Welcome to the tenth edition of Accounting & Assurance News Today for 2010. What follows is a brief update on changes and proposed changes in the financial reporting and assurance sphere.

Institute News

1. Top industry performer for corporate social responsibility

The Institute is delighted to announce that, through its 2009 Annual Report, it has been named ‘Top Industry Performer’ for Corporate Social Responsibility (CSR) by the Australian Centre for Corporate Social Responsibility.

The Institute’s Broad Based Business Reporting (BBBR) guidance played an important role in informing the Annual Report and demonstrating the organisation’s CSR capabilities.

This industry recognition provides further momentum for the Institute to lead by example and continue to adopt transparent and responsible reporting.

For more information, visit the Institute website.

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2. Melbourne CRDG report 18 March

The Institute of Chartered Accountants’ Melbourne Corporate Reporting Discussion Group (CRDG) met on Thursday, 18 March 2010 and discussed AASB 9 Financial Instruments. Ashley Rockman and Soter Tiong from PricewaterhouseCoopers were the guest speakers for this forum.

The main points discussed included:

• Early adoption of AASB 9 – The presenters indicated that few entities have adopted early at this stage due to the uncertainties of the standards future and associated implementation issues. The only benefits of early adopting AASB 9 Financial Instruments appeared to be in relation to available for sale equity investments, and being able to ‘redesignate’ financial assets at fair value through to profit or loss to amortised cost.
• Amortised cost and impairment proposals – These proposals would require an expected loss model approach to impairment, instead of an incurred loss model, which is currently required. The expected loss model requires expected credit losses to be determined when the financial asset is recognised and then amortised over the expected life of the loan through the effective interest rate calculation. It was noted that these proposals are different to the way in which provisions were determined pre-IFRS (i.e. AGAAP) and that companies will most likely face operational challenges in determining those initial expected credit losses. These include increased data requirements, increased subjectivity of cash flow estimation, greater portfolio segmentation requirements and complex cash flow estimation requirements.

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Financial Reporting News

3. AASB meeting update - 16 March

The Australian Accounting Standards Board (AASB) held both a joint meeting with the New Zealand Financial Reporting Standards Board (FRSB) and a separate AASB meeting on 16 March 2010. Another one-day planning day was held in private with the FRSB. The topics discussed at the joint meeting include:

Joint work program discussion
Staff of both Boards should work together on projects where possible, including joint Exposure Drafts, etc. The NZ FRSB noted some difficulties may exist in operating protocols until they are restructured as part of a government independent standard-setting body and which is likely to be in place by 1 July 2011.

Financial instruments update
The Boards discussed progress of recent International Accounting Standards Board (IASB) tentative decisions on debt/equity classification, hedging and own credit. Some concern was expressed over ‘rules-based’ IASB decisions, in contrast to principles. The joint boards will liaise with Australian representatives on the SAC and the Trustees on this matter. 

Income from Non-exchange Transactions
Comments from both Australian and NZ constituents on the ED issued last year were discussed. Mixed views were expressed on the project to replace AASB 1004 Contributions. The joint boards decided to proceed with a standard to issue a replacement to AASB 1004 in the short term, but noted a long term solution may be the IASB Revenue Recognition project. They explored options for a short term solution and determined that a model based on IPSAS 23 Revenues from Non-exchange Transactions (Taxes and Transfers) would be the most appropriate, although some additional thought and guidance needed to be determined in the area of performance obligations. Staff will work on these proposals.

Convergence of for-profit Tier 1 Financial Reporting
The Board discussed a draft ED, to be issued in May 2010 which aligns for-profit Australian and New Zealand IFRS reporting. This will result in any additional Australian (or New Zealand) for-profit disclosures and/or amendments over and above IFRS being contained in a separate standard, rather than amending IFRS standards using ‘Aus’ paragraphs. This project has seriously challenged the need for jurisdictional disclosures and/or amendments over and above IFRS, and many extra jurisdictional paragraphs will be eliminated.  Those remaining paragraphs that are required for local jurisdictions will be aligned where possible with New Zealand to achieve consistent outcomes in reporting. It is anticipated that a standard will be effective from 1/1/2011.

Measurement of Liabilities
The joint boards discussed their current positions on the IASB’s ED on measurement of liabilities and do not support the proposals. They would prefer a consistent measurement principle to be developed for all liabilities.  The boards will continue to accept comments from constituents and then finalise their submissions in due course.

Service Concessions for grantors (i.e. the government)
The recent IPSASB ED on Service Concessions for grantors (see Item 7 below)  was discussed.  The proposals very much mirror those determined by the IASB for service concessions for grantees. Both boards will issue the document for comment shortly, specifically seeking comment on whether it is appropriate for Australia and New Zealand to adopt the proposals for the public sector once issued as a final standard by the IPSASB.

The boards also discussed the following other projects which are still at an early stage of consultation:

• Long-term fiscal sustainability IPSASB Consultation paper
• Control in the public sector

The AASB only meeting included the approval of a project plan to review the first year implementation of AASB 1049 Whole of Government and General Government Sector Financial Report to identify any issues that may warrant an amendment to the standard.  Further they explored extending the IASB consolidation exemption for intermediary for-profit subsidiary entities to the not-for-profit sector. 

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4. IASB webcast on financial liability proposals

The IASB staff will present a webcast regarding the status of the Board's discussions about the classification and measurement of financial liabilities and the next steps in the project. The webcast will be on Monday 22 March 2010 at 10:30am and 3pm UK time.

To register to listen to the webcasts, please visit the IASB website

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5. IFRIC meeting update – 4 - 5 March

The International Financial Reporting Interpretations Committee (IFRIC) met on 4 - 5 March. The full Update is available on the IASB website. However, major developments included:

Accounting for production stripping costs

Staff tabled papers dealing with accounting for the costs of waste removal and the attribution of the stripping cost asset for consideration. A number of tentative decisions were made, which are outlined in the Update. Staff will now prepare a draft interpretation for the May 6-7 meeting.

Vesting and non-vesting conditions

The IFRIC began preliminary deliberations on the scope of its project to distinguish vesting conditions (especially performance conditions) from non-vesting conditions. The staff was asked to consider whether convergence with US GAAP would be helpful on this matter. Discussions will continue at the May 2010 meeting.

Agenda rejection decisions

A range of issues were formally issued as Rejected Agenda decisions (subject to IASB approval) and they are listed below. Full details of each issue, as well as IFRIC’s reason for rejection, are available in the Update. The issues were:

• Determination of functional currency of an investment holding company (IAS 21)
• Shareholder discretion in liability equity classification (IAS 32)
• Interaction of IAS 36 Impairment of Assets with transition requirements of IFRS 8 Segment Reporting
• Unit of account for forward contracts with volumetric optionality (IAS 39)

IFIRC also reviewed the following matters and tentatively decided not to include them in the IFRIC agenda. Their reasoning is explained in the Update. Comments on these decisions are open until 12 April 2010 ahead of their finalisation as rejection notices in May.

• Accounting for costs included in self-constructed assets on transition (IFRS 1)
• Reversal of disposal group impairment losses relating to goodwill (IFRS 5)
• Valuation of plan assets (IAS 26)

IFRIC is continuing to assist the IASB complete the Annual Improvements project cycles by reviewing proposed improvements.

The March meeting deliberated comments received on the remaining eight issues contained in the 2009 Improvements ED that were not addressed in January. Six of these were finalised for inclusion in the Improvements standard (due for publication in April), while two were rejected and will be removed.

IFRIC also commenced work on its 2009-2011 project, identifying issues for inclusion in an ED due for publication in August 2010. Work on formalising the criteria for assessing issues for inclusion within Annual Improvements projects is also underway.

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6. IASB meeting update – 11 March

The IASB met on 11 March 2010. The US FASB participated via video conference.

The boards directed the staff to begin drafting an Exposure Draft on reporting financial instruments with characteristics of equity, to be voted on by written ballot. They also made tentative decisions relating to

• Financial statement presentation and
• Fair value measurement

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7. International conceptual framework developments

The IASB and FASB have progressed their work on a joint Conceptual Framework with the release of an ED on Phase D on the project - the Reporting Entity Concept. This, in IASB terms, refers to the boundaries that define an “entity” for general purpose reporting requirements and includes discussion of the concept of control, and hence the need for consolidation within that context. ED 2010/2 titled Conceptual Framework for Financial Reporting –The Reporting Entity is available for download from the IASB website (PDF) and is open for comment until 16 July 2010.

The ED follows the release of a discussion paper on this topic in May 2008 which was subject to broad support by its respondents. The Institute and CPA Australia expressed some reservations about the project at the time as Australia operates a sector neutral approach to standard setting, but the IASB and FASB are focussing on the private for-profit sector.

More information on this and other aspects of the conceptual framework project is available on the project page and comments can be submitted via the submission portal.

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8. Service concession arrangements ED released

As anticipated in item 6 ANT02/2010, the International Public Sector Accounting Standards Board (IPSASB) has now formally released for comment its ED ‘Service Concession Arrangements: Grantor’ (PDF), which is open for comment until 30 June 2010.

The ED presents requirements and guidance on how grantors recognise, account for and disclose assets in service concession arrangements and comments can be submitted online. Its proposals mirror the requirements of AASB/IFRIC Interpretation 12 Service Concession Arrangements

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Auditing and Assurance News

9. Proposed internal audit standards

The Institute of Internal Auditors has conducted a comprehensive review of the International Standards for the Professional Practice of Internal Auditing (Standards) and is proposing changes to some of the Standards as well as recommending new Standards.

The proposed changes and new Standards have a 90-day exposure period ending 14 May 2010. The Institute urges interested members to complete an online survey which contains the proposals and is designed to facilitate responses to this exposure draft (ED).

To view a mark-up version of the current standards and proposed changes, please visit the IIA’s website. The Institute will be making a submission to this ED and encourages members who wish to have their views incorporated to email the Reporting and Assurance team at techsubmissions@charteredaccountants.com.au.

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10. International consultation on audit competence requirements

The International Accounting Education Standards Board (IAESB), an independent IFAC Board which sets education standards for use by the world’s professional accounting bodies, is currently undertaking a project revise its International Education Standard (IES) 8 Competence Requirements for Audit Professionals. The aim is to produce a new standard and implementation guidance that is both clearer in its requirements and more relevant for international use.

To assist the Board a Consultation Paper (PDF) has been issued seeking feedback on a range of aspects of the project including IES 8's target audience, the knowledge and skills required to work as a competent audit professional, and the advanced-level competencies required by audit professionals

Organisations and individuals are encouraged to comment on proposed revisions. Comments are due on 15 June 2010 and can be submitted online. For more information, see the IFAC media release

The Institute will be preparing a submission on this consultation paper and members are invited to submit comments to be considered as part of this process by emailing their views to techsubmissions@charteredaccountants.com.au.

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Regulatory News

11. Market Supervision Bill passed

The transfer of market supervision responsibility from the Australian Securities Exchange (ASX) to the Australian Securities and Investment Commission (ASIC), announced by the Federal Government in August last year (refer to item 10 ANT 34/09) is progressing well following the passage through the Senate last week of the Corporations Amendment (Financial Market Supervision) Bill 2010 (PDF).

Under the new legislation ASIC will be given the function of supervising domestic Australian market licensees and additional powers to make and enforce rules with respect to trading on such markets. Individual markets – such as the ASX – will retain responsibility for supervising the entities listed on them.

The new legislation is still expected to come into effect in the third quarter of 2010. Draft regulations to support the bill are currently being drafted and will be made available for consultation shortly.

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12. ASIC consultation on trustee companies

ASIC has released consultation paper (CP) 132 Trustee companies: financial requirements and conduct obligations seeking feedback on the appropriate financial requirements and conduct obligations that should be imposed on trustee companies providing traditional trustee company services such as acting in deceased estates and under powers of attorney.

The CP is in response to legislative changes late last year that amended the Corporations Act to require trustee companies to obtain an Australian Financial Service Licence, and empowered ASIC with supervision responsibilities for these entities.

Members wishing to make a submission to ASIC should do so by 7 April 2010. More information is available in ASIC’s media release.

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13. ASIC updates share purchase plan relief

ASIC has released changes to Class Order [CO 09/425], which provides prospectus and product disclosure statement relief for share and interest purchase plans.

Under the changes, investors holding shares through structures such as investor-directed portfolio services and superannuation master trusts, or who hold shares through structures involving two or more levels of custodians, will now be able to participate in share purchase plans. Also, investors who pay for their shares via an electronic payment facility will no longer be required to return a physical application form.

Finally, changes have been made to Class Order [CO 05/26] to facilitate the operation of interest purchase plans undertaken by listed managed investment schemes.

More information is available in ASIC’s media release

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Climate Change News

14. NGERS legislation update

The latest edition of the Department of Climate Change’s National Greenhouse and Energy Reporting (NGERs e-newsletter) is now available. It provides information on the latest developments relating to the NGERS legislation. Members can subscribe at http://www.climatechange.gov.au/subscriptions/subscribe.aspx.

Publication and disclosure of emissions and energy data

Data reported under the National Greenhouse Reporting Act (2007) (NGER Act) for the 2008-09 reporting period has now been published on the Department website.

Revised reporting thresholds

Reporting thresholds have been reduced for 2009/10 and new corporations that meet or exceed the new levels are required to register by 31 August 2010. The Department’s Business Outreach team will be holding a series of training sessions during the year on how to register and use the online reporting system called ‘OSCAR’ which must be used by these entities. People in attending these workshops should email reporting@climatechange.gov.au with “OSCAR workshop” in the email title. Dates and locations are forthcoming.

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Query of the Week

Borrowing costs

Q: I understand that there have been recent changes to the treatment for borrowing costs. Could you explain please?

A: The changes you are referring to were released by the AASB in July 2007 in a revised version of AASB 123 Borrowing Costs. The new standard reflected changes made by the IASB to IAS 23 of the same name and eliminated the choice that existed in connection with the treatment of borrowing costs.

While the changes have been around for several years, the standard only became mandatory for adoption for financial years beginning on or after 1 January 2009. While early adoption was permitted, 30 June 2010 year-ends will be the first time that entities are required to comply with the new standard.

Paragraph 8 of AASB 123 now requires the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. All other borrowing costs must be expensed. The only exception to this is in relation to public sector not-for-profit entities where the choice was reintroduced in 2009, pending a more detailed review of not-for-profit requirements (currently being undertaken by the AASB in conjunction with its New Zealand counterpart).

For a more detailed explanation of the changes to AASB 123, refer to the Institute’s AASB 123 web page.

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Upcoming Meetings

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

Financial Reporting

• IASB ( 22-24 March)

Audit & Assurance

• IAASB (15-19 March 2010)

Other

• APESB (23 March 2010)

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ED Comment Closing Dates

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 – do not use the above email address for technical queries. For this purpose, use rahelpline@charteredaccountants.com.au.
 

12 April 2010 (IASB) 
 
AASB ED 191 Measurement of Liabilities in AASB 137 

1 April 2010 (AASB) and 30 April 2010 (IPSASB)

ITC 22 Reporting on the Long-Term Sustainability of Public Finances

23 April 2010 (AASB)

AASB ED 192 Revised Differential Reporting Framework

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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Training & Development

Audit Conference 2010
Held between March and May in Sydney, Melbourne, Perth and Brisbane. As standards, legislation and compliance issues continually evolve, Audit Conference provides the latest facts, insights and opinions for auditing professionals

Accounting Conference 2010
Held in March in Sydney and Brisbane.  Exploring the changes in financial reporting and business performance reporting to keep you ahead of the game – in preparation for year end.

Business Forum 2010 – Big issues. Small world.
In April, May, June and November in Perth, Sydney, Melbourne, Adelaide and Brisbane. With over 300 sessions nationally providing the latest updates, technical and professional skills, as well as ideas and insights from thought leaders across the business and political spectrum, Business Forum 2010 promises to be the biggest and best yet. Add the dates to your diary today.

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Your Input

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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