Accounting & Assurance News Today (ANT) Issue 36 - 19 September 2008

Welcome to the thirty-sixth 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.

Issue 36 19 September 2008 Financial Reporting News 1. Second ‘Improvements’ ED explained 2. IFRIC meeting highlights – 4-5 September 2008 3. AASB meeting agenda – 24 September 4. IASB releases new documents 5. Expressions of interest for vacancies on the AASB and AUASB 6. IASB editorial amendments Auditing & Assurance News 7. AUASB releases six exposure drafts 8. AUASB issues final standards on review engagements Regulatory News 9. Joint Treasury and ASIC consultation on cross-border recognition of financial regulation 10. SBR Workshops Professional and Ethics News 11. Institute’s revised guide to independence 12. Expressions of interest – APESB taskforce Query of the week ASA 560 and the credit crunch ED comment closing dates Training & Development Your Input

1. Second ‘Improvements’ ED explained

As noted in last week’s ANT, the Australian Accounting Standards Board (AASB) has released the International Accounting Standard Board’s (IASB) second Improvements programme as Exposure Draft (ED) 165 Annual Improvements to Australian Accounting Standards. The purpose of this ED is to make necessary, albeit non-urgent, amendments that would not otherwise be incorporated in another major project.

ED 165 proposes 12 changes to 8 standards. The bulk of the changes are proposed to be effective for financial reporting periods beginning on or after 1 January 2010. However three of these, which affect AASB 2 Share-based Payment and AASB 138 Intangible Assets, are changes consequential to the recent revision of AASB 3 Business Combinations and so are proposed to be applicable for financial years beginning on or after 1 July 2009.

The changes cover the following 12 topics. Those that appear to have the potential to alter current accounting practices in Australia are highlighted in bold.

• Clarification of the scope of AASB 2 Share-based Payment to exclude contribution of a business on formation of a joint venture and common control transactions
• Clarification of the disclosures of non-current assets (or disposal groups) classified as held for sale or discontinued operations (AASB 5)
• Clarification of disclosure of information about segment assets as referred to in the Basis for Conclusions (AASB 8)
• Classification of expenditures on unrecognised assets for cash flow purposes to be cash flows from operating activities (AASB 107)
• Amendment to the appendix of AASB 118 Revenue when determining whether an entity is acting as a principal or as an agent (AASB 118)
• Unit of accounting for goodwill impairment testing to be no larger than an operating segment level (AASB 136)
• Clarification of requirements for accounting for intangible assets acquired in a business combination (AASB 138)
• Clarification of the description of valuation techniques commonly used by entities measuring the fair value of an intangible asset acquired in a business combination (AASB 138)
• Clarification of the scope exemption for business combination contracts only to forward contracts (AASB 139)
• Clarification of the fair value option to only apply to financial instruments within the scope of the standard (AASB 139)
• Clarification of the reclassification of gains and losses from equity to profit or loss in cash flow hedge accounting (AASB 139)
• Clarification of the determination of closely related for foreign currency contracts in the functional currency of either party to the contract (AASB 139)

Submissions on ED 165 close on 20 October 2008, so as to allow the AASB to finalise its submission to the IASB by its comment close date of 7 November 2008.

The Institute encourages members to prepare their own submission to the AASB on this ED. Alternatively, members can provide comments for consideration in the Institute submission on this ED. These should be emailed to techsubmissions@charteredaccountants.com.au by 10 October 2008.

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2. IFRIC meeting highlights – 4-5 September 2008

The most recent meeting of the International Financial Reporting Interpretations Committee (IFRIC) was held in London on 4-5 September 2008. The meeting discussed:

D23 Distributions of Non-cash assets to owners

IFRIC wound up its deliberations of draft Interpretation D23 and approved a number of drafting changes, which mainly concerned:

• Clarifying the scope of the Interpretation with respect to common control transactions
• Specifying the measurement of the dividend payable without attributing the requirement to a particular standard, and thereby also modifying the disclosure requirements
• Providing additional rationale for the conclusion that the settlement gain be included in profit or loss
• Recognition point of dividend payable
• Adding the proposed amendments to IFRS 5

Staff are expecting the final Interpretation to become effective for distributions recognised in reporting periods beginning on or after 3 months after it is issued.

D24 Customer Contributions

At this meeting, the IFRIC discussed the staff’s analysis and rationale for revising the draft Interpretation and two illustrative examples, which focus on:

• Who controls the asset, and
• How should the resulting credit be accounted for?

The IFRIC supported the approach staff had developed, which was based on identifying the different components of a single transaction in accordance with IAS 18. At the November 2008 meeting, the staff will present a revised draft of the Interpretation that takes into account the IFRIC’s tentative views and that incorporates a basis for conclusions and illustrative examples.

Customer-related intangible assets

A staff survey of IFRIC members revealed the diversity that exists in practice regarding which customer relationships have a contractual basis and which are non-contractual. Contractual relationships are always recognised separately from goodwill, whereas non-contractual relationships are only recognised if they are separable.

The IFRIC agreed with staff recommendations that the issue of whether an intangible asset arises as a result of a non-contractual customer relationship as a business combination should be added to the agenda. A more complete project proposal, which will provide guidance on the circumstances in which a non-contractual customer relationship arises in a business combination, will be presented at the November 2008 meeting – after considering the deliberations of appraisal/valuation professional organisations.

IFRIC agenda decisions

The IFRIC decided not to add to its agenda the following items and has published its reasons:

• IAS 17 Leases – Time pattern of the user’s benefit
• IAS 18 Revenue/IAS 39 Financial Instruments: Recognition and Measurement – Accounting for trailing commissions
• IAS 32 Financial Instruments: Presentation – Transaction costs to be deducted from equity

Tentative agenda decisions

The IFRIC has tentatively decided not to add the following items to the agenda and has published its reasons:

• IAS 39 Financial Instruments: Recognition and Measurement – Valuation of restricted securities
• IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – Stable workforce assumption

For more details, the IFRIC Update is available on its website.

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3. AASB meeting agenda – 24 September

The AASB’s agenda for its 24 September 2008 meeting is now available from the AASB website (PDF). Key items for discussion include:

• Considering draft ED for superannuation plans and ADFs
• Considering amendments to align AASB 1049 Whole of Government and General Government Sector Financial Reporting (ED 163) with AASB 101 Presentation of Financial Statements
• Consider 1048 Interpretation and Application of Standards for approval
• Consider issues relating to entities within the General Government Sector (GGS)
• Consider draft submission to IASB on Discussion paper regarding Conceptual Framework/Reporting Entity

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4. IASB releases new documents

In its May 2008 meeting, the IASB announced its plans to form an expert advisory panel in response to a report (PDF) issued by the Financial Stability Forum in April 2008.

The IASB has now released a draft document (PDF) summarising the discussions of this panel and provides useful information and educational guidance for measuring and disclosing fair values.

Feedback from interested parties on the document should be forwarded to Hilary Eastman by 3 October 2008.

Additionally, the IASB has released an update (PDF) on a range of projects that collectively address issues highlighted by the prevailing ‘credit crisis’.

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5. Expressions of interest for vacancies on the AASB and AUASB

The Financial Reporting Council (FRC) is seeking expressions of interest from those wishing to fill part-time vacancies on the Auditing and Assurance Standards Board (AUASB) and the AASB, to commence in 2008-09.

AASB and AUASB board members are responsible for the development, issuing and maintenance of accounting and auditing standards respectively. Such a position provides a unique opportunity for an aptly-qualified individual to contribute to leading-edge developments and to play a positive role in Australia’s financial reporting environment.

Further details are available on the AASB website and a comprehensive selection criterion is set out on the FRC website. Expressions of interest should be submitted no later than 3 October to Darinka Zubovic.

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6. IASB editorial amendments

The IASB has released a document detailing the editorial corrections and changes that have been made to Improvements to IFRSs and Bound Volume 2008.

It can be viewed on the IASB website.

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7. AUASB releases six exposure drafts

The Auditing and Assurance Standards Board (AUASB) has released six exposure drafts of Australian Auditing Standards (ASAs):

• ED 9/08 Proposed ASA 230 Audit Documentation 
• ED 10/08 Proposed ASA 300 Planning an Audit of a Financial Report 
• ED 11/08 Proposed ASA 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Disclosures 
• ED 12/08 Proposed ASA 560 Subsequent Events 
• ED 13/08 Proposed ASA 570 Going Concern 
• ED 14/08 Proposed ASA 600 Special Considerations – Audits of a Group Financial Report (including the Work of Component Auditors)

The exposure drafts are in Clarity format and are open for comment until 15 October 2008. To download the exposure drafts, go to the AUASB website.

In addition, the AUASB has reissued its standard on assurance engagements – ASAE 3100 Compliance Engagements. It is operative for reporting periods or engagements commencing on or after 1 October 2008, and early adoption is permitted.

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8. AUASB issues final standards on review engagements

As foreshadowed in ANT34/2008, the AUASB has completed revisions of standards relating to reviews of historical information with the release of two new standards and amendments to existing standard – ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity. The two new standards are:

• ASRE 2400 Review of a Financial Report Performed by an Assurance Practitioner Who is Not the Auditor of the Entity
• ASRE 2405 Review of Historical Financial Information Other than a Financial Report

The AUASB has also published an explanatory guide to help users understand the development and application of the review engagements standards – Explanatory guide to AUASB standards applicable to review engagements.

The new standards and amendments to ASRE 2410 will be operative for review engagements commencing on or after 1 October 2008.

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9. Joint Treasury and ASIC consultation on cross-border recognition of financial regulation

The Treasury and the Australian Securities and Investments Commission (ASIC) have released a joint consultation paper titled Cross Border Recognition: Facilitating Access to Overseas Markets and Financial Services. This paper will provide the framework for Australian investors to more effectively access other well-regulated capital markets, advisers and products.

Comments are welcome on proposals for cross-border recognition of financial markets, financial services and disclosures about investments.

More information is available on the Accounting Education website, here and here.

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10. SBR Workshops

Standard Business Reporting (SBR), a multi-agency initiative aimed at simplifying business-to-government reporting, is hosting a series of workshops for software developers, accountants, bookkeepers, tax professionals and other business intermediaries. The workshops seek to provide an opportunity for constituents to discuss SBR deliverables and provide input into future strategies. These 2-hour workshops are held in the last week of each month in Sydney, Melbourne and Brisbane. Interested individuals should register their interest at the SBR website.

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11. Institute’s revised guide to independence

Members can now download a free guide to the practical application of independence principles from the Institute’s website.    

The guide is an extensively revised and updated edition of the Independence guide: Interpretations in a co-regulatory environment. It was developed by the Institute, with input from the other accounting bodies, following detailed discussions with members, government and regulators.   

Members will find the guide invaluable in the practical application of independence principles, as outlined under CLERP 9 in the Corporations Act 2001 and in APES 110 Code of Ethics for Professional Accountants Section 290.    

A note about the Code of Ethics 

The guide is not intended to replace the Code of Ethics in general or Section 290 in particular. It is recommended that members become familiar with the contents of the Code of Ethics prior to reviewing their arrangements to ensure independence is maintained when providing assurance services.   

Individual circumstances should be tested against both Section 290 and the Corporations Act 2001.

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12. Expressions of interest – APESB taskforce

Invitations are now open for membership of the Accounting Professional and Ethical Standards Board (APESB) Due Diligence Committees Taskforce. The taskforce will focus on the development of a separate pronouncement – APES 240 Due Diligence Committees – so as to address the professional and ethical obligations of a member when they are involved in due diligence.

Further information on this role as a taskforce member can be found on the APESB website. The closing date for submissions is 26 September 2008.

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ASA 560 and the credit crunch

Q: I am an auditor of an entity which has investments in products sold to it by a large international investment bank, for which the same large international investment bank is the default company. That company has now collapsed (after 30 June 2008), and I am concerned as to the impact these events may have on the audit?

A: Similar to our recent Q&A from ANT32/2008 (22 August 2008), the collapse of the investment bank would be a non-adjusting after balance sheet date event (for a 30 June 2008 reporting date) for your client under AASB 110 Events After the Balance Sheet Date. Consequently no adjustment would be made to the fair value of the investments at 30 June 2008 to reflect this event, although if considered material, your client will need to disclose the event and its potential impact.

In addition, you as auditor must also refer to the requirements of ASA 560 Subsequent Events to ensure that you have performed appropriate procedures depending on how far the audit has progressed when this event occurs, as follows:

• If the event has occurred up to the date of the auditor’s report (ie before the audit report has been signed and issued), you must ensure that you have considered whether this event is material enough to require disclosure in the financial report. You would then request your client to provide adequate disclosure.  If the client refuses or makes disclosure that in your view is inadequate or misleading, you would need to consider the impact on your audit opinion

• If the impact of this event is such that it casts doubt on the entity’s ability to continue as a going concern, you would need to give careful consideration to your client’s obligation to disclose all the relevant details in a note to the financial statements, and consider whether your audit report should contain an ‘emphasis of matter’ to refer readers to this note.  Once again, you would need to consider the impact on your audit opinion of disclosure that is either inadequate or misleading

• If this event has occurred after the date of the auditor’s report but before the date on which the financial report is issued, you must also consider whether the event is material enough to require disclosure in the financial report, and if there is any impact on the entity’s ability to continue as a going concern. If it is considered that the event is material and requires disclosure in the financial report, you would issue a new audit report for the amended financial report. If the financial report is not amended by the entity, but you believe that it should be, a modified opinion should be expressed in accordance with ASA 701 Modifications to the Auditor’s Report.

• If this event has occurred after the financial report has been issued, the auditing standards do not require the auditor to take any further action.

Other important considerations of which you need to be aware, regardless of when during the audit process this event has occurred include:

• The auditor’s obligations under s311 of the Corporations Act to report any significant contraventions of the Corporations Act to ASIC.  You would need to be particularly mindful of the possibility of the entity trading while insolvent
• If the entity is listed, its continuous disclosure obligations under ASX Listing Rule 3.1
• Whether such an event has any impact on debt or other covenants, and if so, the consequences of a breach of these covenants
• If the entity is not incorporated under the provisions of the Corporations Act, whether any other relevant legislation creates a reporting obligation, being mindful of the possibility of the entity trading while insolvent

For further information about the current economic climate, please go to the Institute website.

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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. 

Note – this email address should not be used for technical queries. For this purpose, use rahelpline@charteredaccountants.com.au.

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

15 October 2008

AUASB ED 9/08 Proposed ASA 230 Planning an Audit of a Financial Report

AUASB ED 10/08 Proposed ASA 300 Planning an Audit of a Financial Report 

AUASB ED 11/08 Proposed ASA 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Disclosures 

AUASB ED 12/08 Proposed ASA 560 Subsequent Events 

AUASB ED 13/08 Proposed ASA 570 Going Concern 

AUASB ED 14/08 Proposed ASA 600 Special Considerations – Audits of a Group Financial Report (including the Work of Component Auditors)

31 October 2008

AASB ED 166 Simplifying Earnings per Share: Proposed Amendments to AASB 133

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.

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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.

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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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