Accounting and Auditing News Today (ANT) Issue No 43 - 2 November 2007

Welcome to the foty-third edition of Accounting & Auditing News Today for 2007. What follows is a brief update on the changes and proposed changes in the financial reporting sphere.

1. AUASB releases guidance statements

The Auditing and Assurance Standards Board (AUASB) has released three guidance statements:

• GS 003 “Audit and Review Requirements for Australian Financial Services Licensees under the Corporations Act 2001” which replaces AGS 1068
• GS 004 “Audit Implications of Prudential Reporting Requirements for General Insurers” which replaces AGS 1064 and the Addendum to AGS 1064. It also acknowledges the appointment and removal of the auditor of a general insurer and the auditor’s non-routine requirements under the Insurance Act effective on 1 January 2008.
• GS 005 “Using the Work of an Actuary” which supersedes AUS 524

The Institute attended the Emissions Trading Standards Roundtables in Sydney and Canberra this week, which was hosted by Standards Australia. The forum discussed emissions standards, their policy implications and identified opportunities and challenges for business in the lead up to the development of an emissions trading scheme within the next few years.

It was pleasing to note that, while there was ready acceptance of the need for an appropriate reporting framework, there was equal acceptance of the need for the provision of assurance in connection with what will be reported.
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The Australian Accounting Standards Board (AASB) has now released onto its website its revised version of AASB 1049 “Whole of Government and General Government Sector Financial Reporting”, which was approved at its October meeting (refer ANT40: 12 October 2007).

The new standard includes Generally Accepted Accounting Principles (GAAP) and Government Finance Statistics (GFS) harmonisation requirements for financial reporting by whole of governments and is operative for annual reporting periods beginning on or after 1 July 2008.
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The Institute has lodged its submission to the AASB and IASB for ITC 13 “Preliminary Views on Insurance Contracts”.

The Institute expressed general support of the Discussion Paper with a view to adoption in Australia. However, the Institute along with industry bodies has raised several practical application problems which will require further analysis by the IASB.

The submission can be downloaded from here.
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The Australian Securities and Investments Commission (ASIC) has provided revised guidance for individuals and companies seeking registration as a company auditor or an authorised audit company. To simplify the registration process for prospective auditors, they have located all their guidance about registration in one document - Regulatory Guide 180 “Auditor registration” (RG 180).

While the changes come into effect immediately, ASIC accepts that some applicants may have lodged an application that has not yet been decided, or may have completed an application but have not lodged it, on the basis of the previous guidelines. Refer to RG 180 for associated conditions.

RG 180 specifies the evidence that must be provided to satisfy ASIC that an individual applicant meets the statutory requirements for registration as a registered company auditor

ASIC is unable to register an authorised audit company unless the company is owned and controlled by registered company auditors, the company has adequate professional indemnity insurance, and the company is not in external administration.
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ASIC has released two regulatory guides updating material on independent expert reports.

These are Regulatory Guide 111 “Content of expert reports” and Regulatory Guide 112 “Independence of experts”.

Concerns remain that they expert reports too long. The updated regulatory guides address this issue as well as perceptions that some expert reports are not sufficiently independent.

The regulatory guides are the culmination of consultations ASIC took – Better experts’ reports (http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/PPP_experts_reports.pdf/$file/PPP_experts_reports.pdf). ASIC has indicated it will continue to work with experts to improve the clarity of expert reports for retail investors.

These Guides focus on reports prepared for transactions under Chs 5, 6 and 6A of the Corporations Act, whether the reports are required by the Corporations Act or are commissioned voluntarily. The principles in the guides may also be relevant to independent expert reports commissioned for other purposes, for example, specialist reports like geologist reports for inclusion in Ch 6D disclosure documents and Ch 7 product disclosure statements. RG 111, however, does not apply to independent or investigating accountant reports.
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The Accounting Professional and Ethical Standards Board (APESB) has issued a revised standard for accountants providing taxation services – APES 220 “Taxation Services”. The revised standard:

• applies not just to members in practice, but also to members in business when they provide taxation services to their employer
• applies to more than simply the provision of income tax services; taxation services are broadly defined to include all taxes remitted to revenue authorities
• requires the documentation of the terms of an engagement and the preparation of appropriate working papers

The International Accounting Standards Board (IASB) met in London on 16-19 October. The agenda included the following items:

• Conceptual framework
• Fair value measurements (the exposure draft is now not expected until the second half of 2009)
• Financial instruments
• Financial statement presentation
• IAS 37 deliberations
• Leases
• Annual improvements process
• Post-employment benefits
• IAS 24 related party transactions
• Share based payments

The next International Financial Reporting and Interpretations Committee (IFRIC) meeting will be held in London on 1-2 November 2007. Issues to be discussed include:

• IAS 27 “Consolidated and Separate Financial Statements” – accounting for distributions of non-cash assets to owner
• IAS 39 “Financial Instruments: Recognition and Measurement”
• IAS 18 “Revenue” – customer contributions
• Review of Tentative Agenda Decisions published in September IFRIC Update
• IAS 19 “Employee Benefits” – pension promises based on performance hurdles, Definition of plan assets
• IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” – deposits on returnable containers
• IAS 23 “Borrowing Costs” – foreign exchange and capitalisable borrowing costs
• IAS 19 “Employee Benefits” – treatment of employee contributions, changes to a plan caused by government, death in service benefits
• IAS 39 “Financial Instruments: Recognition and Measurement”

This month’s Technical Focus section of Charter features:

• our regular roundup of financial reporting and auditing news in "The Panel"
• an article discussing some practical difficulties associated with applying the independence rules, by former Institute president Geoff Brayshaw.
• an article outlining forthcoming changes to the AASB 3 “Business Combinations” standard by Mary Dolson of PricewaterhouseCoopers and
• an explanation of the IFRIC’s draft interpretation on accounting for pre-completion property sales by Martin Olde of Ernst & Young.

Q: My practice is incorporated as a company, an entity which is not specifically mentioned in APS 9. Do we need to sign compilation reports differently in these circumstances?

A: No. While APS 9 was drafted before incorporation was common, the use of the word “firm” in clause 32 (j), (k) and (l) of APS 9 has a wider meaning that is analogous to ‘practice entity’ and this term covers both the concepts of partnerships and companies.

The term ‘firm’ is a defined term in the Code of Ethics APES 110 and in the quality control standard APES 320. The APES 320 definition reads as follows:

‘Firm’ - any entity where one or more members holds or are required to hold a Certificate of Public Practice in accordance with the Regulations of the Institute or CPA Australia –

• a sole practitioner, partnership, corporation or other entity of professional accountants;
• an entity that controls such parties; and
• an entity controlled by such parties

Audit of Self Managed Superannuation Funds Workshop
Throughout November in Adelaide and Sydney
Now that the new auditing standards apply to SMSF audits, don't miss out on ensuring your audits of SMSFs are compliant with the regulatory requirements.

Superannuation Day
Throughout November in Adelaide, Sydney, Brisbane, Melbourne & Perth
Explore essential SMSF updates and insights, now that ‘Better Super’ reforms are in place. Delve into the planning issues and pitfalls, focusing on how to identify the triggers.

National Future of Professional Practice
16 November 2007, Sydney
Identify key practice management issues and opportunities that impact your business.

Audit Day
Throughout December in Adelaide, Sydney, Brisbane, Melbourne & Perth
Highlighting key audit topics. Sessions include: Auditing update; Audit of Not for profit and Registered Clubs, Audit Quality Control and independence requirements.

National Audit Conference 2007 DVD
If you didn't attend the National Audit Conference in June 2007 - don’t miss out on this opportunity to view the conference at your convenience informing you and your colleagues.
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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@charteredaccountants.com.au.

26 October 2007
AASB ITC 13 'Preliminary Views on Insurance Contracts'

31 October 2007
AUASB ASRE 2400 'Review of Financial Reports and Other Historical Information'
ISA 510 (redrafted) 'Initial Audit Engagements - Opening Balances'
ISA 530 (redrafted) 'Audit Sampling'
IASB proposed IFRS for SMEs field test questionnaires

16 November 2007
IASB Discussion Paper "Preliminary Views on Insurance Contracts"

30 November 2007
AASB ED 157: Joint Arrangements'
AASB ED 158: 'Proposed changes to AASB 139'
AASB ED 159: 'Proposed Improvements to Australian Accounting Standards'
AASB Consultation Paper on Consolidation of Subsidiaries by Superannuation Entities
IAASB Consultation Paper on Proposed Future Technical Strategy ISA 700 (Redrafted) 'The Independent Auditor's Report on General Purpose Financial Statements'
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(s) Paragraphs in the Independent Auditor's Report'
ISA 800 (Revised and Redrafted) 'Special Considerations-Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement'
ISA 805 (Revised and Redrafted) 'Engagements to Report on Summary Financial Statements'

31 December 2007
ISQC 1 (Redrafted) 'Quality Control for Firms that Perform Audits and Reviews of Financial Statement, and Other Assurance and Related Services Engagements'
ED 33 'Amendments to IPSAS 4, The Effects of Changes in Foreign Exchange Rates'
ISA 220 (Redrafted) 'Quality Control for an Audit of Financial Statements'

11 January 2008
IASB's proposed amendments to IAS 39 - 'Exposures Qualifying for Hedge Accounting'
IASB ED 9 "Joint Arrangements"
IASB ED ‘Proposed Improvements to International Financial Reporting Standards’

Technical Query Service
The Institute's Reporting and Assurance 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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TECHNICAL/XFILES/ARTICLES/ANT/ ANT41_07_10_12.doc. The Reporting and Assurance team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Kerry Hicks CA, Claire Locke CA, Stephanie Kemp CA, Andrew Stringer; Benjamin Lau, Jane Ma and Adrian Tam - Reporting and Assurance Assistants.