financial Stability Forum (FSF), which had the support of the Group of Seven
(G-7) Finance Ministers.
In monitoring developments in the US and other jurisdictions to avoid unnecessary inconsistencies in accounting treatments under
IFRS and US generally accepted accounting principles (GAAP), the IASB has committed to the following: -
Consistency of fair value measurement guidance between IFRS and US GAAP
- Consideration of the possible impact of the US Emergency Economic Stabilisation Act of 2008 and other similar programmes
internationally on the valuation of assets and liabilities
- Immediate consideration of the ability to reclassify financial instruments
- Willingness to participate in any study on the impact of accounting in the credit crisis
For more details, go to the IASB
media release.
Auditing & Assurance News | |
5. More clarity standards finalised by IAASB
The International Auditing and Assurance Standards Board (IAASB) has finalised a further 7 standards as part of the final stages
of its international clarity project. Some of the standards have been revised, while others have only been redrafted to apply the
new conventions.
The most significant changes have been made to ISA 200 (Revised and Redrafted) Overall Objectives of the Independent Auditor
and the Conduct of an Audit in Accordance with International Standards on Auditing. This standard now clearly establishes the
key objectives for an audit by:
- Providing an overview of an audit to aid in understanding its purpose and scope
- Defining the respective authority of the requirements and guidance in ISAs.
- Setting out fundamental audit requirements including the need for sound and consistent professional judgement and sufficient
audit evidence
In addition to ISA 200 (Revised and Redrafted), the IAASB has also released:
- ISA 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit
- ISA 450 (Revised and Redrafted), Evaluation of Misstatements Identified during the Audit
- ISA 530 (Redrafted), Audit Sampling
- ISA 610 (Redrafted), Using the Work of Internal Auditors
- 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 Paragraphs in the Independent Auditor's
Report
To date, the IAASB has released 22 final clarity redrafted ISAs and plans to finalise its complete set of clarified ISAs by the
end of 2008. All clarified ISAs will be effective for audits of financial statements for periods beginning on or after 15
December 2009.
To download the ISAs, go to the IFAC website.
6. AUASB issues clarity timetable and redrafting polices
As part of the initial stages of its implementation of the IAASB’s clarity project referred to above, the Australian Auditing and
Assurance Standards Board (AUASB) has released its draft timetable and redrafting policy for this major project.
The purpose of the timetable is to provide approximate timeframes for the consideration, release and preliminary approval of
Australian Auditing Standards (ASAs) revised and redrafted in ‘clarity’ format. Final approval of the redrafted Auditing
Standards is scheduled for the second half of 2009.
The redrafting policy titled Redrafting ASA’s Drafting Policies and Rules sets out the AUASB’s overall technical approach
to the redrafting process and addresses the following:
-
Overall AUASB redrafting approach
- Drafting policies
- Drafting rules (basic rules and amendments for legal, legislation and other necessary amendments)
In all the clarity project will involve the redrafting of 43 AUASB pronouncements:
-
35 current Australian Standards on Auditing (ASAs) (including Australian Standard on Review Engagements [ASRE] 2410)
- 5 International Standards on Auditing (ISAs) without current equivalent ASAs
- 3 other AUASB pronouncements (Glossary, Framework and Foreword)
To download both these documents, go to the AUASB
website.
To date the AUASB has issued 10 of the ASAs as clarity EDs with comments on the second batch closing on 15 October 2008 (see
ANT36/2008).
7. Alert on auditing fair value accounting estimates
The IAASB has released an audit practice alert titled Challenges in Auditing Fair Value Accounting Estimates in the Current Market Environment (PDF).
Its purpose is to assist auditors in addressing the challenges of auditing fair value accounting estimates, highlighting areas
within the ISAs that are particularly relevant in times of market uncertainty.
In addition, the alert directs auditors to the recently revised ISA 540 (Revised and Redrafted) Auditing Accounting Estimates,
including Fair Value Accounting Estimates, and Related Disclosures, which was influenced by the changes in the credit markets
during 2007. While not effective until audits of financial periods commencing on or after 15 December 2009, it includes
potentially useful guidance to auditors planning their 2008 engagements.
An Australian version of the new ISA 540 is currently on exposure as part of the AUASB’s clarity project – see ED 12/08.
To view the media release, go to the International Federation of Accountants (IFAC) website.
The AUASB has praised the practice alert as being useful to Australian auditors and drawn attention to the existing ASA 545
Auditing Fair Value Measurements and stated that the guidance will help raise awareness of the particular challenges
associated with auditing fair value estimates in times of market ambiguity. To view the AUASB media release, go to the AUASB website.
8. IFAC supports a single set of auditing standards
The International Federation of Accountants (IFAC) today issued a policy position titled IFAC's Support for a
Single Set of Auditing Standards: Implications for Audits of Small and Medium-sized Entities. The paper sets out IFAC's
view that ISAs are designed to be applicable to audits of financial statements of entities of all sizes, and highlights the ways
in which the IAASB considers the needs and perspectives of small- and medium-sized entities (SMEs) in the development of those
standards.
The paper emphasises the following:
-
The consistent use of the ISAs is essential to meeting the public interest expectations of an audit. If auditors intend to issue
an ISA audit report, they must comply with the ISAs, which enables a consistent level of assurance to be associated with the word
‘audit’, and allows users to make decisions in the light of a common understanding about the reliability of financial statements
- The importance of professional judgment in determining the most effective approach for a particular audit.
In addition, the paper points out that SMEs have an alternative to obtaining an audit: they may obtain a review of their
financial statements. International Standard on Review Engagements (ISRE) 2400, Engagements to Review Financial
Statements, requires a different level of work effort by the practitioner and results in a different and lower level of
assurance. The IAASB will be considering changes to this standard in light of the current needs of the marketplace.
To view the media release, go to the IFAC website.
In Australia, review engagements are normally appropriate for entities where there is no mandatory audit requirement but where
limited (as opposed to reasonable) assurance is beneficial to users of the financial information. For example, for proprietary
companies that are below the thresholds at which an audit is required under the Corporations Act 2001. (For thresholds, see this
week’s Query of the Week)
Professional & Ethics News | |
9. APESB Consultation Paper on APS 12
The Accounting Professional and Ethical Standards Board (APESB) has issued a Consultation Paper on
the Review of Miscellaneous Professional Statement APS 12 Financial Advisory Services Standards.
The discussion paper is the first stage in a project to revise and reissue APS 12 as APES 335 Financial Advisory services
to ensure it continues to mandate best practice for members engaged in the provision of these services.
As part of this process, the APESB is keen to receive member feedback on their experiences with APS 12 as well as on a range of
other issues relating to the appropriate professional conduct requirements for members practicing in this sector, including those
arising from the new code of ethics (APES 110) e.g. independence.
Interested members are encouraged to make a submission to the APESB before the closing date of Wednesday, 31 December 2008.
Further information is available on the APESB website.
Different length financial years
Q: Do the Corporations Act size tests (that determine small/large proprietary company reporting requirements) apply only to a
12-month reporting period? If so, can they be extrapolated for a longer reporting period if a company needs to have a longer or
shorter accounting period to synchronise its year end with that of its parent, as is required by section 323D(3) of the Act?
A: The size tests for small and large proprietary companies that determine the annual reporting requirements of these
entities are contained in section 45A of the Corporations Act. A company is small if, for a particular financial year, it meets 2
of the 3 size tests specified in section 45A(2) (i.e. consolidated gross operating revenue less than $A25m, consolidated gross
assets less than $A12.5m and less than 50 employees).
The term ‘financial year’ is defined in section 323D, and while this section envisages financial years of lengths that are not 12
months under certain circumstances, there are no provisions to scale the size tests in s45A based on the length of the financial
year.
The combined effect of these provisions will vary depending on the length of the financial year that is required in order to
achieve synchronisation with the entity’s parent. Companies that would otherwise be large may become small for one year where a
shortened (less than 12-month year) is required, although the Australian Securities and Investment Commission (ASIC) would
encourage such companies to continue reporting. Companies that would otherwise be small may become large for that year if a
longer period is adopted and hence be required to report.
Section 323D(3) allows a company 12 months from the date of the change in control to achieve synchronisation. Thus, the company
should carefully consider the impact of reporting requirements on this decision.
Our thanks to Doug Niven from ASIC for assistance on this particular query.
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.
Note – this email address should not be used for technical queries. For this purpose, use rahelpline@charteredaccountants.com.au.
15 October 2008
AUASB ED 9/08 Proposed ASA 230 Audit Documentation
AUASB ED 10/08 Proposed ASA 300 Planning an Audit of a Financial Report
AUASB ED 11/08 Proposed Auditing Standard ASA 600 Special Considerations – Audits of a Group Financial Report (Including the
Work of Component Auditors)
AUASB ED 12/08 Proposed ASA 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related
Disclosures
AUASB ED 13/08 Proposed ASA 560 Subsequent Events
AUASB ED 14/08 Proposed ASA 570 Going Concern
20 October 2008
AASB ED 165 Improvements to Australian Accounting Standards
31 October 2008
AASB ED 166 Simplifying Earnings per Share: Proposed Amendments to AASB 133
7 November 2008
IASB Improvements to IFRSs (Proposed amendments to International Financial Reporting Standards)
5 December 2008
IASB Simplifying Earnings per Share: Proposed Amendments to IAS 33
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
Sydney Mon, 13-Tues, 14 October 2008. Address 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 Essentials
Workshop
Throughout November in Sydney, Parramatta, Melbourne, Adelaide, Perth and Brisbane. Find out which hot spots ASIC will be
targeting, ensure you can address them, and get the latest updates on auditing standards and regulatory requirements.
Chartered Accountants Accounting Update
and Accounting and Audit of Registered Clubs
Throughout November and December in Sydney, Melbourne, Adelaide, Perth and Brisbane. These seminars will bring you
up-to-date for end of year reporting and the intricacies of accounting and auditing for registered clubs.
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
Institute website. Alternatively, you can email ant@charteredaccountants.com.au. Please note that this email address should not be used for technical
queries.
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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