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Welcome to the twenty-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. Institute lodges social benefits submission
The Institute together with CPA Australia and the NIA this week lodged a submission on the International Public Sector Accounting Standards Board (IPSASB)’s ED 34 Social Benefits: Disclosure of Cash Transfers to Individuals or Households and Consultation Paper - Social Benefits: Issues in Recognition and Measurement and the Australian Accounting Standards Board (AASB)’s ITC 15. We did not support the issue of this material as an Australian ED at this stage as the project is not sufficiently developed, but expressed support for the IPSASB’s continued endeavours in this area.
The final submission can be viewed on the Institute’s website at next week.
2. Draft Submission on Discussion Paper: Financial Instruments with Characteristics of Equity
The Institute together with CPA Australia is preparing a submission on the International Accounting Standards Board’s (IASB) Discussion Paper (DP) entitled Financial Instruments with Characteristics of Equity for the Australian Accounting Standards Board (AASB) and IASB.
The DP is the first stage of the IASB’s project to improve and simplify the requirements in IAS 32 Financial Instruments: Presentation. The DP describes three possible approaches to distinguishing between liabilities and equity. These approaches would re-define equity in one of three ways - the basic ownership model, an ownership settlement approach and a reassessed expected outcomes (REO) approach. The DP does not articulate a proposed view.
Our initial conclusion is not to support the REO approach and to recommend the IASB explore further as a long term project the basic ownership model and the ownership settlement approach. However in the short term, work is necessary to converge the US and IASB on this area as part of the joint Memorandum of Understanding – therefore we recommend that convergence to a slightly improved version of IAS 32 would be an appropriate step to take with a view to determining fundamental definitional issues in the long term. Member feedback is welcome, so please refer to the draft of our comments on the Institute’s website.
3. RAhelpline is just a new name for techsec
The Institute’s Reporting & Assurance Technical Enquiry Service (Technical Secretary) has been given a new name. This members’ only service is now called the Reporting & Assurance helpline. Consequently, there has also been a change to the email address.
For more information, please visit our Reporting & Assurance helpline web page.
4. Melbourne CRDG begins 25 September 2008
The Melbourne Corporate Reporting Discussion Group will hold its first meeting on Thursday 25 September. The meeting will take place at the Institute’s offices at 600 Bourke St from 12.30-2pm. Many thanks to all the members who have registered their interest so far and have also helped us find a suitable first meeting date. Details of the topic and speakers will be published on the Melbourne CRDG website and in ANT nearer the time.
We would still like to hear from members who are interested in attending the Melbourne Discussion Group. Members can register their interest by emailing crdg@charteredaccountants.com.au. Interested members are also encouraged to email suggestions for discussion topics to that address.
5. New IFRIC 15 – Real Estate
The International Financial Reporting Interpretations Committee has issued
IFRIC 15 Agreements for the Construction of Real Estate. IFRIC15 will standardise accounting practice across jurisdictions for the recognition of revenue by real estate developers for sales of units (e.g. apartments or houses) ‘off-the-plan’.
The Interpretation provides guidance on how to determine whether an agreement for the construction of real estate falls under IAS 11 Construction Contracts or IAS 18 Revenue, and also the point at which revenue from the construction should be recognised.
Agreements that will be affected are those that are currently accounted for under IAS 11 but do not meet the definition of a ‘construction contract’ as interpreted by IFRIC, in that they do not transfer to the buyer control and the significant risks and rewards of ownership of the work-in-progress in its current state as construction progresses.
The Interpretation applies to entities that undertake the construction of real estate directly or through subcontracts. It is effective for annual periods beginning on, or after, 1 January 2009. It is currently only available from the IASB website to eIFRS subscribers, but will be released in Australia by the AASB in due course.
For further details see the press release.
6. New IFRIC 16 – Hedging
IFRIC 16 Hedges of a Net Investment in a Foreign Operation provides guidance on accounting for the hedge of a net investment in a foreign operation in an entity’s consolidated financial statements under IAS 21 and IAS 39.
IFRIC 16 clarifies that:
- The presentation currency cannot create an exposure that can be hedged – only a difference between the parent’s functional currency and that of its subsidiary may be hedged
- The hedging instrument can be held by any entity in the group
- While IAS 39 determines the amount to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 must be applied in respect of the hedged item.
The main practical impact of the Interpretation is to eliminate the possibility of an entity applying hedge accounting for a hedge of the foreign exchange differences between the functional currency of a foreign operation and the presentation currency of the parent’s consolidated financial statements.
The Interpretation is effective for annual periods beginning on, or after, 1 October 2008 and requires prospective application. It is currently only available from the IASB website to eIFRS subscribers, but will be released in Australia by the AASB in due course.
For further details see the press release.
7. IASB meeting agenda – 22-25 July 2008
The IASB’s next meeting is in London on 22-25 July 2008. The agenda includes discussion on the following items:
- Liabilities and equity – education session on the loss absorption approach
- Fair Value Measurement – discussion of standard by standard review of the application of fair value
- Consolidations – discussion of principles and disclosures
- Income Taxes – discussion of issues arising from pre-ballot draft of exposure draft
- International Financial Reporting Standard for Private Entities (formerly IFRS for SMEs) – continue reviewing staff recommendations for changes
- Leases – review lease accounting issues
- Management commentary
- Revenue recognition – discussion on measurement and re-measurement of performance obligations
For a full copy of the agenda, go to the IASB website (pdf).
8. Credit-crunch assistance from IASB
Amongst a number of initiatives of the IASB related to the credit crisis, the website now includes a dedicated section that outlines the IASB’s response to the crisis and also provides links to related meetings, speeches and announcements.
The document is available from the IASB website.
Auditing & Assurance News | |
9. AUASB meeting agenda – 21-22 July 2008
The next meeting of the Auditing and Assurance Standards Board (AUASB) will be held on 21-22 July 2008 in Melbourne. Items to be discussed include:
- ASAE 3500 Performance Engagements
- GS 009 Financial and Compliance Audits of Self Managed Superannuation Funds
- GAAP/GFS AASB 1049 audit issues
- Sustainability issues – greenhouse and energy reporting
The meeting agenda can be downloaded from the AUASB website.
10. IAASB makes progress on clarity standards
The International Auditing and Assurance Standards Board (IAASB) has made further progress in its clarity project and has released the following redrafted ISAs:
11. ASIC guidance on no-action letters
ASIC has released an updated version of Regulatory Guide 108 No-action letters. A ‘no-action letter’ is an expression of ASIC’s regulatory intent and indicates that, at the time the no-action letter is given, ASIC does not anticipate taking other regulatory action in relation to conduct regulated by the Corporations Act. RG108 sets out ASIC’s policy regarding when it will issue a no action letter.
The updated guide clarifies when ASIC will consider issuing a no-action letter and formalises ASIC’s approach to taking class no-action positions. It can be downloaded from the ASIC website.
12. Government Green Paper on Emissions
Officially known as the Carbon Pollution Reduction Scheme, the green paper, which was announced by the federal government on Wednesday, 16 July 2008 outlines the proposed design guidelines and framework for the cap and trade scheme, which is intended to commence in 2010. The scheme is expected to cover approximately 1,000 companies, with emissions exceeding 25,000 tonnes of carbon dioxide equivalents (CO2-e) per annum. The proposed covered industries are stationary energy (ie. electricity generation), transport, fugitive emissions (oil & gas extraction & processing), industrial processes and waste. Forestry would be on an opt-in basis and agriculture is to be included in 2015 at the earliest.
Specifically relevant to members in business, chapter 11 of the paper deals with the tax and accounting issues of the scheme. The federal government states that it has written to the IASB indicating the desirability to have appropriate accounting guidance in place prior to the commencement of the scheme in 2010. Depending on the status of the IASB project nearer the time, the government has indicated that consideration may be given to the AASB issuing interim Australian specific guidance.
The government has called for submissions by Wednesday, 10 September 2008. Members are advised that the government will be holding public information sessions across the country beginning next week. Details of these information sessions and the green paper itself can be downloaded from the Department of Climate Change website.
Dealing with current economic Conditions Pt. 2
Q: Last week’s ANT warned of a potential trap in the application of IFRS in this particular reporting season, due to the current economic climate.
Are there any other areas of IFRS that have taken on added significance for this year’s reporting season which preparers and auditors need to be aware of?
A: Yes. The current economic climate is the first time AIFRS standards have been applied to a period of economic downturn and therefore the use of the impairment and fair value models that underlie many asset valuations may need to be reviewed.
The following major areas have been identified by the Institute and ASIC as areas of concern for the 2008 reporting season. Members are advised to consider the impacts of these carefully, especially given the operation of the force of law standards. These include
- Impairment of asset values
- Determining fair market values
- Significant judgements and sources of estimation uncertainty
- Classification of debt and cash balances
- Breaching of debt covenants
- Foreign currencies
- The use and disclosure of off-balance sheet arrangements
- Going concern
A variety of articles and other guidance is available, which may assist members by providing more detailed guidance in a number of these areas. For more information click here (pdf).
ASIC has also reminded preparers and auditors of financial reports of the potential pitfalls that are likely to arise in their 30 June reports as a result of the current market turbulence and the liquidity squeeze. For more details on ASIC’s areas of concern, refer to ANT24/2008 or visit the ASIC website.
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.
1 August 2008
AASB ED 163 Proposed Amendments to AASB 1049 for Consistency with AASB 101
AASB IASB Discussion Paper on Financial Instruments with Characteristics of Equity
IPSASB Consultation Paper Accounting and Financial Reporting for Service Concession Arrangements
22 August 2008
AASB IASB Discussion Paper on Reducing Complexity in Reporting Financial Instruments
25 August 2008
AASB ED 164 An improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information.
AASB ITC 17 Request for Comment on IASB Discussion Paper Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Reporting Entity
Parliament of Australia Senate Economics Committee: Inquiry into the Disclosure regimes for charities and not-for-profit organisations
29 August 2008
AASB IASB Discussion Paper on Preliminary Views on Amendments to IAS 19 Employee Benefits
APESB ED 04/08 Forensic Accounting Services
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 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.
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.
Audit Conference 2008 DVD
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.
We welcome new subscriptions. To subscribe, unsubscribe or to update your mailing details, please visit the newsletters section of the Institute website. Alternatively, you can email ant@charteredaccountants.com.au.
Accounting & Assurance News Today is an initiative of the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia.
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