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Welcome to the second edition of Accounting & Assurance News Today for 2008. What follows is a brief update on changes and proposed changes in the financial reporting and assurance sphere.
As you may have noticed, the salutation "Dear Gary" appeared at the top of last week's ANT. That was the result of a technical glitch in the codes of our new ANT template. Your details and the content of the newsletter itself were unaffected. We apologise for any inconvenience caused. For curious readers, Gary is part of our Digital/IT department responsible for the design of this new template. It seems that he may have wanted to leave his mark on our newsletter in a most unusual way.
1. Participate in the Institute’s not-for-profit survey
As reported in last week’s ANT (ANT01/2008), the Australian Accounting Standards Board (AASB) recently issued Invitation to Comment ITC 14 “Proposed Definition and Guidance for Not-for-Profit Entities” exploring whether clarification and/or guidance is required in the determination of a ‘not-for-profit entity’.
The Institute is inviting readers to complete a quick survey, the outcomes of which will form the basis of the Institute’s submission on the ITC and assist the AASB to provide improved guidance for this sector.
Background information to assist you to complete the survey is available here.
The survey is available here.
2. Corporate Reporting Discussion Group – 18 February 2008
The Institute of Chartered Accountants is hosting the next Sydney Corporate Reporting Discussion Group (formerly Sydney CABs Discussion Group) meeting on Monday 18 February 2008 at its Sydney offices at 33 Erskine Street, Sydney.
The meeting will be chaired by David Southwell CA, Senior Manager for Group Reporting at Insurance Australia Group. Kerry Hicks, Head of Reporting at the Institute, and Andrew Stringer, Head of Audit at the Institute, will be guest speakers for this forum.
Kerry and Andrew will be using the forum to inform members of what the Institute is doing on their behalf in the financial reporting and assurance arenas as well as highlighting programmes of work relating to financial reporting topics that members are encouraged to become involved with. Specific topics to be addressed include:
- AASB activities including the progress on SME reporting and field testing results
- Institute lobbying activities with the new government
- interaction of management with auditors and audit committees, including expectation gaps, value proposition and independence
- the Standard Business Reporting initiative and how it will impact corporates
- open discussion of other accounting and auditing issues that are being faced by corporates with a view to including these as agenda topics in the future
The lunchtime meeting will begin at 12.30pm at the Level 1 Conference Centre and conclude at 2:00pm. If you wish to attend this forum, please send your name, member number, position and organisation to techsubmissions@charteredaccountants.com.au.
3. AASB releases ED 161
The AASB has released ED 161 “Proposed Amendments to AASB 2 and AASB Interpretation 11, Group Cash-settled Share-based Payment Transactions” for comment, which is the Australian equivalent of the IASB ED released in December 2007 (refer to ANT49/2007).
This exposure draft provides guidance on how a group entity, that receives goods or services from its suppliers which are linked to the price of the equity instruments of either the entity or its parent, should account for these transactions where it is the parent entity and not the entity itself that is obligated to make the required cash payments to the entity’s suppliers.
The AASB is seeking constituent views on this Australian reproduction of the IASB ED by 29 February 2008. The exposure draft can be downloaded from the AASB website.
4. IFRIC publishes two proposed draft interpretations
IFRIC D23: Distribution of non-cash assets to owners
The International Financial Reporting Interpretations Committee (IFRIC) has issued for comment draft Interpretation D23 “Distributions of Non-cash Assets to Owners”.
IFIRC D23 provides guidance on how an entity should measure distributions of non-cash assets (except for distributions within the same consolidated group) when it pays dividends to its owners. The Interpretation proposes that measurement be at fair value, applying only to future distributions.
IFRIC D24 Customer Contributions
The IFRIC has also released D24 to standardise and eliminate divergent practice in the accounting for the receipt of contributions of cash or property plant and equipment by customers that must be used by the entity to provide access to goods and services in the books of the recipient.
IFRIC D24 provides guidance to assist the entity to determine if the contribution represents an asset and if so requires initial recognition at fair value. It also provides guidance on the recognition of the obligation to provide the related services and the appropriate recognition of subsequent revenue as this obligation is fulfilled.
The IFRIC proposes that this guidance be applied prospectively.
The proposed Interpretations are open for comment until 25 April 2008. Both are available for download from the IASB website.
5. “Insight” publication Q4/2007 available
The Q4/2007 edition of the Journal of the IASB and the IASC Foundation “Insight” is available for download. Contained in this publication are articles on:
- the progress of IFRS adoption in Asia and Europe
- the implication of IFRS for the accounting profession
- continuing US convergence with IFRS
- XBRL reporting and the opportunities it presents
- The Business Combinations II project
6. IFAC paper examines suitability of IFRS for SMEs for micro-entities
The International Federation of Accountants (IFAC) Small and Medium-sized Practices (SMP) Committee has released as part of phase two of its project on micro-entity financial reporting, a paper entitled “Micro-Entity Financial Reporting: Some Empirical Evidence on the Perspectives of Preparers and Users”.
This paper presents the findings of focus group interviews involving users and preparers of IFRS for SMEs in Italy, Kenya, Poland, Uruguay and the United Kingdom in relation to its suitability to micro-entity financial reporting.
The study set out to canvas the views of interested stakeholders on the suitability of the proposed IFRS for SMEs for micro-entities and considers the need for new international guidance specifically aimed at them.
Generally, participants have indicated that IFRS for SMEs is too complex for micro-entities and that minor changes to the current proposals may not ameliorate this.
This information paper can be downloaded from the SMP section of the IFAC online bookstore.
7. IFRIC membership increases from 12 to 14
The Trustees of the International Accounting Standards Committee (IASC) Foundation has altered the Foundation’s Constitution to enlarge the International Financial Reporting Interpretations Committee (IFRIC) from 12 to 14 members. This change aims to increase the diversity of practical experience and expertise of the IFRIC membership.
Consequently, the The Trustees of the International Accounting Standards Committee (IASC) Foundation are now seeking to appoint two more members to the IFRIC. The job description accompanies the media release. Applicants should send their covering letter and CV by 7 February 2008 to Tamara Oyre (toyre@iasb.org).
8. IAASB ‘clarity’ project update
The International Auditing and Assurance Board (IAASB) has completed the first phase of its ‘clarity’ project with the issue of the last exposure drafts of its auditing standards revised in the clarified format. These EDs are:
- Proposed ISA 501 (Redrafted) “Audit Evidence Regarding Specific Financial Statement Account Balances and Disclosures”
- Proposed ISA 520 (Redrafted) “Analytical Procedures”
- Proposed ISA 210 (Redrafted) “Agreeing the Terms of Audit Engagements”
- Proposed ISA 710 (Redrafted) “Comparative Information – Corresponding Figures and Comparative Financial Statements”
Comments are requested by 31 March 2008 for ISAs 501 and 520 and 15 April 2008 for ISAs 210 and 710. The EDs are available for download from the IFAC ED website.
The Board continues to be on track to achieve its target of having all the ISA’s revised and reissued using the new clarified drafting style by December 2008. It has recently finalised 3 more revised standards bringing its total to 11 with a further 10 due for reissue later this year. The latest batch of completed standards are:
- ISA 230 (Redrafted) “Audit Documentation”
- ISA 260 (Revised and Redrafted) “Communication with Those Charged with Governance”
- ISA 720 (Redrafted) “The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements”
ISA 230 incorporates several enhancements and additional guidance to clarify auditor’s documentation obligations. ISA 260 is fully revised and sets out a framework for communication with those charged with governance.
These standards along with all their clarified counterparts will be effective for periods beginning on or after 15 December 2009. They are available for download from the IFAC website.
The AUASB announced in October 2007 that it intends to revise and reissue the Australian standards in light of this project so that they are effective for financial reporting periods beginning on or after 1 January 2010.
More details on the progress of the Clarity project can be found in a communique on the IAASB website.
9. IAASB issues exposure drafts on service organisations and internal controls
In addition to its clarity work the IAASB has also progressed several of its other projects by issuing three new proposed international standards.
Proposed ISA 402 (Revised and Redrafted) “Audit Considerations Relating to an Entity Using a Third party Service Organisation” deals with the auditor’s responsibilities to obtain audit evidence when an entity uses one or more service organisations. Comments for this exposure draft are requested before 30 April 2008.
Proposed ISAE 3402 “Assurance Reports on Controls at a Third Party Service Organisation” is the first subject matter specific standard under the assurance engagement framework. Reports prepared under ISAE 3402 are capable of providing appropriate audit evidence with proposed ISA 402. Comments for this exposure draft are requested before 31 May 2008.
Proposed ISA 265 “Communicating Deficiencies in Internal Control” deals with the auditor’s responsibility to communicate to management and those charged with governance deficiencies identified in internal control. Comments for this exposure draft are requested before 30 April 2008.
The exposure drafts are available for download from the IFAC EDs website.
10. ASIC releases regulatory guides
The Australian Securities and Investments Commission (ASIC) has released two regulatory guides:
Regulatory Guide 101: On-market buy-backs by ASX-listed schemes (RG 101)
RG 101 explains the relief ASIC has given in class order (CO 07/422) “On-market buy-backs by ASX-listed schemes” and explains what a responsible entity should do when conducting on-market buy-backs of interests.
CO 07/422 and RG 101 are available for download.
Regulatory Guide 156: Debenture advertising (RG 156)
RG 156 provides guidance on the role of publishers and the media in promoting debentures. More specifically, it provides new advertising standards for issuers of debentures that are offered to retail investors.
It is the product of ASIC’s consultation paper and draft RG released on October 2007. ASIC decided to proceed with most of the proposals, and has increased explanation and guidance on other areas.
RG 156 is available for download.
11. APRA releases its approach to the supervisory review process under Basel II
The Australian Prudential Regulation Authority (APRA) has released an information paper detailing its approach to the supervisory review process under Basel II, known as Pillar 2. The Basel II framework came into force on 1 January 2008.
There is no specific standard containing Pillar 2. The ADI’s obligations and APRA’s powers are contained in APS 110 Capital Adequacy.
The information paper is available for download from APRA’s website.
12. IAESB releases new guidance on practical experience
The International Accounting Education Standards Board (IAESB) has developed guidance aimed at establishing more effective practical experience programs. This is contained in International Education Practice Statement (IPES) 3 “Practical Experience Requirements – Initial Professional Development for Professional Accountants”.
IEPS 3 contains guidance on the duration of practical experience, content of practical experience requirements, and the roles and responsibilities of IFAC members, mentors and employers.
This guidance can be downloaded from the IFAC online bookstore.
GST and finance leases
Q: Do you include GST payable over the term of the lease as part of the Lease Liability shown in the Balance Sheet if you are accounting for a finance lease? What accounts would be debited and credited in the general ledger when taking up the asset and liability?
A: Debtors and creditors are shown gross of GST as that is the amount that has to be paid to the supplier or received from the customer (see paragraph 8 of Interpretation 1031 Accounting for the Goods and Services Tax (GST). The Institute published an article in Charter Magazine in November 2000 that deals with accounting for the GST and includes with example journal entries. The article makes reference to UIG Abstract 31 which following the transition to AIFRS and the disbanding of the UIG is now referred to as Interpretation 1031.
The reissue of Abstract 31 as Interpretation 1031 made no substantive changes to the Abstract’s requirements although the requirements dealing with accounting for the costs of updating or changing systems referred to in the article are now dealt with by AASB 116” Property, Plant and Equipment” and AASB 138 “Intangible Assets” and not AASB 1021 which replaced this standard in 2005.
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.
13 February 2008
AASB ED 160 "Proposed amendments to IFRS 1 and IAS 27 - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate"
15 February 2008
AUASB ED Proposed ASAE 3100 "Compliance Engagements"
29 February 2008
AASB ED 161 Proposed Amendments to AASB 2 and AASB Interpretation
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