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Happy New Financial Year to all our readers and welcome to the twenty-fifth 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. What’s new in July Charter
Reporting season is upon us and this month’s ‘Technical focus’ section of Charter provides resources to
assist members with their financial reporting duties.
In addition to our regular roundup of financial reporting and assurance news ‘The Panel’ articles include: -
A summary of all the new accounting standards which are applicable to 30 June 2008 year ends by Claire Locke and
Jane Ma of the Institute’s reporting and assurance team
- An overview of the impact current markets conditions might have on the financial reporting process this year by
Patricia Stebbens of KPMG
- A report on the findings of ASIC’s 2007 audit inspection programme by Lee White of ASIC indicating common areas
of weakness in audit processes
- A review of the progress on the IASB’s SME project to reduce the burden of financial reporting on these entities
by Keith Reilly of Grant Thornton.
These articles can be found on pages 61-69 of this month’s Charter.
2. Institute audit manual now available
The Institute has now launched its Australian Auditing Manual, which is based on the Guide to Using International
Standards on Auditing in the Audits of Small- and Medium-sized Entities issued by the International Federation
of Accountants (IFAC) Small and Medium Practices Committee.
The Manual is designed to assist audit practitioners, particularly those who deal with small- to medium-sized
entities (SMEs), in applying the current Australian Auditing Standards (ASAs). Freely available on our website, it
provides a detailed analysis of the ASAs with an illustrative case study to further explain how the requirements
apply to the audit of an SME. An accompanying toolkit, complete with forms, checklists and programs necessary for
conducting an audit, is also available for purchase to supplement the manual.
In September, the Institute will be holding training sessions nation-wide to support the manual’s implementation.
Training dates are as follows: -
Sydney – Tuesday 2nd September 2008
- Brisbane – Wednesday 3rd September 2008
- Melbourne – Friday 5th September 2008
- Perth – Wednesday 10th September 2008
- Adelaide – Friday 15th September 2008
For more information or to access a copy of the manual, please visit http://www.charteredaccountants.com.au.
3. Corporate Reporting meeting highlights – 30 June 2008
The Institute of Chartered Accountants’ Sydney Corporate Reporting discussion group met on Monday 30 June 2008 to
discuss what preparers of financial reports need to focus on for 2008. Doug Niven, Deputy Chief Accountant at ASIC
was the guest speaker for this forum.
Mr Niven spoke about the ASIC Surveillance Program, the process of interpretation/enforcement and the role of the
Financial Reporting Panel. He encouraged entities with complex issues to seek ASIC guidance in advance of completing
critical business transactions.
Mr Niven referred to the ASIC media release ‘ASIC focus for the upcoming reporting period’
and discussed these areas in more detail for members in light of the current market conditions:
-
fair values and impairment
- off balance sheet structure and exposures
- AASB 7 Financial Instrument Disclosures
- current vs non current liabilities
- revenue recognition
- expense deferral
Chartered Accountants in Business who are interested in attending future meetings can register their interest by
emailing crdg@charteredaccountants.com.au.
Members of the group are encouraged to email suggestions for discussion topics to that address.
4. Assurance framework needed for emissions trading
The Institute has called for the establishment of a global assurance framework for carbon emission disclosures to
support Australian and international efforts to reduce carbon emissions.
The call came in a leadership report issued last week by the Institute in association with Professor Roger Simnett,
Head of Accounting at the Australian School of Business.
The Institute’s Head of Audit, Andrew Stringer, said that if the legislative framework, established by the National
Greenhouse and Energy Reporting Act 2007 (Act), is expected to underpin the introduction of a future Australian
Emissions Trading Scheme (AETS) then it is vital that trust and credibility be built into the system from the very
beginning.
“The absence of a robust and rugged assurance requirement to accompany the obligation to report has the potential to
impair such a trading scheme,” Mr Stringer said.
Professor Simnett said that independent assurance promotes trust and confidence in disclosures that are a forerunner
of, and integral part, of emissions trading schemes. Such schemes have become the preferred response of governments,
regulators and business with regards to managing risk and ensuring long-term sustainability.
A copy of the Institute report is available on the Institute website.
5. AASB releases ED 163 and Action Alert
The Australian Accounting Standards Board (AASB) has released for comment ED 163 Proposed
Amendments to AASB 1049 for Consistency with AASB 101.
This ED proposes amending AASB 1049 Whole of Government and General Government Sector Financial Reporting and
the accompanying Illustrative Examples to reflect the recent revisions made to AASB 101 Presentation of Financial
Statements, which was reissued in September 2007.
Its purpose is to allow comments on the way in which the Board has applied the new requirements of AASB 101 to AASB
1049, including the requirements to include a whole of government and GGS statement of changes in equity. It also
clarifies that the whole of government operating statement disclosures referred to in paragraph 41(b)(iii) of AASB
1049 relate to the sector statements that are disclosed by the whole of government. Other significant proposals
include requiring a separate statement of changes in equity under AASB 1049, consistent with the revised AASB 101.
It is proposed that this standard will apply to annual reporting periods beginning on or after 1 January 2009 with
early adoption permitted for annual reporting periods beginning on or after 1 January 2005. Comments are due to the
AASB by 1 August 2008.
An accompanying 'marked-up' AASB 1049 reflecting the proposed changes is also issued to assist in the
consideration of ED 163.
In addition, the latest AASB action alert is now available on the AASB website. A summary of this meeting was
contained in last week’s ANT. The next meeting of the AASB will be held on 30-31 July 2008.
6. IFRS conference in Europe
Last week the International Accounting Standards Committee (IASC) Foundation held an IFRS Conference in Amsterdam,
led and attended by IASB chairman David Tweedie, several IASB Board members and several IASB staff. There is a
current impetus to complete the 9 projects that are part of the Memorandum of Understanding with the US Financial
Accounting Standards Board by 2011 in order to have a stable platform for new countries (Canada, Japan, Korea,
Israel and India) adopting IFRS and to facilitate any decisions coming out of the US regarding moving to IFRS or
allowing IFRS for domestic registrants. Topics featured in the conference included:
-
IASB progress and plans
- Critical analysis of IFRS and how they are being applied (by analysts)
- Update on the Constitution Review by the Chairman of the Trustees, Gerrit Zalm
- Update of the financial instruments papers – reducing complexity in reporting financial instruments,
derecognition and financial instruments with characteristics of equity
- Several break out sessions featuring in more detail the following current projects – conceptual framework,
post-employment benefits, revenue recognition, consolidation and financial statement presentation
In addition several special interest sessions were held – one of significant interest for Australia, being on
Extractive Industries. Currently around the world accounting is not consistent for extractive industries since IFRS
6 Exploration for and Evaluation of Mineral Resources generally allows entities to continue to apply their local
GAAP accounting policies in accounting for exploration and evaluation activities. Glenn Brady, a senior project
manager at the Australian Accounting Standards Board and part of the IASB Extractive Activities Project Team, led
the discussion on this topic in Amsterdam. The topic is currently a research project which takes a ‘fresh look’ at
how to account for oil and gas and mineral reserves/resources since the current IFRS 6 is only an interim solution
and existing IFRS do not adequately address the unique features of these industries. The research team is
international and is exploring different models that could be applied to the recognition, measurement and disclosure
of oil and gas and mineral reserve and resource assets. It is expected that a discussion paper will be issued by
the end of 2008 on this topic. An updated version of the project summary for the extractives project should be
available on the IASB website next week
7. IASB Work plan Updated
The IASB has released an updated work plan which was approved at its June meeting. The new plan indicates that it
now anticipates releasing the IFRS for private entities in the first half of 2009, and that ED’s on consolidation,
income tax and management commentary can be expected in the last half of 2008. It expects to release an ED
associated with its emissions trading project in the last half of 2009.
A copy of the plan is available on the IASB website.
8. FRC meeting highlights – 11 June 2008
The Financial Reporting Council (FRC) held its third meeting for 2008 in Canberra on 11 June 2008. The meeting
discussed the following principal matters:
- Emissions trading and the need for an Australian standard
- Public sector accounting including implementation issues arising from AASB 1049
- The credit crisis and the need for expert valuers
- The Federal Government’s current Financial Improvements Project
- G100-FRC IFRS Post-implementation review workshop
- AASB, AUASB and FRC Business Plans and Future Directions
- Reports from the standard setters and committees
For further details, go to the FRC
website.
Auditing & Assurance News | |
9. Audit guidance on Remuneration report disclosures
The Australian Auditing and Assurance Standards Board (AUASB) has released revised guidance to assist the auditors
in providing their audit report on the “remuneration report” contained in the financial statements under section
300A of the Corporations Act as required by section 308(3C)
Titled GS008 The Auditors report on a Remuneration Report pursuant to Section 300A of the Corporations Act
2001, it replaces the previous guidance on the disclosure requirements of AASB 124 issued in 2006.
The guidance has been updated to reflect the changes made to Section 300A in June 2007 by the Corporations Law
Amendment (Simpler Regulatory System) Act and the recent changes made by the AASB to the key management personnel
disclosures contained in AASB 124 (refer ant 22 13/6/06) . The combined effect of these changes is to allow all
listed and unlisted public companies that are disclosing entities to only disclose the detailed remuneration of key
management personnel in their directors’ report, and not duplicate the information in their financial report. The
changes are effective for financial reporting periods ending on or after 30 June 2008.
The Guidance explains the nature of the additional obligations that are imposed by the section 308(3C) requirements
to report on a remuneration report contained within the directors’ report. It also provides specimen wording for the
separate remuneration report paragraph which should be included in the auditors report after the audit opinion on
the financial statements. Examples of both a “clean” and a modified opinion are included in the appendices to GS
008.
A copy of GS008 is available on the AUASB website.
Professional & Ethics News | |
10. APES Valuation standard released
The Accounting Professional and Ethical Standards Board (APESB) has issued a new standard, APES 225 ‘Valuation
Services’ that provides guidance on how to conduct and report on valuation services.
The Institute’s Business Valuation Special Interest Group has provided significant input into the development of
this Standard, which is effective from 1 January 2009, with early adoption permitted.
APES 225 specifies accountants’ mandatory requirements in business and public practice in areas including
independence, professional engagement requirements and minimum reporting requirements for a valuation report.
Please see APESB website APESB website for more information.
11. Compilation of reports guidance revised
The APESB has announced the revision of the standard applying to members who collect, classify and summarise
financial information with the recent issue of APES 315 Compilation of Financial Information. This APES
revises and replaces APS 9 of the same name and is applicable to engagements commencing on or after 1 January 2009
with early adoption permitted.
The new standard reinforces the need for accountants undertaking these compilation engagements to clearly document
the scope of their work and ensure that both this scope and the professional obligations associated with the
engagement are clearly communicated to their clients, in line with the standard APES 305 Terms of Engagement.
It also introduces new requirements for communicating significant matters to management and in relation to the
discovery of facts subsequent to the completion of the engagement
A copy of APES 315 is available on the APESB website.
ASSESSING INTERNAL CONTROLS – A CLARIFICATION
The Q and A in last week’s ANT reminded auditors of the requirements contained in ASA 315 Understanding the
Entity and its Environment and Assessing the Risk of Material Misstatement concerning the examination of
internal controls. This standard makes it mandatory to "obtain an understanding of the entity and its environment
including its internal control, sufficient to identify and assess the risks of material misstatement of the
financial report whether due to fraud or error, and sufficient to design and perform further audit procedures"
(paragraph 5). Para 52 also states in black letter, "The auditor shall obtain an understanding of internal control
relevant to the audit". The key words in the foregoing are ‘obtain an understanding’.
While this means that if you have previously done a completely substantive audit, internal controls can no longer be
ignored as part of the audit planning process, it does not mean that your audit procedures must now necessarily
include testing those controls.
An assessment of controls is normally done by discussion with the client to determine what internal controls they
have and do not have. Where, as a result of these discussions, controls on which you wish to rely for audit purposes
are assessed as “not strong”, you would normally assess control risk as High and are then likely to adopt
substantive procedures as your "further audit procedures".
Conversely, if you assess a risk as ‘normal’, because of the existence of a control, ASA 330 The Auditor’s
Procedures in Response to Assessed Risks, Para 30, requires the auditor to test that control.
What is thus expected of auditors with regard to internal control: -
understanding of internal control in sufficient detail in order to be able to make decisions about the audit
approach to be adopted
- if the decision is made to rely on a particular control for purposes of obtaining audit assurance, the auditors
must then follow a proper controls reliance strategy:
-
identify the relevant aspects of the control structure
- plan, perform and conclude regarding the design and operational effectiveness of the controls which are being
relied on
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.
4 July 2008
APESB ED 03/08 Conformity with Auditing and Assurance Standards
15 July 2008
IPSASB ED 34 Social Benefits: Disclosure of Cash Transfers to Individuals or Households and IPSASB Consultation
Paper Social Benefits: Issues in Recognition and Measurement
16 July 2008
APESB ED 02/08 Reporting on Prospective Financial Information Included in a Disclosure Document
1 August 2008
AASB ED 163 Proposed Amendments to AASB 1049 for Consistency with AASB 101
This list does not represent a complete list of the exposure drafts on issue. For all other open exposure drafts,
refer to our dedicated exposure draft website.
CFO of the Future Series
Throughout July, August, September, October, November, December in Sydney and Melbourne.
An invaluable opportunity for current CFOs or aspiring CFOs, to hear the latest, including updates on GST, stamp
duties, CGT, property finance and risk management plus much more.
Australian Audit Manual Training
Throughout September in Sydney, Melbourne, Parramatta, Adelaide, Perth and Brisbane.
A step by step guide on how to use the Institute’s new Audit Manual and walk away with a practical understanding of
your auditor responsibilities.
CFO of the Future Intensive Program
Throughout September in Adelaide, Perth and Brisbane.
This two-day program supports aspiring and existing CFOs in their pursuit of professional excellence focusing on a
combination of concepts and practical applications.
Audit Conference 2008 DVD
Canberra, 3-4 June 2008.
Recorded at the conference in April 2008, view highlight sessions at your convenience, including fraud, audit
sampling, quality control, problem audit opinions and 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
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