1. Institute draft submission – income tax

The Institute, together with CPA Australia and the National Institute of Accountants (the Joint Accounting Bodies), has drafted a submission to the International Accounting Standards Board (IASB) on the exposure draft (ED) 2009/2 Income Tax.

The Joint Accounting Bodies are not able to support the ED as it does not achieve the major objective of US GAAP convergence and does not improve the current standard (IAS 12 Income Tax) significantly. Whilst clarifying and simplifying some aspects of the current standard, in so doing it creates a number of problems and anomalous results.

Overall the Joint Accounting Bodies disagree with the specification that the tax basis is determined by the tax deductions that would be available if the entity recovered the carrying amount of the asset by sale. This is because:

1. In a material number of situations the use of the sale basis for determining tax balances will result in deferred tax balances that will never be realised and therefore do not present relevant financial information.
2. US GAAP does not currently define the tax basis, and our constituents tell us the interpretation in practice under US GAAP is not always the sale basis.

The draft submission can be downloaded from the Institute’s Website (DOC) and comments should be sent to the IASB by 31 July 2009. If you have feedback on the Institute submission, please send comments to techsubmissions@charteredaccountants.com.au by Tuesday 16 June 2009.

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2. Institute draft submission – leases

The link to the Institute’s draft submission on ITC 20 was inadvertently omitted from last week’s ANT. The draft, revised this week, can be downloaded from the Institute’s website (DOC).

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3. Financial instrument developments

IASB special meetings on IAS 39

As indicated in item 10 ANT 21/2009 the IASB is carrying out a comprehensive review of IAS 39 Financial Instruments: Recognition and Measurement that will result in IAS 39 being replaced. The objective of this project is to improve the decision-usefulness of financial statements for users by simplifying the classification and measurement requirements for financial instruments.

On June 1 and 5 the IASB held two special meetings to discuss issues relating to the development of its classification requirements for this standard, following on from its discussions at the May board meeting. At these meetings the Board reaffirmed its tentative decision to propose a classification model which will feature all financial instruments to be measured at either:

• Amortised cost; or
• Fair value.

The Board tentatively concluded that amortised cost provides useful information to users if a financial instrument only has basic loan features and it can be demonstrated that the financial instrument is managed on a contractual yield basis. For all other instruments, the Board tentatively decided that only fair value provides useful information to users.

More details on the content of the Board’s proposed model are available in the meeting updates for these two meetings on the website available here and here, as are audio webcasts of the discussions.

Further IAS 39 Discussions are expected as part of the main IASB June meeting scheduled for June 15-19 2009 in London, which will focus on the interaction between the classification criteria and the current embedded derivative requirements for financial host contracts in IAS 39, and the issues relating to concentrations of risk.

Keep up to date on IAS 39 developments

To assist interested parties the IASB has created a new Financial Instruments: Replacement of IAS 39 project webpage, which provides an updated overview of this project and is now offering an email alert system that lets subscribers know when an update is posted to this page. Instructions for subscribing to the email service are available on the IASB website.

In addition the IASB also posted an update (PDF) of how it is responding to concerns previously raised by the European Commission in its letter (PDF) of 27 October 2008 to the IASB.

IASB staff will be hosting a series of live webcasts to keep interested parties up to date on the progress of this project. To attend the webcast you must register to participate on the IASB website.

For more information and links to other resources relating to the IAS 39 project, read the media release.

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4. Guidance to assist company directors assess ‘going concern’

In response to the difficulties and uncertain economic conditions being faced by Australian companies and other entities, the Australian Institute of Company Directors (AICD) and the Auditing and Assurance Standards Board (AUASB) have issued a publication Going Concern issues in financial reporting: a guide for companies and directors, which explains the concept of ‘going concern’ and assists company directors in performing and reporting on their going concern assessment. It can be found on the AUASB website (PDF) or here.

To assist directors and other stakeholders such as the business media, the guidelines distinguish between the sometimes confusing concepts of ‘insolvency’ and ‘going concern’, including an overview of the relevant law to explain what constitutes ‘insolvency’.

The paper also examines the distinctions between an ‘unqualified opinion with an emphasis of matter’ paragraph, a ‘qualified’ audit opinion and a ‘disclaimer’ of audit opinion, which are not always well understood by some readers of financial reports. It also explains the nature and range of possible auditors’ opinions relating to going concern issues, to enable directors to be better informed of the audit implications.

The publication is specifically aimed at for-profit companies, particularly listed companies, and their directors, but may also be useful for directors of unlisted and other companies, other disclosing entities and non-corporate entities, such as not-for-profits with similar reporting and regulatory responsibilities related to going concern.

The media release is available on the AUASB website.

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5. AUASB’s international update

The AUASB has released the second edition of its International Update (PDF) on its website.

This second edition summarises the significant news and activities for the period April - May 2009 of the following standards-setting bodies:

• International Auditing and Assurance Standards Board (IAASB)
• Auditing Practices Board (UK)
• Public Company Oversight Board (USA)
• Auditing Standards Board (ASB) and the Accounting and Review Services Committee (ARSC) of the American Institute of Certified Accountants (USA)
• Auditing and Assurance Standards Board (Canada)
• Professional Standards Board (New Zealand)

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6. AUASB’s June highlights

The AUASB has released the meeting highlights (PDF) of its 1-2 June 2009 meeting on its website. A summary of the main outcomes was included in item 10 ANT22/2009.

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7. Guidance on bank confirmation requests

Westpac has issued some guidance for auditors and their clients regarding enhanced procedures for end of financial year bank confirmation requests. As a service to members a copy of this guidance can be downloaded from the Institute’s website (PDF).

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8. Employee share schemes

The Government has invited public comment on its consultation paper and draft legislation on the tax treatment of Employee Share Schemes in line with its commitment to fast-track consultation. These proposed new arrangements will apply to shares or rights acquired on or after 1 July 2009. The existing law will apply to all shares and rights acquired before 1 July.

Interested stakeholders can obtain a copy of the options paper from the Treasury website.

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9. Standard Business Reporting updates

SBR fact sheets

Three fact sheets dealing with:

• SBR Program InBrief (an explanation of the project)
• SBR Background InBrief (the project history)
• SBR Major Streams of Work InBrief (status report on the major project components)

have been updated and are now available on the website.

They provide an overview of the status and progress of the SBR project which aims to simplify business-to-government reporting by making forms easier to understand, using accounting and record keeping software to automatically pre-fill government forms and introducing a single secure way to interact on-line with participating agencies. It is intended to be launched in July 2010 and is expected to reduce the costs of reporting financial information to government as well as help the business community to improve the quality of both internal and external reporting.

SBR Software developers’ kit and taxonomies

The SBR project continues to release online the documents, schemas, specifications, tools, and services that software developers can utilise to start developing their products in time for SBR’s 1 July 2010 implementation.

The software developers' kit (SDK) release schedule available at the SBR website has recently been updated and the following SDK components are now accessible online via the SDK page:

• Activity statement (BAS) message implementation guide (MIG)
• State and territory payroll tax overview MIG
• Taxonomies for OSR payroll tax periodic returns for NSW, WA and Vic
• Taxonomies for PAYG payment summaries for employment termination, superannuation income and superannuation lump sum

With the release of these additional components, the SDK now contains the key information that software developers need to commence implementing SBR and they are now encouraged to ensure their products and services are SBR-ready.

The full taxonomy, called SBR Au Taxonomy (v2009 C r.1.0) is available on the SBR collaboration environment.

More information is available in the software developers’ kit guide on the website which summarises the components of the kit, describes its technical content, provides a list of reports impacted by the SBR programme and provides a checklist to help developers implement the changes. More information can be obtained by contacting SBR at sbr@treasury.gov.au and/or asking questions at SBR workshops.

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10. Public consultation on voluntary action

Senator Penny Wong, Minister for Climate Change and Water has announced that public consultation workshops will be held across Australia to determine how voluntary action can best be taken into account when setting future Carbon Pollution Reduction Scheme (CPRS) caps.

Households contribute around 25% of emissions covered by the CPRS through energy and fuel use. Senator Wong pointed out that individual action by households to reduce their carbon pollution can help Australia to meet its emissions targets.

A series of public consultation workshops will be held in capital cities around Australia during June to determine how voluntary action may be calculated and taken into account under the Carbon Pollution Reduction Scheme. The public consultation workshops will be held in Perth, Adelaide, Brisbane, Sydney and Melbourne.

The Government has also announced an Energy Efficiency Savings Pledge Fund, to which individuals can pledge their savings from energy efficiency measures. The Fund will then buy and cancel carbon pollution permits under the CPRS.

Further information on the workshops including dates and locations can be found on the Climate Change website.

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Synchronising year ends

Q: Our client is a large proprietary company that has a Japanese parent entity. Can we change the year end of the large proprietary company to synchronise with the Japanese parent?

A: The relevant requirements governing this are contained in section 323D of the Corporations Act and ASIC Class Order CO 98/96 and are explained in Section C of ASIC Regulatory Guide 58 Reporting Requirements – Registered Foreign Companies and Australian Companies With Foreign Shareholders, which is available on the ASIC website.

Section 323(D) of the Corporations Act sets out the requirements for determining the length of a financial year and does not include a provision that would permit such a change. However, ASIC issued CO 98/96 to provide general relief from section 323D(2) when the foreign parent entity is required by law in its place of origin to cause the financial year of its controlled entity to be synchronised and the change is being made to comply with that requirement.

The conditions of the class order must be met for the relief set out in the class order to apply. It is not necessary to seek permission from ASIC to change the financial year under the class order. The onus is on the foreign controlled company itself to determine whether it can meet the conditions of the class order and obtain the relief.

If synchronisation with the foreign parent entity is not a foreign legal requirement, the only other solution would be to apply to ASIC in writing under section 340 for individual relief. The application would need to demonstrate that the ongoing non-synchronisation would impose unreasonable burdens. RG 58 sets out the information to include in such an application for individual relief.

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Listed below are some of the upcoming meeting dates for the major boards. For a full listing, refer to the Institute website.

Financial Reporting

• AASB (24-25 June)

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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.

12 June 2009 (AASB) and 17 July 2009 (IASB)

AASB ITC 20 Request for comment on International Accounting Standards Board (IASB) Discussion Paper DP/2009/1 Leases – Preliminary Views

IASB/FASB Discussion Paper Leases – Preliminary Views

19 June 2009 (AASB) and 31 July 2009 (IASB)

AASB ED 178 Income Tax

IASB ED on IAS 12 Income Tax

19 June 2009

IASB Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers

22 June 2009

Interpretation of the phrase “significant or prolonged” under IAS 39 Financial Instruments: Recognition and Measurement. (Refer to IFRIC’s May Meeting)

30 June 2009

IPSASB ED 36 Agriculture

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 drafts webpage.

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Economic Update
July 7 2009, 12:30pm to 2:00pm (AEST) via Live Online Training. Address the impact of the continuing global financial crisis on the world and Australian economies including recent developments in the economy and the impact on your company.

CFO of the Future Workshop Series 2009
From July to December 2009 in Sydney and Melbourne. Six proven strategic management and technical workshops designed to develop the insights, skills and direction of the CFO of the Future.

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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. Please note that this email address should not be used for technical queries.

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