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Welcome to the sixth 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.
1. Financial Reporting and Auditing and Assurance Handbooks 2008 now available
The Institute’s Financial Reporting and Auditing and Assurance Handbooks for 2008, containing pronouncements issued up to 31 December 2007, are now available. For further details, see the Institute website.
2. Sydney AIFRS Discussion Group highlights
The Institute’s Sydney Corporate Reporting discussion group met on Monday 18 February to discuss the Emerging issues in Reporting and Assurance. The presentation and discussion was led by Kerry Hicks, the Institute’s Head of Reporting and Andrew Stringer, the Institute’s Head of Audit.
Kerry talked about the following emerging issues:
- Small to medium entities and differential reporting
- The progress of not-for-profit reporting
- Standard business reporting
- Non financial reporting – such as emissions reporting
- Expected IASB activity, and
- Recent lobbying by the Institute
Andrew dealt with the impacts on the audit environment of the CLERP 9 changes and how the Institute has responded to the changes and additional requirements. He also highlighted that the clarity project for international auditing standards is due to be completed by the end of 2008, with the Auditing and Assurance Standards Board (AUASB) issuing exposure drafts by early 2009.
Andrew also brought to our attention the revised definition of “network firms” in the Code of Ethics that becomes effective from 1 July 2008.
Chartered accountants in business who are interested in attending future meetings can register their interest by emailing Jane Ma. Members of the group are encouraged to email suggestions for discussion topics to that address.
3. ASAE 3100 Final Submission
The Institute along with the two other accounting bodies has finalised a submission on the Proposed Standard for Assurance Engagements – ASAE 3100 Compliance Engagements. The submission can be viewed online at the Institute website.
4. AASB to host not-for-profit roundtables
In conjunction with the release of ITC 14, Proposed Definition and Guidance for Not-for-Profit Entities, the AASB is hosting roundtable discussions in Sydney, Melbourne and Canberra in March. Further information can be found on the Australian Accounting Standards Board (AASB) website, and as seating is limited, those wishing to attend should contact the AASB.
5. AASB invites comment on IFRIC drafts 23 and 24
D23 Distributions of Non-cash Assets to Owners will require that the distribution of a non-cash asset to shareholders or owners be recognised as the fair value of the asset, even if this is different to its existing carrying value in the books of the entity.
The draft interpretation can be downloaded from the AASB website. Comments must be received at the AASB by 7 April 2008.
D24 Customer Contributions addresses the measurement of assets contributed to a service provider by customers, and the timing of when the contributed assets should be recognised as revenue. Currently, AASB Interpretation 1017 Developer and Customer Contributions for Connection to a Price-Regulated Network requires a service provider to recognise revenue upfront, when the customer is connected to the network. IFRIC draft Interpretation D24 Customer Contributions proposes a change that will require the revenue to be recognised at the fair value of the asset contribution over the period of time when goods or services are being supplied to a customer.
The draft interpretation can be downloaded from the AASB website. The AASB requests comments by 26 March 2008.
6. IASB amends IAS 32 and IAS 1
The International Accounting Standards Board (IASB) has finalised amendments to IAS 32 relating to certain financial instruments that have similar characteristics to ordinary share capital but which are currently classified as liabilities. The changes, entitled “Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation”, were exposed in Australia as ED 150 in 2006.
The changes have been made on the basis that certain financial liabilities are more akin to equity and, provided that those Financial Instruments meet certain conditions, they need to be accounted for as equity rather than liabilities. This classification was not permissible under IAS 32 and AASB 132 because they were redeemable at the holder’s option for cash.
The changes affect two types of transactions, provided that they have particular features and meet specific conditions. These are:
- puttable financial instruments (i.e. instruments redeemable for cash, including some shares issued by co-operative entities)
- instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (for example, some partnership interests and some shares issued by limited life entities).
Additional disclosures about these types of instruments are also required.
The amendments will apply for annual periods beginning on or after 1 January 2009, with earlier application permitted.
The amendments are available on the IASB website to e-subscribers only. The AASB is expected to approve the changes for release here at its next meeting.
Auditing & Assurance News | |
7. AUASB meeting agenda
The next meeting of the AUASB will be held on February 25-26 in Melbourne. Items to be discussed include:
- ASAE 3500 Performance Engagements
- GS 007 Audit implications of the use of service organisations for investment management services
- ASRE 2400 and ASRE 2405 Review of financial reports and other financial information
- ASAE 3100 Compliance engagements
- Guidance Statement – financial and compliance audits of self-managed superannuation funds
- Sustainability – assurance on greenhouse and energy reporting
- SME audit issues.
A full copy of the agenda can be viewed at the AUASB website.
8. New international audit standard on accounting estimates
The International Auditing and Assurance Standards Board (IAASB) has released a revised version of
ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures .
The new standard aims to improve the quality of audit work on accounting estimates, including fair value ones, by encouraging auditors to focus on the high risk areas which involve judgement or have the potential for bias. It discusses topics such as the management’s methods for making assumptions, the assumptions used and the disclosures made. It also contains increased guidance on auditing fair value estimates, providing assistance on the various models and judgments often involved.
While the new standard is not operative until December 2009, the IAASB encourages all auditors to consider the new requirements in their 2007 and 2008 audits. The IAASB is keenly aware of the growing use of estimates – especially fair value estimates – when applying international accounting standards, and is keen to provide as much assistance as possible in this complex area.
A copy of the new ISA can be downloaded from the IFAC website. It will be available for use in Australia when considered and adopted by the AUASB.
9. IAASB issues EDs
The IAASB is seeking comments by April 30, 2008 on proposed ISA 265 Communicating Deficiencies in Internal Control, which addresses the auditor's responsibility to communicate to management and those charged with governance deficiencies in internal control that the auditor has identified. The proposed standard distinguishes between significant and other deficiencies in order to establish requirements to communicate to the appropriate levels within the audited entity. It requires that significant deficiencies be communicated in writing to those charged with governance.
The IAASB is also inviting comments on two proposed standards that cover third party service organisations. Proposed ISA 402 (Revised and Redrafted), Audit Considerations Relating to an Entity Using a Third Party Service Organization, deals with the auditor's responsibilities to obtain audit evidence when an entity uses one or more service organisations. Comments are requested by April 30, 2008.
Proposed International Standard on Assurance Engagements (ISAE) 3402, Assurance Reports on Controls at a Third Party Service Organization complements the requirements in proposed ISA 402. Reports prepared in accordance with proposed ISAE 3402 will be capable of providing appropriate audit evidence under proposed ISA 402. Comments on proposed ISAE 3402 are requested by May 31, 2008.
10. ASIC’s InFocus newsletter now available
The February 2008 issue of ASIC’s InFocus newsletter is now available for download from the ASIC website. InFocus deals largely with company secretarial issues and this month includes advice on how to notify ASIC of shares held on behalf of trustees or executors, notifying minor errors by phone, transferring companies from one agent to another, Australian companies doing business in NZ, and insolvency law reform.
Professional and Ethics News | |
11. Revisions to APES 110 now available
The revised version of section 290 of APES 110 (and its accompanying basis for conclusions), dealing with the changes to the independence requirements approved by the APESB last week (see ANT05 15/02/08), is now available for download from the APESB website.
Cash Received in Advance of Issuing Shares
Q: Entity D wishes to raise new funding through a fresh issue of shares. Entity D makes a private placement of shares with entity E. In terms of the share issue, entity D will issue entity E with 1,000 ordinary shares in exchange for $10,000.
Entity D has a financial year end of 30 June 2007. On 28 June, entity E deposits the full $10,000 into the account of D. However, due to unforeseen delays, entity D is only able to legally issue the shares on 3 July 2007.
As part of the terms and conditions of the offer, Entity D has no discretion as to whether it will provide the shares or refund the cash as at the year-end date. Moreover, Entity E does not have a contractual right to demand cash from entity D, only shares.
How should entity D account for the cash received in advance of issuing the shares in its June 2007 financial statements?
A: Entity D has received a fixed amount of cash for which it will deliver a fixed number of its own equity instruments.
Since the contract is not a derivative and entity D has no discretion as to the method of settlement, the contract is an equity instrument (para 22 of AASB 132, Financial Instruments: Presentation) and not a financial liability. Entity D should record the corresponding credit entry from the receipt of the cash directly in equity.
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 techsubmissions@charteredaccountants.com.au no later than one week before the closing date shown.
29 February 2008
AASB ED 161 Proposed Amendments to AASB 2 and AASB Interpretation 11, Group Cash-settled Share-based Payment Transactions
31 March 2008
AASB ITC 14 "Proposed Definition and Guidance for Not-For-Profits Entities"
For further exposure drafts, refer to our exposure drafts webpage.
Accounting Conference
Through March and April in Brisbane, Melbourne, Sydney & Perth
Get ahead in financial reporting and management accounting by covering new developments in accounting standards AASB 7, AASB 3, IAS 27 and reporting on governance and risk activities.
Audit Conference
Brisbane - Monday, 31 March - Tuesday, 1 April 2008
Sydney - Monday, 7 April - Tuesday 8 April 2008
The only constant for the auditing profession is change. As standards, legislation and compliance issues continually evolve, this conference provides the latest facts, insights and opinions for auditing professionals.
Audit Update and Audit of AFS Licensees Seminar
Throughout April in Brisbane, Melbourne, Sydney, Adelaide and Perth
Seminar one - Audit Update, Seminar two - Audit of AFS Licensees. Minimise risk by arming yourself with the vital knowledge and skills to effectively master challenges posed by new and existing audit regulations.
Business Forum 2008
Throughout April, May and June in Brisbane, Melbourne, Sydney, Adelaide, Perth and Canberra. What's your strategy for the year ahead? Join industry leaders and your peers as vital topics are addressed, key technical updates explored, and new ideas and options examined.
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.
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