Accounting and Auditing News Today (ANT) Issue No 49 - 21 December 2006

1. Seasons Greetings from Technical Standards

This is the final ANT for 2006.

The Institute and its Technical Standards Team would like to thank you for your ongoing support and subscription to ANT throughout the year. We hope you have a happy holiday season and look forward to continue keeping you up to date with changes in the field of financial reporting during 2007. The first issue of ANT in the new year will be released on Friday 12 January 2007.

The Institute's Financial Reporting helpline (both phone and email services) will close at noon on Thursday 21 December 2006 and reopen 9am 3 Wednesday January 2007. Emails and voicemails received during this period will be answered as promptly as possible once the service reopens on Wednesday 3 January 2007. For technical assistance during this period try the technical resources page of our website http://www.charteredaccountants.com.au.
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2. IASB's Liabilities RoundTable - Melbourne

The IASB held a RoundTable at the Institute's Melbourne Office on 20 December to consider a number of Issues arising from its June 2005 ED 'Proposed Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets' (AASB ED 140). The IASB had held earlier RoundTables in Norwalk (US) and 3 in London, so it is a measure of the respect that the IASB has for Australian Constituents that had made a submission on ED 140 (which included the Institute), that a RoundTable has been held, so far from the IASB/FASB Offices, and so close to the Christmas/New Year break!

If the IASB was hoping to get Australian support for its many tentative decisions on ED 140, it would be somewhat disappointed, as most of the Australian Constituents are troubled by the IASB's determination to measure a Liability as the 'best estimate of the expenditure required to settle the obligation (Liability) at balance date'. Most Australian Constituents, including the Institute in its October 2005 submission, believe that the measurement base should continue to be the best estimate that the Liability will be 'expected to be ultimately settled for', discounted for the time value of money where material.

This discussion is not as theoretical as some might think. If the IASB's Tentative View prevails, it will mean that there will be a need to inflate the liability for both 'risk' and 'commercial fee' factors as the best estimate at balance date is what an independent 3rd party or the entity that is due the obligation (liability), is prepared to accept to settle at balance date - a fair value type concept.

There is also a concern that the IASB's ED 140 proposals would not lead to closer convergence with the US, which is the IASB's global vision for one set of truly Global Standards. However this may change as the current US standard was issued some 30 years ago and indications are that the US will use the Conceptual Framework Program as a way of updating its liabilities standard.

There was general agreement that whilst an amended standard should remain principles based, there is a need to provide more guidance via examples to clarify the principles in the standard, and additional disclosure on contingent liabilities (stand ready obligations) is important to users regardless of the accounting treatment.

Other Issues that the IASB was seeking input on were:

• Further guidance on determining whether a present obligation (liability) exists where its existence is uncertain - agreed;
• Guidance on whether the commencement of litigation or a breach which if made known would trigger litigation gives rise to a provision - a mixed response with the Institute arguing that it is an indicator but not conclusive;
• The need for certainty and probability (for measurement only) in determining whether a present obligation exists - again mixed views depending on the particular circumstances of the liability;
• Replacing the term 'Contingent Liability' with 'Stand Ready Obligations' - not generally supported

3. AASB update on Differential Reporting

Last week's ANT (ANT48, 15/12/2006) detailed the major results from the Australian Accounting Standard's Board's (AASB) 13-14 December 2006 meeting. The AASB Action Alert has now been issued and can be downloaded from http://www.aasb.com.au. It contains further details of the AASB's thinking on Differential Reporting and the implications for the IASB's forthcoming Exposure Draft on Financial Reporting Standards for SMEs (IFRS Lite/Light). The Action Alert notes that this Issue will be further considered at its 14-15 February 2007 meeting and it intends to canvass Constituents' views in due course.

Interestingly the Action Alert states: "...that an approach using public accountability as the distinguishing factor between entities that apply full Australian equivalents to IFRSs and those that apply a SMEs Standard should be investigated as an appropriate alternative to the current differential reporting regime in Australia."

However this could appear to suggest that Companies that are not publicly accountable (essentially smaller non-listed companies - eg Large Pty's and Small Clubs) and are clearly Non-Reporting Entities, would be required to adopt the IFRS Lite/Light Standards.

As detailed in ANT47 (8/12/2006 - 4 Tier Financial Reporting Framework), there needs to be a considered debate as to the user needs for those Non-Reporting Entities and whether the IFRS Lite/Light Standard which the IASB states is only for Reporting Entities, is really suitable for Australian Non-Reporting Entities. This is an Australian jurisdictional issue and is very relevant to the Government's November 2006 Red Tape Proposals Paper.

The Institute's first Sydney CAs in Business Lunchtime AIFRS Discussion Group to be held on Monday 12 February 2007 will consider this issue and the merits of the IFRS Lite/Light ED for Australian Reporting Entities that are not publicly accountable. Please see the next item for details.
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4. The Institute's CABs' AIFRS Discussion Group meeting - 12 February 2007

The Institute's first AIFRS Discussion Group meeting for 2007 will be held on Monday 12 February 2007 in our offices at Chartered Accountants House, 37 York Street, Sydney NSW 2000.

The lunchtime meeting will begin at 12.30pm at the Level 5 Conference Centre and will be chaired by Frank Palmer from Macquarie Bank and the Australian Accounting Standards Board (AASB).

Guest speakers will be leading discussion on the changes in the International Accounting Standards Model following the International Accounting Standards Board's decision to have a 2 tier Framework - AIFRS for Listed Entities and IFRS Lite (Light) for Non-Listed Reporting Entities which will have reduced 'recognition & measurement' requirements as well as significantly reduced disclosures (their SME project). How this fits in with the Government's proposed 2.5 times increase in the size tests that trigger Corporations Act reporting, the implications it has for the Reporting/Non-Reporting Entity requirements and just what relief is available for the 2007 reporting season will all be part of the debate at this meeting.

If you wish to attend this forum, please direct your RSVP to janema@icaa.org.au for seating and catering purposes by Wednesday 7 February 2007.
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5. AASB releases revised standards

As highlighted in ANT48, the AASB has now released onto its website the new and revised standards approved at last week's meeting. They are:

• AASB 1048 'Interpretation and Application of Standards' - reissued to reflect IFRIC 10 (AASB Interpretation 'Interim Financial Reporting and Impairment)
• Compiled Standard AASB 1045 "Land Under Roads: Amendments to AAS 27A, AAS 29A and AAS 31A"

6. IASB fair value measurement project

The AASB has also placed on its website a summary of the IASB's fair value measurement discussion paper referred to in ANT 48. It is encouraging constituents to respond to the discussion paper to both the AASB (by 2 March 2007) and to the IASB by 2 April 2007. The full text of the discussion paper is available on the IASB website http://www.iasb.org.
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7. AASB releases Updated List of Advisory Panel Members

The AASB has released and placed on its website an updated list of 'potential interpretation advisory panel members'. These members represent the pool of expertise that the AASB can draw upon in order to form its project advisory panels on topics requiring interpretation. This new structure replaces the UIG which was disbanded on 1 July 2006.

To download the list, go to the AASB website at http://www.aasb.com.au.
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8. IFRIC 11 clarification

The latest AASB Action Alert is now available from http://www.aasb.com.au. The Action Alert notes that the AASB did not approve a draft Interpretation based on IFRIC 11, "IFRS 2 - Group and Treasury Share Transactions" as they decided that the transitional provisions need to be clarified. A revised draft will be considered at the AASB's February 2007 meeting.
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9. IASB meeting highlights - 12-14 December 2006

The final meeting of the International Accounting Standards Board (IASB) for 2006 was held on December 12-14 in London.

Key issues discussed were:

• SME project

  Following consideration of the latest draft ED of an IFRS for SMEs, the Board agreed that the GAAP hierarchy for an SME should not include a 'mandatory fallback' to full IFRSs. The hierarchy should be: a) the requirements and guidance in the IFRS for SMEs dealing with similar and related issues; and
  b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses and the pervasive principles in Section 2 Concepts and Pervasive Principles; Accordingly, paragraph 10.4 of the draft ED would be revised to reflect the amendments.

• Borrowing costs

  The Board agreed, by a majority of 10-4 to accept a staff recommendation that it should proceed with the proposed amendments to IAS 23 which eliminate the option to expense interest as incurred, thereby mandating the capitalisation method. The Board also considered whether to include in IAS 23 an exception from the general principle for certain inventories and agreed to provide the same exception as in FAS 34 p10. This requires that 'interest cost shall not be capitalised for inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis. The Board also discussed whether to amend the scope of revised IAS 23 to include assets that are carried at fair value. The Board confirmed that there would be a scope exception for all assets measured at fair value, including biological assets.

• Amendments to IAS 39
• Annual Improvements Project - 2006
• Business Combinations Phase 2
• Conceptual Framework
• Consolidation
• Employee Benefits Including Pensions
• Financial Instruments - Comprehensive Project
• Financial Statement Presentation
• Intangible Assets

10. IFAC releases paper on Micro-Entity Financial Reporting

The International Federation of Accountants (IFAC) has released a paper 'Micro-entity Financial Reporting: Perspectives of Preparers and Users' that explores the suitability of SME Accounting Standard to Micro-Entities, following the proposal of an IFRS for SMEs standard by the IASB. The paper includes a review of the existing research on the needs of users and preparers of the financial reports of microentities and a survey of the legal status of micro-entities in different countries.

To download the paper, visit the IFAC website at http://www.ifac.org.
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11. IFAC releases two new International Public Sector standards

The International Public Sector Accounting Standards Board (IPSASB) of the IFAC has released two new standards:

• IPSAS 22 'Disclosure of Financial Information About the General Government Sector'
• IPSAS 23 'Revenue from Non-Exchange Transactions (Taxes and Transfers)'

12. Audit standards and Audit manuals

Readers are reminded that, as a result of the many changes to the requirements of the auditing standards, accounting standards and the Corporations Act, the audit manual you are using may not be completely up to date.

You should check that whatever manuals, toolkits or programs you use incorporate all the latest requirements.
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13. Member services: your free 2007 Members' Handbook at the touch of a button

The Members' Handbook is Australia's most comprehensive guide to the standards, by-laws and regulations that affect Chartered Accountants. Members can choose your preferred way to access the handbook:

• Online. This version can be accessed by all members through the Institute website and will be updated every eight weeks in 2007. This will be the most up-to-date version available as the year goes on. The online version cannot be downloaded onto your hard drive, but standards can be cut and pasted into a Word document.
• CD Rom. This version will be mailed to members who request it (see below on how to do this). The CD Rom is best suited for members who require the Members' Handbook on their hard drive.

For the CD Rom version: If members wish to receive the updated CD Rom, they must update their profile on the Institute's website. Read the step-by-step guide on how to update your profile.
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14. Query of the week - financial instrument disclosures

Q: In the latest compiled version of AASB 132 I notice all the disclosure requirements previously contained in paragraphs 51-95 have been deleted. Does that mean I no longer have to provide all these disclosures relating to the risks the entity faces?

A: No. This version of AASB 132 applies on or after 1 January 2007 and must be read in conjunction with the new AASB 7 "Financial instruments: Disclosures", which is also operative on that date.

AASB 7 was issued by the AASB and IASB in August 2005. This standard moved the disclosure requirements contained in paragraphs 51-95 of the former AASB 132 "Financial Instruments: Disclosure and Presentation" into AASB 7 so as to include all financial instrument disclosures in one place. The relevant paragraphs of AASB 132 were deleted via AASB omnibus 2005-10 so that AASB 132 now contains only presentation requirements for financial instruments. As a result it was also renamed AASB 132 "Financial Instruments: Presentation".
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15. EDs: comment closing dates

Outlined below are the comment closing dates for all current exposure drafts. Members are encouraged to prepare their own submission on each document and submit them to the Institute no later than one week before the closing date shown.

For more information, refer to the Institute's Technical Standards' exposure drafts web page

Forward all ED submission/comment emails to techsubmissions@icaa.org.au.

22 December 2006
Corporate & Financial Services Regulation Review Proposals Paper
http://www.treasury.gov.au/contentitem.asp?NavId=002&ContentID=1189

29 December 2006
IFAC - Proposals request on Explanatory Guide to assist small and medium practices apply International Standard on quality Control (ISQC) 1
http://www.ifac.org/Downloads/SMP_Quality_Control_Guide_Request_for_Proposal.p df

31 January 2006
AASB ED 151 - 'Australian Additions to, and Deletions from, IFRSs'
http://www.aasb.com.au

15 February 2007
IAASB EDs
ISA 320 (Revised and Redrafted), Materiality in Planning and Performing an Audit;
ISA 450 (Redrafted), Evaluation of Misstatements Identified during the Audit;
ISA 260 (Revised and Redrafted), Communication with Those Charged with Governance.
http://www.ifac.org/Guidance/EXD-Outstanding.php

28 February 2007
IPSASB ED 30 "Impairment of Cash-Generating Assets"
IPSASB ED 31 "Employee Benefits"
http://www.ifac.org/EDs

31 March 2007
IPSASB ED ' Financial Reporting under the Cash Basis of Accounting - Disclosure Requirements for Recipients of External Assistance'
http://www.ifac.org/EDs

2 April 2007
IASB Discussion Paper on Fair Value Measurements
http://www.iasb.org/News/Press+Releases

Technical Query Service
The Institute's Technical Standards Team responds to inquiries from members on auditing and financial reporting issues. This service provides general assistance and guidance only. Members have the responsibility to apply their own professional judgment. The service can be contacted on (02) 9290 5702.

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TECHNICA/XFILES/ARTICLES/ANT/ANT 49_06_12_21.doc. The Technical Standards team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Stephanie Kemp CA, Claire Locke CA, Keith Reilly CA, Andrew Stringer; Benjamin Lau and Jane Ma - Technical Standards Assistants.