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Welcome to the seventh 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. ED 161 share-based payments submission lodged
The Institute today lodged its submission on ED 161, Proposed Amendments to AASB 2
Share-based Payment and AASB Interpretation 11 AASB 2 – Group and Treasury Share
Transactions: Group and Treasury Share Transactions, with the Australian Accounting
Standards Board (AASB) and International Accounting Standards Board (IASB).
In our submission, we support the amendments, but suggest that AASB/IFRS 2 would benefit
from being redrafted to focus on the principles.
Our letter to the AASB can be viewed here and our letter to the IASB can be viewed here.
2. Appointments to the AASB
The Financial Reporting Council (FRC) has announced its appointments to the AASB for 2008.
The new and reappointed Board members are:
- Mark Jenkin, Divisional Head, Department of Defence
- Robert Williams, Principal Advisor, Office of Financial Management, NSW Treasury
- Frank Palmer, Director Corporate Reporting Group, Macquarie Bank, Sydney
(re-appointment)
- Bruce Porter, Partner, Deloitte Touche Tohmatsu (re-appointment)
All appointments are on a part-time basis and have been made for three years, until 31
December 2010.
3. AASB meeting agenda – 5-6 March 2008
The next meeting of the AASB will be held on 5-6 March 2008 in Melbourne. Items to be
discussed include:
- Interpretations – draft submission on IFRIC D24
- Superannuation plans and ADFs – issues paper on disclosures relating to defined
contribution benefits and investments and definitions
- Differential reporting – issues relating to different reporting tiers for for-profit
corporates
- Emission rights – consider issues paper
- SAC report
- Business combinations – proposed revised AASB 3 and AASB 127
- Puttable financial instruments – IASB’s proposed amendments to IAS 1 and IAS
32
A full copy of the agenda can be downloaded from the AASB
website. Board papers are also available.
4. IASB meeting update – February 2008
The most recent meeting of the Board was held on February 18-22 in London and the update
summarising decisions of the Board is now available on the IASB website. Highlights of the meeting are noted below:
- Annual improvements - the Board discussed comments received on the exposure draft with a
view to publishing final changes to standards in May 2008. Improvements exposed on the
following areas will be deferred as the Board considered they warranted separate
consideration - statement of compliance with IFRS (IAS 1), current/non-current
classification of convertible instruments (IAS 1), classification of leases of land and
buildings (IAS 17), contingent rent (IAS 17), definition of derivatives (IAS 39) and
treating loan prepayments penalties as closely related embedded derivatives (IAS 39).
- Employee benefits - the Board discussed some sweep issues on the measurement of the
liability for contribution-based promises arising from the review of a draft of the
Discussion Paper on Amendments to IAS 19.
- Conceptual framework - the Board discussed three issues (entity perspective versus
proprietary perspective; use of the term 'free from error' to describe a component of
faithful representation and strengthening the discussion on comparability) that arose during
the review of the pre-ballot draft of the forthcoming Exposure Draft on the objectives of
financial reporting and qualitative characteristics of financial information.
- Liabilities - the Board considered two issues arising from comments received on the
Exposure Draft of proposed amendments to IAS 37. The issues discussed included the proposed
removal of the probability recognition criteria and the proposal that an entity should
measure a liability at the amount the entity would rationally pay to settle the present
obligation.
- Liabilities & equity - the discussion paper on this topic, due to be released in March
2008, will also include reference to another discussion paper 'Distinguishing between
Liabilities and Equity' published in January 2008 by the European Financial Reporting
Advisory Group (EFRAG).
5. IASB discussion paper on financial instruments
The IASB has published a discussion paper Financial Instruments with the Characteristics
of Equity on the distinction between equity financial instruments and other financial
instruments (non-equity instruments).
The discussion paper is the first stage of the IASB’s project to improve and simplify the
requirements in IAS 32 Financial Instruments: Presentation. Stakeholders around the world
have raised two broad classes of criticisms of the current requirements:
- the principles in IAS 32 are difficult to apply; and
- the application of those principles can result in an inappropriate classification of
some financial instruments.
The project is a joint project between the IASB and the US Financial Accounting Standards
Board (FASB) in which FASB has taken the lead to start with.
The paper is now available to eIFRS subscribers and will be freely available from the IASB
website from 10 March 2008. Comments are due by 5 September 2008.
6. IASB – Fair Value Measurement
The Fair Value Measurement Project team has begun the standard-by-standard review of
existing fair value measurements to IFRSs to assess whether each standard’s use of a fair
value measurement basis was intended to be an exit price. A range of companies were invited
to participate. For details of the material sent to external reviews, visit the IASB website.
7. IFRIC meeting agenda – 6-7 March 2008
The next International Financial Reporting and Interpretations Committee (IFRIC) meeting
will be held in London on 6-7 March 2008. Issues to be discussed include:
- D22 Hedges of a Net Investment in a Foreign Operation
- D21 Real Estate Sales
- IAS 37 Provisions Contingent Liabilities and Contingent Assets – Deposits on returnable
containers
- IAS 7 Statement of Cash Flows – Classification of Expenditures
- IAS 19 Employee Benefits – Settlements
The meeting agenda can be downloaded from the IASB
website.
8. IPSASB advances convergence strategy
The International Public Sector Accounting Standards Board (IPSASB), an independent
standard-setting board within the International Federation of Accountants (IFAC), has issued
two new standards to further converge with International Financial Reporting Standards
(IFRSs) developed by the IASB.
The two standards - International Public Sector Accounting Standard (IPSAS) 25, Employee
Benefits and IPSAS 26, Impairment of Cash-Generating Assets - will improve the consistency
and transparency of financial reporting by public sector entities.
IPSAS 25 sets out the reporting requirements for the four categories of employee benefits
dealt with in IAS 19, Employee Benefits, addressing specific issues for the public
sector. It is effective for reporting periods beginning on, or after, January 1
2011.
IPSAS 26 is based on IAS 36, Impairment of Assets and sets out the procedures for a public
sector entity to determine whether a cash-generating asset has lost future economic benefit
or service potential and requires impairment losses to be recognized in its financial
reports. Non cash-generating assets – those used primarily for service delivery – are
addressed separately in IPSAS 21, Impairment of Non-Cash-Generating Assets.
IPSAS 26 is effective for reporting periods beginning on, or after, April 1 2009.
For further details, go to the IFAC website.
9. FASB launches verification case for the FASB accounting standards
codification
The Financial Accounting Standards Board (FASB) has officially launched the one-year
verification phase of the FASB Accounting Standards Codification (Codification) project.
This project is aiming to reorganise all the thousands of U.S. GAAP pronouncements into
roughly 90 accounting topics and display them all using a consistent structure in order to
assist users to access all the requirements.
During this period, interested persons who register are encouraged to use the online
Codification Research System free of charge to research accounting issues and provide
feedback on whether the Codification content accurately reflects existing U.S. GAAP for
nongovernmental entities.
Users are advised that the Codification content is not approved as authoritative until
completion of the verification case and, therefore, they must verify research results using
their existing resources for the currently effective literature.
For more details, download the media release on the FASB website.
Auditing & Assurance News | |
10. AUASB meeting highlights – 25-26 February 2008
The Auditing and Assurance Standards Board (AUASB) met in Melbourne on Monday and Tuesday.
Matters covered included:
- The Board approved issuance of Guidance Statement GS 007 “Audit Implications of the use
of Service Organisations for Investment Management Services”. It is to be operative for
periods commencing on, or after, 1 July 2008, and replaces the existing AGS 1026
“Superannuation Funds – Auditor Reports on Externally Managed Assets, which is to be
withdrawn effective from the same date. The Guidance Statement has been formulated to
provide guidance to user auditors – where the client uses a third party service organisation
to provide investment management services. It also provides guidance to service auditors –
who report on controls and/or special purpose financial reports for which investment
management services are provided by the service organisation
- The Board also approved for public exposure the proposed standard, ASAE 3500
“Performance Engagements”. This standard, when issued, will replace the existing standards
AUS 806 “Performance Auditing” and AUS 808 “Planning Performance Audits”
- The following revised standards (ASREs 2400, 2405 and 2410) are to be submitted to the
Board for out-of-session approval for issuance as exposure drafts. Intended operative dates
are to be for reporting periods commencing on, or after, 1 July 2008:
- Proposed ASRE 2400, tentatively titled “Review of a Financial Report by a Practitioner
or Person Other than the Auditor”
- Proposed ASRE 2405, tentatively titled “Review of Other Historical Financial
Information”
- Proposed amendments to existing ASRE 2410 “Review of an Interim Financial Report
Performed by the Independent Auditor of the Entity”, to clarify that this standard applies
not only to reviews of interim financial information performed by the independent auditor of
the entity, but will also include other financial reports. The proposed amendments stem
from the International Auditing and Assurance Standards Board’s recent changes to ISRE 2400
and ISRE 2410.
- Other matters discussed:
- The first draft of a proposed Guidance Statement addressing financial and compliance
audits of self managed superannuation funds
- The ASA re-drafting project (“clarity”) – procedures to be followed to ensure that the
Board is able to meet the timetable to which it has committed for re-issuing the existing
suite of Auditing Standards in clarity format by 2009. This is necessary in order for the
re-drafted standards to be effective for audits of financial reports commencing on or after
1 January 2010. The AUASB has indicated that the revised suite of Standards will be
released as exposure drafts during 2008 and early to mid-2009.
- Other projects currently underway:
- An update of Guidance Statement AGS 1002 - “Bank Confirmation Requests”
- An update of Guidance Statement AGS 1014 - “Privity Letter Requests”
- A review of the structure of the framework for the Board’s pronouncements.
11. FRC releases auditor independence and quality control reports
The FRC has released its annual report on auditor independence, which shows that the auditor
independence framework continues to operate effectively and that the audit firms have made
significant progress in the adoption and refinement of the systems and processes they use to
ensure compliance with auditor independence requirements.
However, the FRC noted that some small to medium-sized audit firms had not proactively
planned and implemented effective policies, systems and processes to ensure compliance with
the legislative requirements for auditor independence. The report also notes that
professional bodies already have in place continuing professional development programs to
ensure that members are adequately informed about the auditor independence requirements.
The FRC independence report is available at the FRC website. The
media release can also be viewed there.
The FRC has also released a report on quality review programmes and disciplinary procedures
of the professional accounting bodies prepared by the Allen Consulting Group. The report
makes a number of recommendations to the FRC, including the need to analyse the market
confidence in auditor independence, improve the understanding of the regulatory framework
and find ways of reducing the review burden on firms without impairing market confidence in
independence. The FRC is seeking public comments on the recommendations by 31 March 2008.
For more details, go to http://www.frc.gov.au/press_releases/2008/press_releases/2008/02_pr.asp.
12. Appointments to the AUASB
The FRC has announced its appointments to the AUASB for 2008. New and reappointed Board
members are:
- Valerie Clifford, Partner, PricewaterhouseCoopers, Melbourne
- John Gavens, Divisional Leader - Audit and Assurance, WHK Horwath, Melbourne
- Christine Jubb, Professor of Accounting, Deakin University,
Melbourne (re-appointment)
- Jon Tyers, Head of Corporate Audit Services, ING Sydney (re-appointment)
All appointments are on a part-time basis and have been made for three years, until 31
December 2010.
Professional and Ethics News | |
13. Competency requirements for auditors of SMSF
In light of market growth in the area of Self Managed Super Funds (SMSFs) and recent
consultation with the regulator, the Institute along with the other professional accounting
bodies, in a joint initiative, has developed a set of competency requirements for auditors
who audit SMSFs.
It is mandatory for members who sign an SMSF audit report to meet the following
requirements:
- Hold a practicing certificate issued by the professional accounting body of which they
are a member – the Institute, or one of the other bodies
- Have relevant Professional Indemnity Cover
- Undertake Continuing Professional Development as set out in the requirements
- Ensure that those who perform work on their behalf have appropriate knowledge and
experience and are properly supervised in the conduct of the audit
The competency requirements will be operative for financial reporting periods commencing on,
or after, 1 July 2008. However, members will be encouraged to adopt these requirements
earlier.
The competency requirements recognise that the audit of SMSFs is an area that has grown
significantly and requires additional clarity for members of the three professional
accounting bodies as well as users of the audited information.
The three bodies’ quality control procedures will include checking for compliance with these
requirements.
Members are expected to review this document to ensure they meet these requirements.
(Note: The AUASB is currently developing a Guidance Statement - “Financial and Compliance
Audit of Self Managed Superannuation Funds.” See Item 10 in this issue of ANT.)
To view the competency requirements click here.
To view the SMSF training days offered by the Institute click here.
The new competency requirements are available on the Institute website.
14. FRC releases Banarra report on ethics in accounting firms
The FRC has released a report ‘Evaluation of how professional and business ethics are
applied in practice by accounting firms’ prepared by the Banarra Trust in September 2007.
The report reveals that ethical practice is highly valued by Australian accounting firms to
build reputation and brand.
The report recommends encouraging the professional bodies and the Accounting Professional
and Ethical Standards Board (APESB) to consider establishing a mechanism that facilitates
the sharing, reviewing and critiquing of leading ethical practices. It also recommends the
identification of a core set of indicators for cultural health and ethics in practice.
Comments are sought on the consultant’s recommendations and should be sent to the FRC secretary by 31 March
2008.
The report can be downloaded from the FRC
website. The media release can be viewed at the FRC
website.
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Accounting for Building Demolition Costs
Q: Entity F is preparing its financial statements for the year ended 30 September 2007. F
is in the process of demolishing one of its buildings that was previously owner-occupied.
The original intention was to construct a new building on the same site; however, entity F
is now considering selling the site after the demolition is completed. How should the
building demolition costs be accounted for?
A: The accounting treatment will depend on the reason for the building
demolition.
If the building is being demolished for the purpose of replacing it with a new building,
then the cost of demolition of the existing building should be capitalised as part of the
cost of the new asset, subject to impairment review tests to ensure the asset value is not
overstated. In this scenario, the cost of the demolition of the existing building is a cost
of site preparation, which is directly attributable to the new asset being constructed (para
17 of AASB 116 ‘Property, Plant and Equipment’).
If the building is being demolished to clear the site for a possible future sale, then the
cost of demolition has been incurred to avoid the eventual purchaser bearing the cost.
Capitalisation of the cost of demolition could only be justified if the expenditure enhances
the future economic benefits of the land (AASB 116 paragraph 7); for example, by releasing
the site potential of the underlying land. As above, any capitalisation is subject to
impairment review tests to ensure the asset value is not overstated. If not capitalised,
such expenditure is a cost of disposal and should be expensed.
If the entity were to make a decision to sell the land prior to the demolition, the asset
would need to be classified as “held for sale” in accordance with AASB 5 ‘Non current assets
held for sale and Discontinued Operations’ and measured at the lower of its carrying amount
or fair value less costs to sell. The demolition costs would be an example of “costs to
sell” in this calculation if clearing the land is a necessary part of preparing the site for
sale.
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.
26 March 2008
AASB – IFRIC Draft Interpretation D24 ‘Customer Contributions’
31 March 2008
AASB ITC 14 “Proposed Definition and Guidance for Not-for-Profit Entities”
7 April 2008
AASB – IFRC Draft Interpretation D23 ‘Distributions of Non-cash Assets to Owners’
25 April 2008
IFRC Draft Interpretation D23 ‘Distributions of Non-cash Assets to Owners’
IFRIC Draft Interpretation D24 ‘Customer Contributions’
Auditing ED’s
15 March 2008
IAASB Proposed ISA 210 (redrafted) ‘Agreeing the Terms of Audit Engagements’
15 March 2008
IAASB Proposed ISA 710 (redrafted) ‘Comparative Information – Corresponding Figures and
Comparative Financial Statements’
31 March 2008
IAASB Proposed ISA 501 (Redrafted) ‘Audit Evidence Regarding Specific Financial Statement
Account Balances and Disclosures’
31 March 2008
IAASB ISA 520 (Redrafted) ‘Analytical Procedures’
4 April 2008
APESB ED 07/07 APES 225 ‘Business Valuation’
30 April 2008
IAASB Proposed ISA 402 ‘Audit Considerations Relating to an Entity Using a Third Party
Service Organization’
30 April 2008
IAASB Proposed ISA 265 ‘Communicating Deficiencies in Internal Control’
31 May 2008
IAASB Proposed International Standard on Assurance Engagements (ISAE) 3402, ‘Assurance
Reports on Controls at a Third Party Service Organization’
For further exposure drafts beyond this date, refer to our dedicated exposure drafts
website.
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
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that might be of interest to other members. Responses should be emailed to "Your
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future editions of ANT.
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