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Welcome to the thirty-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.
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| Issue 35 | 12 September 2008
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1. Institute releases 2008 Quality Review Annual Report
The Institute’s 2008 Annual Report on the Quality Review Program was published yesterday. The report contains top-line results
and trends from the 480 quality reviews completed during the financial year ended 30 June 2008. The practices under review ranged
in size from national partnerships with multiple offices, to individual offices with a sole practitioner.
Members are advised to take particular note of the more common non-compliance issues identified in reviews. The Institute will be
closely monitoring these issues during future quality reviews. For more information, visit the institute’s website.
2. Sydney Corporate Reporting meeting highlights – 8 September 2008
The Institute’s Sydney Corporate Reporting Discussion Group met on Monday 8 September 2008 to discuss the implications of
emissions trading for accountants and auditors. Heather Watson, Director, Audit Office of NSW was the guest speaker for this
forum.
Heather walked us through not only the implications of emissions trading, but also gave us an understanding of the problem that
such schemes are trying to address. Whilst Australia is only a small producer of carbon emissions in total, our per capita
emissions are amongst the highest in the world. The trading scheme proposed by Professor Ross Garnaut is aimed at mitigating the
impacts of climate change and recommending medium to long term policies and policy frameworks to ensure sustainable prosperity
for the Australia economy.
The Australian Government plans to reduce emissions by 60% by 2050. The emission trading scheme that has been proposed is a
non-voluntary scheme. It will cover the six areas of greenhouse gases, stationary energy, industrial processes, fugitive
emissions, transport and waste. Agriculture and Forestry will be included as soon as practicable. The current proposal is that
for 2010-12, permits will be sold for $20/tonne increasing by 4% per year and indexed for inflation, transitioning to a floating
price regime after that. Garnaut has indicated that the expected level in 2013 is $23/tonne. The credits will be traded
internationally. Large emitters and users will need to report from 30 June 2009, and the scale for what constitutes ‘large’ will
decrease each year until 2013. At present, there is no specific guidance in the accounting standards as to how to account for an
emission trading scheme.
If you would like to view the slides of the presentation please refer to the Institute website.
Information about auditing of emissions is available on the Institute
website.
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.
3. Melbourne Corporate Reporting Discussion Group – 25 September 2008
Members are also reminded that the Institute is hosting the Melbourne Corporate Reporting Discussion Group meeting on Thursday,
25 September 2008 at its Melbourne office at Level 3, Bourke Place, 600 Bourke Street, Melbourne.
The meeting will be chaired by Lincoln Tong, Group Financial Controller of Austock Group Limited. The guest speakers will be
David Barton, Senior Manager of Sustainability & Climate Change at PwC and Neil Perry, Chairman of Renewtek on the topic of
carbon emissions measurement and reporting implications for businesses.
Further details of the meeting are available from the Institute website.
The lunchtime meeting will begin at 12.30pm in Training Room 1 and conclude at 2:00pm. If you wish to attend this forum, members
can register online by Friday, 19 September
2008. If you have any questions regarding the forum, please email crdg@charteredaccountants.com.au.
4. AASB releases new documents
Following approval at the last Australian Accounting Standards Board (AASB) meeting (see ANT33/2008, item 4, the following new standards and interpretations are now available on the AASB website:
5. AASB Action Alert – August 2008
The AASB has released its latest Action Alert, detailing the outcomes of its latest meeting on 27 August 2008.
For a summary of the meeting highlights, refer to ANT 33, item 4.
The next meeting of the AASB will be held on 24 September 2008.
6. IASB meeting agenda – 16-19 September 2008
The International Accounting Standard Board’s (IASB) next meeting is in London on 16-19 September 2008. The agenda includes
discussion on the following items: -
Proposed improvement to disclosure requirements in light of the credit crisis
- ED of proposed amendments to IFRS 2 and IFRIC 11 on Group Cash Settled Share-based Payment Transactions
- Revenue recognition – issues associated with subsequent measurement of performance obligations
- IFRS for Private Entities (formerly IFRS for SMEs) – consider staff recommendations on review of comments to ED and field
testing
- Financial instruments with characteristics of equity – European co-operatives education session
- IFRS 2 Share-based payments – discussion of issues that have arisen since standard was operative
- Fair value measurement project – discussion of highest and best use concept
- IAS 24 Related Party Disclosures – State-controlled Entities and the Definition of a Related Party – discussion of
alternatives and issues with this proposal
- Insurance Contracts – discussion of an alternative measurement model
- Extractive activities research project - discussion of format of the discussion paper and disclosure objectives
For a full copy of the agenda, see the IASB website.
7. IASB World Standard Setters Meeting – 11-12 September 2008
The IASB held a two-day conference in London for world standard-setters on 11-12 September 2008. Issues discussed
included:
- Consolidation
- IFRS implementation – results of the country IFRSs implementation questionnaires and discussion of aspects of the plans of
respective countries
- IASB planning and priorities
- Implementation of the proposed IFRS for private entities
- IFRSs technical update and Q&A
For further information, a full programme of events and access to agenda papers, see the IASB website.
Additionally, the IASB met with the Accounting Standards Board of Japan on Monday 8 September 2008 in London to discuss
convergence of accounting standards. For further details of the meeting, see the IASB website.
8. IASB/FASB MoU updated
The IASB and the US Financial Accounting Standards Board (FASB) have published an update of their 2006 Memorandum of
Understanding (MoU). The update outlines a plan and projected time line for completing the remaining joint major projects
included in the MoU.
The updated MOU identifies 9 major joint projects for improvement in IFRSs and US GAAP with milestones on most to be achieved by
2011. The goal of joint projects is to produce common, principles-based standards, subject to the required due process. These
projects are: -
Financial Instruments
- Financial Statement Presentation
- Leases
- Liabilities and Equity distinctions
- Revenue recognition
- Consolidations
- Derecognition
- Fair value measurement
- Post employment benefits
A number of jurisdictions including Canada, India, Japan and Korea have announced plans to adopt or converge with IFRSs from
2011. Completing the MoU beforehand will avoid the need for those jurisdictions to make major changes shortly afterwards as MoU
projects are completed.
For further details, go to the IASB website.
9. IPSASB proposes modifications to borrowing cost accounting
The International Public Sector Accounting Standards Board (IPSASB) is seeking comments on the changes that they have proposed to
IPSAS 5 Borrowing Costs, as outline in ED 35 Borrowing Costs (Revised 200X).
Primarily, the proposed amendments reflect that often the capitalisation of borrowing costs as part of the asset’s cost is
inappropriate for public sector entities. The ED proposes that entities recognise borrowing-related expenses (interest, loan
origination fees etc.) in the period in which they are incurred. However, there is also a recommendation that entities that
borrow funds for the express purpose of acquiring, constructing or producing a qualifying an asset have the option of
capitalising those costs as part of the cost of the asset.
Comments are requested by 7 January 2009 and are to be submitted electronically to EDcomments@iface.org.
ED 35 can be viewed online.
10. Discussion paper – how to report underlying earnings
The Financial Services Institute of Australasia (Finsia) and the Australian Institute of Company Directors (AICD) has released a
discussion paper titled ‘Underlying Profit’, which encourages listed companies to adopt a more consistent and transparent
approach when reporting profits to the investment community in a non-statutory manner.
The report comes in response to research indicating that the use of non-statutory measures of income (e.g. ‘underlying profit’)
is becoming more widespread. The paper offers guidance to companies so as to alleviate some of the burden associated with
non-standard company reporting of ‘underlying’ or ‘normalised’ profits.
Any party with an interest in profit reporting is strongly encouraged to participate in the discussion. Comments and feedback on
the draft principles, possible adjustments and an illustrative example are to be submitted by Friday, 31 October 2008. All
correspondence should be addressed to Helen Eyles (Policy Advisor) at policy@companydirectors.com.au.
The paper can be viewed on the AICD website.
Auditing & Assurance News | |
11. AUASB meeting highlights – 9 September 2008
The Auditing and Assurance Standards Board (AUASB) met in Melbourne on Tuesday 9 September. Matters covered included:
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Information session about the Standard Business Reporting program and XBRL by Paul Madden from Federal Treasury. Audit
implications are expected to be discussed further at the next AUASB meeting.
- International Auditing and Assurance Standards Board (IAASB) matters, including:
- The final Clarity standards dealing with auditor’s reports (ISAs 700, 800, 805 and 810). The implications of these standards
in the Australian context will need to be considered further, in particular in relation to special purpose financial reports.
- The process for adopting the redrafted ISQC1 Quality Control for Firms that Perform Audits and Reviews of Financial
Statements, and Other Assurance and Related Services Engagements in Australia, as well as ISA 220 Quality Control for an
Audit of Financial Statements, which has been referred to a working group nominated by the Financial Reporting Council.
- Redrafting and reissuing of Australian Auditing Standards in connection with the Clarity Project. The Board considered and
approved for release as exposure drafts in ‘clarity’ format (subject to some minor amendments) the following –
- ASA 230 (revised and redrafted) Audit Documentation
- ASA 300 (revised and redrafted) Planning an Audit of a Financial Report
- ASA 540 (revised and redrafted) Audit of Accounting Estimates
- ASA 560 (revised and redrafted) Subsequent Events
- ASA 570 (revised and redrafted) Going Concern
- ASA 600 (revised and redrafted) Group Audits
ASA 100, Preamble to AUASB Standards is also being revised, and will appear on the AUASB website in draft as a
work-in-progress document. Further, once the revised and redrafted standards are issued, the table of changes in the new
standards compared to the old standards will be available on the AUASB website.
- Amendments to ASAE 3100 Compliance Engagements relating to compliance with ethical principles (to align with ASAE
3500 Performance Engagements) and clarification that the standard does not apply to audits or reviews of historical
financial reports were approved by the Board.
- A project on the development of a Guidance Statement to replace AGS 1008 Audit Implications of Prudential Reporting
Requirements for Authorised Deposit-taking Institutions was approved.
- A revised draft of proposed Guidance Statement GS 009 Financial and Compliance Audits of Self Managed Superannuation Funds
was approved by the Board, subject to some minor amendments and is expected to be issued by late September 2008.
- Discussions with the Department of Climate Change are continuing in relation to the assurance needs regarding emissions
reporting under the National Greenhouse and Energy Reporting (NGER) System.
- ASIC are consulting with AUASB regarding its revision of Regulatory Guide 69 – Debentures – improving disclosure for
retail investors, which is expected to be reissued by December 2008.
- At the next AUASB meeting, a paper relating to a revision of the current AUS 904 Engagements to Perform Agreed-upon
Procedures is expected to be presented to the Board.
12. Institute lodges submission on the Carbon Pollution Reduction Scheme Green Paper
The Institute has made a submission on the proposed structure of the Carbon Pollution Reduction Scheme in the Green Paper issued
by the Department of Climate Change in July. Comments are made in the key areas of taxation, accounting & reporting and
assurance.
From an accounting & reporting perspective, we concur with the Government’s preference for development of an international
accounting standard rather than an Australian specific approach. This would ensure continued compliance of Australian companies
with International Reporting Standards (IFRSs).
From an assurance perspective, we believe that the current proposal for assurance on data lodged at a threshold that is
substantially higher than the proposed reporting threshold has potential to lead to confusion and misunderstanding. We recommend
that the reporting and assurance thresholds be aligned.
To view the submission, visit the Institute
website.
Cash flow classification of deferred asset purchases
Q: Should the cash flows incurred in connection with the purchase of an asset on deferred terms (i.e. either under a finance
lease or with a short-term difference between the timing of the acquisition and the payment) be classified under investing
activities (as capital expenditure), or within financing activities (as the repayment of borrowings)?
A: When an entity acquires an asset under a finance lease, paragraph 44 of AASB 107 Cash Flow Statements clearly
indicates that the acquisition of the asset is a non-cash transaction. Paragraph 17 of AASB 107 then confirms that the payments
to reduce the outstanding liability relating to a finance lease are financing cash flows.
However, the conclusion with respect to asset purchases deferred under other circumstances is less clear. It requires a decision
as to whether the transaction has used either cash or cash equivalents (an investing transaction), or if it has instead resulted
in the acquisition of a directly-related liability (where the flows would be financed in the same way as those of a finance
lease).
This will involve reviewing the terms and conditions of the deferral to decide, using the finance lease analogy as to whether
“financing” has been provided by the seller. Relevant factors will include whether the length of the period between the
acquisition of the asset and the subsequent payment is significant, and whether the payment gives rise to imputed interest under
paragraph 11 of AASB 118 Revenue on the basis that the fair value of the consideration differs from the nominal amount of cash to
be received at the future date.
In these circumstances, the transaction may not constitute a “cash equivalent” under AASB 107, which defines this term as a
short-term investment readily convertible to known amounts of cash and subject to insignificant changes in value. This would
render it a non-cash transaction in the same way as the finance lease, and thus would require the flows relating to the repayment
of the liability to be treated as financing cash flows.
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 September 2008
IASB Discussion Paper on Reducing Complexity in Reporting Financial Instruments
26 September 2008
IASB Preliminary Views on Amendments to IAS 19 Employee Benefits
29 September 2008
IASB FASB Exposure Draft An improved Conceptual Framework for Financial Reporting: Chapter 1: The Objective of Financial
Reporting and Chapter 2: Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information)
IASB FASB Consultation Paper Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Reporting
Entity
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.
Chartered Accountants Technical
Conference
Throughout October in Sydney and Melbourne. Addresses the latest legislation changes and technical details in separate streams
for business and practice. The need–to–know updates that will make a difference to your growth.
Chartered Accountants Audit Essentials
Workshop
Throughout November in Sydney, Parramatta, Melbourne, Adelaide, Perth and Brisbane. Find out which hot spots ASIC will be
targeting, ensure you can address them, and get the latest updates on auditing standards and regulatory requirements.
Chartered Accountants Accounting Update and
Accounting and Audit of Registered Clubs
Throughout November and December in Sydney, Melbourne, Adelaide, Perth and Brisbane. These seminars will bring you up-to-date for
end of year reporting and the intricacies of accounting and auditing for registered clubs.
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. Please note that this email address should not be used for technical
queries.
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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