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Welcome to the eighteenth 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. Institute lodges submission on the review of the Legislative Instruments Act
The Institute, CPA Australia and the NIA have lodged their joint submission on the review of the Legislative Instruments Act 2003. Since the Australian Accounting Standard Board’s (AASB) and Auditing and Assurance Standard Board’s (AUASB) standards are legislative instruments, this review affects those involved in financial reporting and assurance.
The submission suggests ways of streamlining the process of reviewing legislative instruments to provide certainty for those wishing to adopt standards based on international equivalents earlier than their mandatory applicable date.
2. Soaring interest for Melbourne Corporate Reporting Discussion Group
There has been an extremely positive response from Melbourne for a Corporate Reporting Discussion Group (CRDG), similar to that held in Sydney. Those members who have not yet registered their interest can continue to do so by emailing crdg@charteredaccountants.com.au. Registering will ensure that you are on the mailing list for future invitations. Interested members are also encouraged to email suggestions for discussion topics to that address.
The Sydney CRDG meets for 90 minutes bi-monthly at lunchtime to discuss current issues. An invited speaker, who is an expert in the field of discussion, will normally present on the topic with the opportunity for questions and/or discussion throughout.
We are also looking for a volunteer to chair the group for at least its first twelve month period. If you are interested in becoming involved, please email the same address and let us know.
3. AASB disagrees with IFRIC on D24
The AASB has made a submission to the International Financial Reporting Interpretations Committee (IFRIC) on D24 Customer Contributions, strongly disagreeing with IFRIC’s proposals on the grounds that they will result in future revenue from supplying services being artificially inflated and revenue from network connection activity being understated. Under the IFRIC proposals, regardless of who receives the services in the future, the service provider would have a liability. If the party making an upfront payment is not the one which actually receives, for example, water or power services, it may be unclear when the liability is finally extinguished.
The AASB prefers the approach adopted in Australian Interpretation 1017, Developer and Customer Contributions for Connection to a Price-Regulated Network.
The AASB submission to the IFRIC on Draft Interpretation D24 is now available on the AASB website.
4. AASB releases “not for profit” submissions
The AASB has released the submissions it received on ITC 14 Proposed Definition and Guidance for Not-For-Profit Entities. The document can be viewed in full on the AASB website.
5. IFRIC meeting update – 8 May 2008
The IFRIC Update for the 8 May 2008 IFRIC meeting is now available. The following significant areas were discussed:
IFRIC D11 Real Estate Sales
Re-deliberations of this interpretation were completed. IFRIC confirmed the consensus for issue in June, subject to final drafting changes. Its application will be retrospective and will first be applicable for entities with financial periods commencing on or after 1 January 2009.
IFRIC D22 Hedges of a Net Investment in a Foreign Operation
Re-deliberations of this interpretation were completed. IFRIC confirmed the consensus for issue in June, subject to final drafting changes. The interpretation will become effective for financial periods commencing on or after 1 October 2008.
IFRS 2 Share-based Payment and IFRIC 11 IFRS 2 Group Treasury Share Transactions – Group Cash-settled Share-based Payment transactions
The IFRIC reviewed the comment letters received on the exposure draft, which they identified that further deliberation was required on:
- the scope
- the classification and measurement for these arrangements as cash-settled transactions when the entity does not have an obligation
- the attribution of the parent’s liability and re-measurement by the subsidiary
In addition the IFRIC instructed staff to outline a project plan for ‘rate regulated liabilities’. This issue considers whether regulated entities could or should recognise a liability (or an asset) as a result of price regulation by regulatory bodies or governments. The IFRIC also published agenda rejection decisions in respect of ‘Deposits on returnable containers’ and ‘Employee benefits – settlements’ noting that these areas are unlikely to result in a significant diversity in practice.
6. IASB meeting agenda – 20-23 May 2008
The International Accounting Standard Board’s (IASB) next meeting is in London on 20-23 May 2008. The agenda includes discussion on the following items:
- Amendments to IAS 39 Financial Instruments: Recognition and Measurement, Exposures Qualifying for Hedge Accounting
- Annual improvements process
- Earnings per Share
- Emissions trading schemes
- IFRIC update
- IFRS 1 – First-time Adoption of International Financial Reporting Standards
- IFRS for small and medium-sized entities (SMEs)
- Liabilities: Amendments to IAS 37
- Revenue recognition
For a full copy of the agenda, visit the IASB website (pdf).
7. ASIC extends disclosure relief for rights issues
The Australian Securities and Investments Commission (ASIC) has given class order relief ensuring that non-traditional rights issue structures are covered by the prospectus and PDS disclosure exemption for rights issues. ASIC has released Regulatory Guide 189 Disclosure relief for rights issues (RG 189). This regulatory guide explains the relief ASIC has given in Class Order (CO 08/35) Disclosure relief for rights issues. This includes relief:
- for accelerated offers to institutions
- from the requirement to lodge multiple cleansing notices
- for disposal of a shortfall (eg. through a book-build) and
- to make offers of shares to convertible security holders
8. Meeting of the International Forum of Independent Audit Regulators
On 9-11 April 2008, independent audit regulators from 22 countries took part in the third meeting of the International Forum of Independent Audit Regulators (IFIAR), held in Oslo, Norway. The forum was established in 2006 to promote cooperation and information sharing among international regulators interested in audit quality.
Issued discussed include:
- Current market turbulence
- Audit quality experiences
- Audit inspection workshops
- Foreign auditor registration
- Exchange of information between audit regulators
- Issues relating to International Auditing Standards
- Audit market concentration and choice
- Dialogue with other international organisations
- Future role and organisation of IFIAR
For further details, view the press release on the UK FRC website (pdf).
9. Towards a national system for co-operatives
The Ministerial Council on Consumer Affairs is considering national legislation for the regulation of co-operatives. Regular email updates on the progress of the legislative reform can be accessed from this website.
10. APRA reviews super fund governance
The Australian Prudential Regulation Authority (APRA) has released the findings of the research it conducted into the governance practices of APRA-regulated super funds.
The research was based on a detailed survey of superannuation fund trustees and is the most comprehensive research of its type into the governance practices of these funds.
It suggests that the vast majority of superannuation funds are successful in their selection of experienced and qualified trustee directors and that trustee policies and practices are broadly consistent across all types of funds.
Other findings of the research can be found in the APRA media release. The full research has been published in the latest edition of APRA’s “insight”.
Business combinations and shelf companies
Q: My client has just acquired a shelf company. Does this constitute a business combination under AASB 3, and am I required to do all the AASB 3 disclosures in paragraph 66 onwards?
A: I think that there may be some confusion here between AASB 3 Business Combinations, and AASB 127 Consolidated and Separate Financial Statements.
AASB 3 applies to reporting entities that undertake material business combinations. In considering the application of AASB 3 to this transaction there are two main factors to consider: These are
- Does the transaction actually constitute a business combination? and
- Is the entity material?
Normally, a shelf company is unlikely to be material and therefore paragraph Aus1.4 of AASB 3 would indicate that the standard does not apply. If it is material, the question then arises as to whether it meets AASB 3’s definition of a business i.e.:
"an integrated set of activities and assets conducted and managed for the purpose of providing:
(a) a return to investors; or
(b) lower costs or other economic benefits directly and proportionately to policyholders or participants.
"A business generally consists of inputs, processes applied to those inputs and resulting outputs that are, or will be, used to generate revenues. If goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business."
Again, a shelf company is unlikely to satisfy this definition due to its lack of activity.
While the initial acquisition of the shelf company is therefore unlikely to trigger the application of AASB 3, once acquired it does represent a subsidiary to which AASB 127, Consolidated and Separate Financial Statements must be applied. This is the standard that applies to the presentation of financial statements of a group under the control of a parent entity. On initial acquisition, materiality may be a relevant factor to consider and so consolidation of the shelf company may be able to be avoided until the shelf company's operations become material to the group.
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.
19 May 2008
AASB ED 162 ‘Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities’
30 May 2008
AUASB ED 2/08 ‘Proposed Standard on Review Engagements ASRE 2400 Reviews of Financial Reports Performed by an Assurance Practitioner Who is not the Auditor of the Entity (Replacement of AUS 902)’
AUASB ED 3/08 ‘Proposed Standard on Review Engagements ASRE 2405 Review of Historical Financial Information Other than a Financial Report (Replacement of AUS 902)’
AUASB ED 4/08 ‘Proposed Amendments to ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity’
16 June 2008
AASB ITC 15 ‘Request for Comment on IPSASB Exposure Draft ED 34 Social Benefits: Disclosure of Cash Transfers to Individuals or Households and IPSASB Consultation Paper Social Benefits: Issues in Recognition and Measurement’
This list does not represent a complete list of the exposure drafts on issue. For further exposure drafts, refer to our exposure drafts webpage.
Business Forum 2008
Throughout May and June in Melbourne 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.
Audit of Self Managed Superannuation Funds Update
Throughout May and June in Brisbane, Adelaide, Perth and Sydney.
For those who attended the Audit of Self Managed Super Funds Workshops in 2007, the Audit of Self Managed Super Funds Workshops Update will give you thorough knowledge of the final competency requirements in just a few hours to be ready for 1 July 2008.
CFO of the Future Series
Throughout July, August, September, October, November, December in Sydney and Melbourne.
An invaluable opportunity for current CFO’s or aspiring CFO’s, to hear the latest, including updates on GST, stamp duties, CGT, property finance and risk management plus much more.
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.
Accounting & Assurance News Today is an initiative of the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia.
Disclaimer
This is an initiative of, and has been prepared by the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia. While every effort has been made to ensure the accuracy of the information contained therein, neither the Institute nor its employees shall be liable on any grounds whatsoever in respect of decisions or actions taken as a result of using this publication. The information provided is a general guide only and should not be used, relied on or treated as a substitute for specific professional advice or referral to the relevant specific standard.
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