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Welcome to the forty-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. Final submissions on AASB ED 167 Discontinued Operations and IPSASB ED 35 Borrowing Costs
The Institute, together with the other accounting bodies, has lodged a joint submission to the AASB on ED 167 Discontinued operations: proposed amendments to AASB 5, in which we support the proposed amendments. The proposals were summarised in ANT 37 Item 8 and the submissions can be viewed on the Institute website – AASB submission (PDF) and IASB submission (PDF).
The Institute, together with the other accounting bodies, has also lodged a joint submission on ED 35 IPSAS 5 Borrowing Costs (revised 200X). The bodies agree with the proposal to retain the option of either capitalising or immediately expensing borrowing costs, when those costs are specifically incurred in relation to financing the acquisition, construction or production of a qualifying asset. Further, the bodies support the proposal to require the immediate expensing of borrowing costs, when the borrowing costs are not specifically incurred in relation to financing the acquisition, construction or production of a qualifying asset.
The submission can be downloaded on the Institute website (PDF).
2. What’s new in December Charter
December’s Charter contains the following articles of likely interest for ANT readers: - Our regular roundup of financial reporting and audit and assurance news - The Panel
- ASIC’s views on the needs for good disclosure in these times of market turbulence by Lee White
- The case for the early adoption of the new Business Combination standard AASB 3 and an explanation of accounting for common control transactions by Paul Shepherd and Julian Griffiths of PWC
A discussion of the issues facing accounting for carbon emissions and water by professors Kerryn Chalmers and Jayne Godfrey of Monash Uni and Dr Brad Potter of the University of Melbourne.
3. AASB releases new omnibus 2008-11
As foreshadowed in ANT 45, the Australian Accounting Standards Board (AASB) has issued AASB 2008-11 Amendments to Australian Accounting Standard – Business Combinations Among Not-for-Profit Entities [AASB 3], which has the effect of requiring assets acquired in a merger of not-for-profit entities to be re-measured, normally at fair value, as at the date of the merger. AASB 2008-11 applies to reporting periods beginning on or after 1 July 2009, with early adoption permitted for reporting periods beginning on or after 30 June 2007.
The AASB decision is consistent with its transaction-neutral approach to setting accounting standards, whereby, in the absence of a compelling reason to do otherwise, transactions such as business combinations are accounted for consistently, irrespective of whether the transactions occur in the for-profit or not-for-profit sectors. In addition, AASB 2008-11 has the affect of requiring any gain that results from a merger to be recognised in profit or loss.
AASB 2008-11 specifies different requirements for local governments for which the AASB decided to maintain the status quo for now, giving local governments the choice as to whether to re-measure assets acquired in an amalgamation of local governments.
The Board will revisit local government requirements in due course when it considers the more fundamental issue of control in the public sector, which will include consideration of whether state governments control local governments and what the accounting implications might be.
To download the omnibus, go to the AASB website.
4. AASB meeting agenda – 17-18 December 2008
The next AASB meeting will be held on 17-18 December 2008 in Melbourne. The agenda includes the following items. - Superannuation plans and ADFs
- GAAP/GFS harmonisation for entities within the GGS
- Income from non-exchange transactions
- Draft interpretations re Australian superannuation contributions tax and IFRIC interpretation 17
- Modifying IFRSs for NFPS
- Reclassification of financial assets re: insurance
- Revenue recognition
- Borrowing costs
- Differential reporting
- Submissions on IASB exposure drafts on earnings per share, first-time adoption of IFRSs, financial instruments and discontinued operations
To download the complete agenda, visit the AASB website.
5. IASB meeting update – 17-21 November 2008
The most recent meeting of the International Accounting Standards Board (IASB) was held on 17-21 November 2008 in London. A brief summary follows.
Global financial crisis – the Board continued its discussion of various aspects of its response to the global financial crisis, including proposed exposure drafts on consolidation, expected to be published at the end of the year, and derecognition of financial instruments, expected to be issued in the first half of 2009. A tentative decision was also made to add to the IASB’s active agenda a project on the recognition and measurement of financial instruments.
Conceptual framework – the Board discussed the beginnings of an approach to the measurement of assets and liabilities for inclusion in the conceptual framework. The approach would address the theoretical merits and practical limitations of different types of measurements and describe the circumstances and factors that should be considered when making decisions about measurement methods.
Fair value measurement – the Board discussed whether it is appropriate to recognise a gain or loss when IFRSs require or permit fair value at initial recognition. No decisions were made.
Financial instruments with characteristics of equity – After considering an analysis of the comment letters received in response to the discussion paper Financial Instruments with Characteristics of Equity, the Board tentatively decided that all perpetual instruments (including perpetual basic ownership instruments) should be classified as equity and that derivatives on an issuer’s own equity instruments should be classified as non-equity.
IFRIC issues – the Board agreed with IFRIC’s conclusions that IFRIC 15 Agreements for the Construction of Real Estate should be applied retrospectively and that a six-month lead time would be sufficient for preparers to make necessary changes to their financial reporting systems and decided not to amend the effective date and transitional provisions of the Interpretation.
The Board approved IFRIC 17 Distributions of Non-cash Assets to Owners, which has now been issued on the IASB website. IFRIC 17 will standardize practice in the accounting treatment of distribution of non cash assets to owners and applies to annual periods beginning on or after 1 July 2009, with early applicable permitted.
IFRS for private entities (formerly small and medium-sized entities, or SMEs) – the Board made tentative decisions to adopt simplified approaches in the areas of income taxes, share-based payments and post-employment benefit plans. IFRIC 4 Determining whether an Arrangement Contains a Lease, IFRIC 8 Scope of IFRS 2, IFRIC 12 Service Concession Arrangements and IFRIC 15 Agreements for the Construction of Real Estate, suitably adapted, will be included in the IFRS for Private Entities.
Leases – the Board continued its discussions on approaches to be taken in its discussion paper on leases and made some tentative decisions: - Leases with an option to extend, purchase or terminate should be accounted for on the basis of the most likely outcome.
- The lessee should amortise its right-of-use asset over the shorter of the lease term and the economic life of the asset and recognise interest expense on the outstanding obligation to pay rentals. Associated estimates will be reassessed at each reporting date.
- The right-of-use assets should be shown separately from owned assets and the obligation to pay rentals as a financial liability.
Related party disclosures – the Board agreed to re-expose an exposure draft (ED) of proposed amendments to IAS 24 Related Party Disclosures is expected to be published in December. It proposes a revised exemption for entities controlled, jointly controlled or significantly influenced by the state (‘state-controlled entities’) and a requirement to disclose, when the exemption applies, the types of significant transactions with the state or state-controlled entities and an indication of their extent. The ED is expected to be published in December, with a comment period of 90 days.
For further details on the meeting, go to the November update available on the IASB website.
6. New IFRIC 17 Distributions of Non-cash Assets
The International Financial Reporting Interpretations Committee (IFRIC) has issued IFRIC 17 Distributions of Non-cash Assets to Owners. IFRIC 17 applies to pro rata distributions of non-cash assets except for common control transactions. The Interpretation clarifies that: - a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity.
- an entity should measure the dividend payable at the fair value of the net assets to be distributed.
- an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.
The Interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation.
Recognising the difficulty that entities would face in recognising past distributions at their fair values the IFRIC requires prospective application. The Interpretation is effective for annual periods beginning on or after 1 July 2009. Earlier application is permitted. The Interpretation is currently available through the IASB’s eIFRS subscription service, but will be issued in Australia by the AASB in due course.
7. IASB issues revised IFRS 1
The IASB has issued a revised version of IFRS 1 First-time Adoption of International Financial Reporting Standards, which contains an improved structure but does not contain any technical changes. The revised version is effective for entities applying IFRS for the first time for annual periods beginning on or after 1 January 2009, with early application permitted. The media release and the revised IFRS 1 can be downloaded on the IASB website.
8. Senate Committee releases final report on not-for-profit disclosure regimes
The Senate Standing Committee on Economics has released their final report on 4 December 2008 on Disclosure Regimes for Charities and Not-for-profit Organisations.
The recommendations include: - Agreement from all Australian Governments on common terminology when referring to organisations within the sector
- Unit to be established within the department of Prime Minister and Cabinet for dealing with issues in this sector
- Recommendation for a single independent national regulator for not-for-profit organisations
- This regulator to have a similar function to regulators overseas, particularly in the United Kingdom, including maintenance of a register, dealing with complaints, education function, development of best practice
- Commonwealth government to develop the legislation in order to establish the national regulator
- The National regulator to provide information to the ABS on size and composition of the sector
- A single mandatory specialist legal structure to be established for organisations through referral of state and territory powers
- The Henry review to include an examination of taxation measures effecting not for profit organisations with a view to simplifying these arrangements
- A national fundraising Act to be developed through referral of state and territory powers
- A tiered reporting system to be established
- Tiers to be established based on total annual revenue
- Commonwealth to work with the sector to develop a standard chart of accounts
- A new disclosure regime containing narrative and numeric reporting, as well as financial reporting to be developed acknowledging the different information needs to that of the business sector
- The national regulator to investigate the cost vs benefit of technology involving a website that publishes information on the aims and activities of not-for-profit organisations
- A taskforce to be established for the purposes of implementing the proposals in this report. This task force to report to COAG.
9. Canada and Mexico adopting IFRS
Sir David Tweedie, chairman of the International Accounting Standards Board (IASB), welcomed last week’s actions by authorities in Mexico, Canada and the United States regarding their adoption of International Financial Reporting Standards (IFRSs).
On 11 November, the Mexican Comisión Nacional Bancaria y de Valores (CNBV), together with the Mexican Accounting Standards Board (CINIF), announced that Mexico would adopt IFRSs for all listed entities from 2012, while the Canadian Accounting Standards Oversight Council (AcSOC) reconfirmed its support for plans to require Canada’s publicly accountable enterprises to follow IFRSs as issued by the IASB by 2011.
In the United States, the Securities and Exchange Commission (SEC) has published for public comment a proposal ‘Roadmap for the Potential Use of Financial Statements Prepared in accordance with International Financial Reporting Standards by U.S. Issuers’ which, if achieved, could lead to the adoption of IFRS in the US in 2014. For details of the roadmap, go to ANT 45/2008.
View the media release on the IASB website.
Auditing & Assurance News | |
10. AUASB meeting highlights – 1 December 2009
The Auditing and Assurance Standards Board (AUASB) met in Melbourne on Monday 1 December.
- Revising and Redrafting of Standards in connection with the Clarity Project
The Board considered feedback received in connection with exposure drafts of the second tranche of six standards for which the comment period has now passed. They are to be held pending completion of the Clarity Project and any consequential amendments that may arise out of changes to other standards. All revised and redrafted standards are expected to be issued at the same time, in accordance with the Board’s published timetable for this project, in time for implementation for the audits of financial periods beginning on or after 1 January 2010. These six standards are:
- ASA 230 Audit Documentation
- ASA 300 Planning an Audit of a Financial Report
- ASA 540 Audit of Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
- ASA 560 Subsequent Events
- ASA 570 Going Concern
- ASA 600 Audits of a Group Financial Report (Including the Work of Component Auditors)
These standards have been cleared for final approval, subject to some minor further amendments, with the exception of ASA 570. A further draft of this standard will be considered at the February AUASB meeting.
The Board considered and approved for release as exposure drafts in ‘clarity’ format (subject to some minor amendments) the following –
- ASA 530 Audit Sampling
- ASA 610 Using the Work of Internal Auditors
A preamble to the revised and redrafted Standards appears on the AUASB website as a work-in-progress document. The document will be revised progressively and will eventually be transformed into an Exposure Draft
- The AUASB Technical Group is providing input to the Department of Climate Change (DCC) in connection with the assurance and related requirements under the National Greenhouse and Energy Reporting (NGER) System and the proposed Carbon Pollution Reduction Scheme (CPRS). Matters the DCC is considering include accreditation and registration of assurance providers, and core assurance components.
11. AUASB Consultative meeting highlights – 2 December 2009
On Tuesday 2 December the Auditing and Assurance Standards Board (AUASB) held a consultative meeting in Melbourne with more than 30 stakeholders, including the Institute, audit practitioners, regulators, other standard setters, academics and other professional accounting bodies. The Board presented a summary of its current and future work program, which includes:
- The ongoing “Clarity” revisions of the suite of auditing standards, due for completion in 2009 and applicable for audits of financial reporting periods commencing on or after 1 January 2010
- SME auditing and assurance issues
- Assurance standards and guidance on subject areas other than historical financial reports and information
- Assurance on sustainability matters including the National Greenhouse and Energy Reporting System (including Emissions Trading)
- Assurance on prospective financial information
- Other significant industry specific auditing and assurance matters (such as Self Managed Superannuation Funds and XBRL (eXtensible Business Reporting Language) issues)
The Board solicited feedback on six major topics, and invited participants to raise other matters as well. The topics were:
- Auditing in periods of financial instability
- Clarity project – timing, implementation issues, costs and benefits
- Assurance on sustainability reporting
- Applying auditing standards in the SMP / SME environment
- Assurance reporting (other than historical financial information)
- Interface between auditing standards and other regulatory and professional requirements
Participants encouraged the Board to address the first four topics above by way of further guidance. There is a particular need for guidance regarding the application of the auditing standards to what may be termed ‘micro audits’.
12. Results of ASICs reviews of 30/6/08 accounts
The Australian Securities and Investments Commission (ASIC) has issued guidance to entities preparing their 31 December 2008 financial and audit reports.
The guidance incorporates specific issues identified through ASIC’s review of 30 June 2008 financial reports. ASIC is moving to publish the results of its regular reviews half-yearly so that entities are better informed about ASIC’s key areas of focus and the specific issues that should be addressed to comply with the relevant accounting standards.
ASIC recommends that entities focus on
- Going concern
- Impairment of assets
- Determining fair values
- Off balance sheet arrangements, and
- New financial instrument disclosures
To read the full text of the media release, go to the ASIC website.
Professional and Ethics News | |
13. APESB meeting highlights – 10-11 November 2008
Highlights of the most recent meeting of the Accounting Professional and Ethical Standards Board (APESB) held on 10-11 November 2008:
- The Board considered responses to ED 04/08 Forensic Accounting Services and agreed to consider minor re-drafting of this standard before its release. Subsequent to the meeting, the APESB issued APES 215 Forensic Accounting Services on 1 December 2008.
- The Board approved for issue APES 345 Reporting on Prospective Financial Information prepared in connection with a Disclosure Document
- The Board approved the withdrawal of APS 9 Statement on Compilation of Financial Reports effective 31 December 2008. APES 315 Compilation of Financial Information replaces APS 9. The new standard is effective for engagements commencing on or after 01 January 2009. Earlier adoption of this Standard is permitted
- A small working group will be convened to consider the scope and application of a new standard Client Monies, which will incorporate the operation of members’ trust accounts. A draft will be presented to the February 2009 APESB meeting.
- Further redrafting of ED 0X/08 Insolvency Services will be undertaken before issuing it as an exposure draft in early December 2008.
For more details, go to the APESB website.
Contingent Transaction Costs
Q: An entity agrees to pay a third party adviser a fee for services relating to a business combination. If that fee is contingent on the acquiree achieving a specific profit hurdle can this fee be accounting for as contingent consideration arising on the business combination, allowing any reassessment to be accounted for as an adjustment to the cost of the business combination and therefore adjusted against goodwill?
A: No. The contingent consideration requirements of AASB 3 Business Combinations only apply, as mentioned in paragraph 32 of the current AASB 3, ‘when a business combination agreement provides for an adjustment to the cost of the combination…’ By its nature a business combination agreement is an agreement between the vendor and the purchaser and does not include agreements with third parties unconnected to the vendor.
Therefore the payment to the adviser is not contingent consideration as it is not part of the agreement between the vendor and the purchaser. It arises from a separate agreement with the third party adviser. While the payment to the adviser is part of the cost of the combination because it is a cost directly attributable to the business combination (para 24(b) of the current AASB 3) it must be measured (through estimation techniques) as at the combination date. Any subsequent remeasurement cannot be adjusted against the cost of combination except where it is an adjustment to the initial accounting within the twelve month window (as envisaged by paragraph 62 of the current AASB 3). However, as indicated by paragraph 62, an adjustment to the initial accounting must reflect conditions as they existed at the date of the combination and does not take into account subsequent events.
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.
15 December 2008
IASB ED Improving Disclosures about Financial Instruments (proposed amendments to IFRS 7
IAASB Matters to Consider in a Revision of International Standard on Review Engagements (ISRE) 2400 Engagements to Review Financial Statements
AUASB EDs
ASA 200 Overall Objective of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards
ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report
ASA 320 Materiality in Planning and Performing an Audit
ASA 450 Evaluation of Misstatements Identified During the Audit
ASA 510 Initial Audit Engagements – Opening Balances
ASA 550 Related Parties
ASA 580 Written Representations
ASA 720 The Auditor’s Responsibility in Relation to Other Information in Documents Containing an Audited Financial Report
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.
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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