Text of the Standard
Summary
AIFRS compared to IFRS and old AGAAP
Interpretations and guidance
Questions & answers
Articles
AIFRS reconciliation disclosures
As reported in ANT30/2006
Q: Can a company that made AIFRS reconciliation disclosures in accordance with paragraph 38 of AASB 1 in its interim financial statements avoid repeating all these disclosures in its annual financial statements?
A: No. Paragraph 2 of AASB 1 requires AASB 1 to be applied to both the entity’s first full year AIFRS compliant financial report and to each interim report prepared under AASB 134 which forms part of the period covered by the first full year annual report. Paragraph 39 specifies what information is necessary to comply with paragraph 38 for a full year report while paragraph 45 deals with the relevant interim reporting requirements.
While these various disclosure requirements have some identical elements there is no provision in the standard that would allow cross referencing of a final report's disclosure requirements back to an interim one. This is because the annual financial report is meant to be the primary reporting document for an entity and so should stand-alone. In addition users of interim reports are assumed to have access to the most recent full year financial reports.
AASB 1: first time adoption disclosures
As reported in ANT29/2006
Q: I have a query in relation to paragraphs 38 and 39 of AASB 1. Paragraph 38 states an entity shall explain how the transition from GAAP to IFRS affected its financial position, performance and cash flows. Paragraphs 39 goes on to state an entity shall include reconciliations of its equity and profit or loss. I was wondering, if there are nil adjustments from GAAP to IFRS are reconciliations of equity and profit or loss still to be included as set out in para 39, or would a narrative explanation of the immaterial effect in accordance with para 38 be sufficient?
A: The normal rule is that specified items only need be reported if they are material (see AASB 101 para 71(a)). Therefore, provided your disclosures under para 38 make it clear that there is no difference on transition to AIFRS, and state a reconciliation is not therefore provided, a reconciliation would not be necessary.
Asset revaluation reserves
As reported in ANT15/2006
Q: On transition to AIFRS, what happens to an existing asset revaluation reserve when the assets to which it relates are now valued at deemed cost in accordance with the exemptions contained in AASB 1?
A: The standards are silent on this issue.
Some practitioners like to clear out the balance on the revaluation reserve and transfer it to retained profits or to a capital profits or other similar reserve however there are no requirements to do so.
UIG Interpretations
As reported in ANT09/2006
Q: When producing AIFRS financial statements I know the comparatives need to be restated to comply with the new standards in accordance with AASB 1. Does this also apply to applicable UIG Interpretations?
A: AASB 1 requires the first AIFRS financial statements to be based on accounting policies consistent with each of the AIFRS equivalent accounting standards as at the beginning of the first financial reporting period included in the financial statements.
This does include UIG Interpretations due to the operation of AASB 1048 “Interpretations and Application of Standards” which effectively gives UIG Interpretations the same legal status as AASB standards, ensuring that they must be complied with in the production of Australian financial reports.
AASB 1048 is regularly revised to ensure its lists of UIG interpretations remain up to date. The most recent revision was in December 2005 applicable to financial reporting periods ending on or after 31 December 2005.
“Make Good” Provisions on Premises Leases
As reported in ANT02/2006
Q: Am I required to recognise a provision for “make good” obligations included in the operating lease for my client’s premises and if so, how do I account for such a provision?
A: The recognition criteria for the liability to “make good” on a lease is the same for any other liability, i.e. does the entity have a present obligation to pay to restore the premises that can be reliably measured? (paragraph 14 of AASB 137 “Provisions, Contingent Liabilities and Contingent Assets”). The liability will usually arise at the point the lease is signed, since it is generally at this point that an entity incurs the obligation to place the property back to its original state at some time in the future.
Paragraph 36 of AASB 137 states that the amount recognised as a provision shall be the best estimate of the expenditure required in settling the present obligation at the reporting date. This means you will need to estimate or obtain an indication of the cost at the time the lease expires and then discount that value back to today’s dollars. The other side of the provision will create an asset account such as “leasehold improvements – make good”.
Under AIFRS these provisions should be accounted for as if it had been established at the inception of the lease. The impact from then up to the beginning of the first year of AIFRS implementation will go to retained earnings in accordance with the requirements of paragraph 11 of AASB 1 “First-time Adoption of Australian Equivalents to International Financial Reporting Standards”.
Obligations to “Make Good”
As reported in ANT01/2006
Q: The new AASB 116 “Property Plant and Equipment” now requires that the cost of an item include an estimate of the costs of dismantling and removing the item and restoring the site. Where can I find guidance on calculating this cost?
A: These costs must be recognised and measured if there should be a provision in accordance with the requirements of AASB 137 “Provisions, Contingent Assets and Contingent Liabilities” and with UIG Interpretation 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”
AASB 137 requires the liability to be measured both initially and subsequently as the present value of the amount required to settle obligation at balance date. UIG Interpretation 1 then requires changes to be added or deducted from the cost of the related asset, with the resulting depreciable amount being depreciated over its useful life. Any unwinding of the discount goes to profit and loss as it occurs.
AASB 1 contains in paragraph 25E transitional provisions relating to the initial recognition of these liabilities on first time adoption of AIFRS, with additional guidance in paragraphs IG 13 and 201-203 of the implementation guidance.
Asset Revaluation Reserves
As reported in ANT35/2005:
Q:If we choose to deem property, plant & equipment previously measured at fair value to be cost on transition to AIFRS, what should be done with the asset revaluation reserve balance in relation to those assets?
A: AASB 1 is silent on what to do with the revaluation reserve, but since the asset is going to be treated as an asset at cost from then on, the associated revaluation reserve will not be available for absorbing decrements. In other words, it loses the attributes of being an asset revaluation reserve.
You should also consider whether a deferred tax liability should be recognised on transition as the assets are measured at deemed cost, not actual cost.
Deletion in First-Time Adoption of AIFRS
As reported in ANT23/2005:
Q: In the July version of AASB 1 "First-Time Adoption of IFRS", paragraph IG204 appears below an example of changes in existing decommissioning, restoration and similar liabilities. However, this paragraph appears to be missing from the revised version of AASB 1 issued in November. Was IG204 deleted by the AASB?
A: Yes. The original issue of AASB 1 in July 2004 contained the IG Amendments from the draft IFRIC 1 and not the final version adopted. In November 2004, the AASB issued an Erratum document (reported in ANT43/2004) to correct this error. The AASB issued a compilation of the Standard that included the changes in the Erratum and have subsequently, deleted IG204 and revised the entire example. Members using the red and white paperback version of the standards should be aware that the version of AASB 1 in the book is now out of date.
First-Time Adoption of AIFRS
As reported in ANT22/2005:
Q: Does a company that was incorporated after 1 January 2005 have to prepare accounts using Australian equivalents to IFRS at 30 June 2005 or can it defer adoption until 30 June 2006 to prepare its first accounts?
A: If the company was incorporated on or after 1 January 2005, the application clauses in the new AIFRS standards have the effect that entities must apply AIFRS from their commencement date for 30 June 2005 balance dates, since the first accounting period begins on or after 1 January 2005. However, if a company was incorporated prior to 1 January 2005, it is precluded from adopting AIFRS.
Financial Instruments Comparatives
As reported in ANT16/2005:
Q: I have heard that companies do not have to comply with AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: Recognition and Measurement” in the comparatives to their first AIFRS financial report. Is this true? There is no reference to this in these standards.
A: Yes, it is true. The concession you are looking for is in AASB 1 “First-time Adoption of Australian equivalents to International Financial Reporting Standards” paragraph 36A. An entity that adopts AIFRS before 1 January 2006 can present comparative information that relates to AASB 132, AASB 139, AASB 4 “Insurance Contracts”, AASB 1023 “General Insurance Contracts” and AASB 1038 “Life Insurance Contracts” under previous GAAP with an explanation of what adjustments would be necessary to make the information comply with AIFRS.
Format of the New AASB International Equivalent Standards
As reported in ANT38/2004:
Q: I understood that all the paragraphs in the new IFRS standards were to all have equal authority (there was to be no distinction between mandatory requirements and commentary). However I notice that the new standards continue to have items in bold type. Why is this?
A: The formatting of each paragraph (whether it is bold or normal) in the Australian equivalents to IFRSs is identical to the IFRS (IAS) Standard and the status of the paragraphs is explained in a box located under the table of contents at the beginning of each standard. There are two different "boxes" that have been used in the AASB 2005 Standards.
The content in the "box" in the Australian equivalent to existing IFRS (i.e. AASB 101-141) is based on the IASB "box" and does not make any mention of "bold type”. What it does say is that all paragraphs have equal authority. However the box in the new IFRS Standards (i.e. AASB 1 - AASB 5) states that the bold type reflects the main principles of the standard. This is because these Standards have been developed using a principles based approach. This box also says that all paragraphs have equal authority.
Therefore, despite the formatting, all the new standards make it quite clear that all paragraphs have equal authority and hence all paragraphs must be complied with.
Introduction of International Standards
As reported in ANT27/2004:
Q: I have heard that International accounting standards are becoming law on January 1 2005. Is this correct?
A: No. Australia is adopting international harmonisation for financial years beginning on or after January 1 2005 but has chosen to do this by amending its existing standards (AASBs) to ensure that they comply with their international equivalents. The final suite of internationally harmonised AASB standards applicable from January 1 2005 is expected to be released in the next few weeks and compliance with these will ensure compliance with international standards.
The new standards will have identical numbers to their international counterparts to enable easy comparison and have been released in pending form over the last year to assist in the transition process - refer to the AASB website http://www.aasb.com.au. A summary of the major changes is available on a standard by standard basis on the Institute website http://www.charteredaccountants.com.au.
As is currently the case the new internationally harmonised AASB standards will continue to have the force of law under our Corporations Act and in most cases will apply to reporting entities in the public and private sector. The only exceptions will be the standards dealing with presentation and disclosure of financial statements AASB 101, 107 and 108 (including cash flows) which are applicable to lodging entities. |
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