Accounting and Auditing News Today (ANT) Issue No 35 - 6 September 2007

This week's ANT is being sent out one day earlier due to the APEC conference public holiday in Sydney on Friday 7th September.

1. AASB meeting - 5-6 September 2007 - interim highlights

The Australian Accounting Standards Board (AASB) meeting was held in Melbourne 5-6 September 2007. A final update of the meeting will be included in next week's ANT. Highlights so far are:

Insurance Contracts
The draft submission to the International Accounting Standards Board (IASB) on Insurance Contracts was discussed, with the AASB expressing overall support for the IASB Preliminary Views as well as identifying a number of practical application issues with the proposal.

Differential reporting/SMEs
A summary of the recent roundtable discussions was prepared for the AASB. Once finalised this summary will be available on the AASB website. A substantial number of submissions have been received to date on the ITC 12 proposals and these submissions are in the process of being collated. A review of the submissions and a finalised draft response to the IASB on the IFRS for SME proposals will be presented to the next meeting of the AASB (to be held in Sydney on 3-4 October. It was further determined that the differential reporting proposals are likely to be reviewed by the Board at the November or December meeting.

Interpretations
The AASB discussed a draft Australian Interpretation on Australian Petroleum Resource Rent Tax (APPRT). The draft interpretation confirms that APPRT is an income tax within the scope of AASB 112 "Income Tax".

IASB Annual Improvements project
The AASB considered the IASB proposals in relation to the annual improvements project and how it would communicate the coming 160 page Exposure Draft to constituents. While the majority of changes/improvements were not substantive and merely reflected editorial changes, several areas were identified which may have a substantial impact on some entities. The Board determined that these areas should be highlighted to Australian constituents.

IASB issue of the final standard on Presentation of Financial Statements
AASB Staff advised the Board that the IASB has issued the final standard on Presentation of Financial Statements today (6 September) with an application date of financial years commencing on or after 1 January 2009. Along with the reissued standard will be a document identifying consequential amendments to other pronouncements. It was noted that every standard will be impacted by the revised proposals. The AASB will look to issue the Australian standard(s) as soon as practically possible to provide early adoption opportunities to Australian constituents. For further information on the IASB's revised standard, refer to item 8 below.
Top

2. Proposed changes to APS 1 issued

The Accounting Professional & Ethical Standards Board (APESB) has released an exposure draft of APES 205 "Conformity with Accounting Standards" as part of its ongoing review and re-launch of professional and ethical standards. The proposed standard APES 205, expected to be operative from 1 July 2008, will replace the former professional standard APS 1 "Conformity with Accounting Standards and UIG Consensus Views". Proposed standard APES 205 sets out the mandatory requirements for members of professional accounting bodies who prepare and present financial reports, as well as those members in public practice who audit, review or compile financial reports.

Key proposals are to clarify the accounting policy disclosure contained in special purpose financial reports, and to update the wording currently in APS 1 to reflect changes to the accounting, auditing and ethical standards since APS 1 was issued in 1985.

The Institute is keen to receive comments to techsubmissions@charteredaccountants.com.au by 30 September 2007 for inclusion in the Institute's submission. The APESB is requesting comments by 19 October for members who wish to comment directly to the APESB.
Top

3. Institute submission to the IASB on IFRS for SMEs online

The Institute has now lodged with the AASB and IASB its submission to the IASB on its Proposals for IFRS for SMEs exposure draft.

The Institute supports the overall objective of the draft IFRS for SME proposals, but considers that the name of the proposed standard is unhelpful and has led to confusion among constituents. Something like "IFRS for Private Entities" or "IFRS for Non-Publicly Accountable Entities" would reflect the content and purpose of the draft better than the current title. We suggest further simplification of the recognition and measurement requirements of the standard and suggest some areas where disclosure can be reduced.

The submission can be viewed here: http://www.charteredaccountants.com.au/A119749843
Top

4. AASB issues more compiled standards

The AASB has completed further compilations of standards affected by the release of omnibus 2007-4, the related proportionate consolidation erratum and omnibus 2007-5.

Revised standards now available on the AASB website are:

• AASB 101 Presentation of Financial Statements
• AASB 102 Inventories
• AASB 119 Employee Benefits
• AASB 121 The Effects of Changes in Foreign Exchange Rates
• AASB 129 Financial Reporting in Hyperinflationary Economies
• AASB 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions
• AASB 132 Financial Instruments: Presentation
• AASB 132 Financial Instruments: Disclosure and Presentation
• AASB 133 Earnings per Share
• AASB 134 Interim Financial Reporting

5. AASB issues table of mandatory standards for 2006/2007

To assist preparers of financial statements in meeting their financial reporting obligations for 30 June 2007 year ends the AASB has recently added to its website http://www.aasb.com.au/pronouncements/aasb_standards_mandatory.htm a complete list of AASB and AAS standards that are mandatorily applicable to this financial period.

When using the website, please be aware that the list does not include any requirements or amendments that an entity may choose to apply in advance of the operative date. For example, amendments made to Standards in September 2005 that apply to annual reporting periods beginning on or after 1 January 2007 are not included in these versions. Tables 1 and 2 should be referred to for Standards applying to annual reporting periods beginning on or after 1 January 2007 (even if they end on or before 30 June 2007).
Top

6. AIFRS Discussion Group for CABs highlights - 3 September 2007

The Institute's Sydney AIFRS Discussion Group for CABs met for the first time in the Institute's new offices on Monday 3rd September 2007. Regina Fikkers from PricewaterhouseCoopers gave a presentation on applying AASB 7 "Financial Instruments: Disclosures". This new standard extends to all reporting entities banking style disclosures relating to the nature and extent of risks faced by the entity as a result of the financial instruments it holds. The standard is applicable for financial reporting periods commencing on or after 1 January 2007 and may be applied early.

Regina drew attendees' attention to the fact that the disclosures are required to be based on the categories of financial instrument as defined by AASB 139 and also by class within the category. Class is a lower level of similar financial instruments - for example listed shares might be a class within "available for sale" financial assets. She also drew attention to the new disclosures relating to capital risk in AASB 101.

She then discussed in detail the risk management disclosures, both liquidity risk which focuses on the liability side of the balance sheet, and credit risk which focuses on the asset side. There was some discussion on the appropriate date to use in analysing liquidity risk. This date should be the earliest contractual maturity date, a worst-case scenario, and the cash flows are to be undiscounted. Discussion on credit risk focussed on the distinction between fully performing and past due debts, for example where an entity may have contractual credit terms of 7 days but does not expect payment until about 30 days. The standard again requires the use of the contract terms to determine past due - in this case 7 days. The sensitivity analysis requirement was another talking point and members raised the issue that entities may choose to disclose different levels of impact - one entity may disclose interest rate movements of +/- 1% whereas another may choose +/- 2%. However as long as the assumptions made are valid for the entity, auditors are not expected to have an issue with different clients choosing to disclose different spreads.
Top

7. Foreign Lodgment rules changed

The "Corporations (NZ Closer Economic Relations) and Other legislation Amendment Act 2007" ("the Act") received royal assent on 21 June 2007. Of particular importance is Schedule 2 of this legislation which has inserted s601CDA into the Corporations Act. This new section exempts companies from lodging, with ASIC, information or documents where the company has lodged similar documents with a foreign regulator. Foreign companies will still be required to register as such with ASIC before they operate in Australia. Such foreign companies must be registered in a country as prescribed under the regulations. The elements in Schedule 2 of the Act are effective on the proclamation date 1 September 2007

Other changes introduced by the Act include giving effect in Schedule 1 to a trans-Tasman agreement implementing a mutual recognition scheme in relation to securities offerings. Initially, this would apply to New Zealand with a view to extending this to foreign jurisdictions where similar agreements are reached.

Schedule 3 of the Act deals with the protection of information obtained by the Australian Competition and Consumer Council (ACCC).

Members are encouraged to read the "Corporations (NZ Closer Economic Relations) and Other legislation Amendment Act 2007" available here.
Top

8. IASB issues revised standard on the presentation of financial statements

The IASB has issued a revised version of IAS 1 Presentation of Financial Statements in order to improve users' ability to analyse and compare the information contained in financial statements.

The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics. Other changes include the introduction of a statement of comprehensive income and changes in the titles of some of the financial statements to reflect more clearly their function. The new titles will be used in accounting standards, but are not mandatory for use in financial statements.

For more information, visit the IASB website.
Top

9. IASB proposes additional guidance on hedge accounting

The IASB has published for public comment an exposure draft of proposed amendments to IAS 39 'Financial Instruments: Recognition and Measurement'. The amendments are intended to clarify what can be designated as a hedged item in a hedge accounting relationship.

The exposure draft specifies the risks that qualify for designation as hedged risks when an entity hedges its exposure to a financial instrument. In addition it clarifies when an entity may designate a portion of the cash flows of a financial instrument as a hedged item.

The exposure draft of proposed amendments to IAS 39 - 'Exposures Qualifying for Hedge Accounting' is available for eIFRS subscribers from today and will be freely available on the website from 17 September. Deadline for comment is 11 January 2008.

For more information, visit the IASB website.
Top

10. Chartered Accountants Technical Conference

The Institute is hosting a three day technical conference on 8-10 October 2007. The three day program provides a variety of technical sessions in the tax, financial planning, financial reporting and management accounting disciplines aimed at members in both the corporate sector and public practice. It is to be held concurrently in Sydney and Melbourne - in Sydney at Star City Casino, and in Melbourne at Telstra Dome, Docklands.

Of particular interest to ANT readers will be the content on Day 2, which contains the financial reporting and auditing sessions. Audit topics include force of law standards, audit independence and risk based auditing while the financial reporting sessions include AIFRS implementation issues on a range of topics that include tax and financial instruments. The day also includes a round table discussion on the costs, benefits and future challenges of AIFRS implementation.

For more details http://www.charteredaccountants.com.au/A119455849.
Top

11. Query of the week - engagement quality control reviewer

Q: My client company was unlisted at 30 June 2007, but has since listed, before I have completed the audit for June 2007. Is the auditor required to have a second partner review as for a listed client?

A: An Engagement Quality Control Reviewer (as set out in ASA 220 and APES 320) is required for all audits of listed entities. However, in this case, you are giving an opinion on a company for a year-end for which it was not listed, and thus the EQCR is not required.

Nevertheless, as a risk management strategy, because the risk profile of the client has changed significantly subsequent to the year end, it would be prudent to have a second partner review.
Top

12. Training and development at the Institute

Audit of Self Managed Superannuation Funds Workshop
http://www.charteredaccountants.com.au/A119654191
Throughout October in Adelaide, Sydney, Brisbane, Melbourne & Perth Now that the new auditing standards apply to SMSF audits, don't miss out on ensuring your audits of SMSFs are compliant with the regulatory requirements.

Technical Conference
http://www.charteredaccountants.com.au/A119455849
Sydney 8 - 10 Oct, Melbourne 8 - 10 Oct
Day 2: Auditing. Examine force of law, AIFRS, APES 320 and the latest technical issues and developments. Take away timely and practical solutions for immediate implementation. Days 1 and 2 cover Tax, Financial Planning and other areas.

Regional Roadshow
http://www.charteredaccountants.com.au/A119482215
Running in 10 key regional centres throughout October 2007, the Regional Roadshow is a two-day event that provides the very latest changes and strategies for tax, accounting and auditing.

National Audit Conference 2007 DVD
http://www.charteredaccountants.com.au/A119509923
If you didn't attend the National Audit Conference in June 2007 - don't miss out on this opportunity to view the conference at your convenience informing you and your colleagues.
Top

Outlined below are the comment closing dates for all current exposure drafts. Members are encouraged to prepare their own submission on each document and submit them to the Institute no later than one week before the closing date shown.

For more information, refer to the Institute's Technical Standards' exposure drafts web page

Forward all ED submission/comment emails to techsubmissions@charteredaccountants.com.au.

14 September 2007
APES ED 04/07 "Terms of Engagement"

15 September 2007
ISA 200 (revised and redrafted) 'Overall Objective of the Independent Auditor, and the Conduct of an Audit in accordance with International Standards on auditing'
ISA 500 (redrafted) 'Considering the Relevance and Reliability of Audit Evidence'

1 October 2007
IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities

5 October 2007
IFRIC D21 'Real Estate Sales'

15 October 2007
IESBA ED "Proposed Revised Section 290 of the Code of Ethics for Professional Accountants, Independence - Audit and Review Engagements, and Proposed Section 291, Independence - Other Assurance Engagements"

18 October 2007
IFRIC D22 'Hedges of a Net Investment in a Foreign Operation'

19 October 2007
Exposure draft of APES 205 "Conformity with Accounting Standards"

26 October 2007
AASB ITC 13 'Preliminary Views on Insurance Contracts'

31 October 2007
IASB proposed IFRS for SMEs field test questionnaires

16 November 2007
IASB Discussion Paper "Preliminary Views on Insurance Contracts"

30 November 2007
ISA 700 (Redrafted) 'The Independent Auditor's Report on General Purpose Financial Statements'
ISA 705 (Revised and Redrafted) 'Modifications to the Opinion in the Independent Auditor's Report'
ISA 706 (Revised and Redrafted) 'Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the Independent Auditor's Report'
ISA 800 (Revised and Redrafted) 'Special Considerations-Audits of Special Purpose Financial Statements and Specific Elements, Accounts or Items of a Financial Statement'
ISA 805 (Revised and Redrafted) 'Engagements to Report on Summary Financial Statements'

31 December 2007
ISQC 1 (Redrafted) 'Quality Control for Firms that Perform Audits and Reviews of Financial Statement, and Other Assurance and Related Services Engagements'
ISA 220 (Redrafted) 'Quality Control for an Audit of Financial Statements'

11 January 2008
IASB's proposed amendments to IAS 39 - 'Exposures Qualifying for Hedge Accounting'

Technical Query Service
The Institute's Technical Standards Team responds to inquiries from members on auditing and financial reporting issues. This service provides general assistance and guidance only. Members have the responsibility to apply their own professional judgment. The service can be contacted on (02) 9290 5702.

Do you know someone interested in receiving ANT?
We welcome new subscriptions. To subscribe, unsubscribe or to update your mailing details, please visit http://www.charteredaccountants.com.au/enewsletters/enewsletters

More information is available at our website.

TECHNICAL/XFILES/ARTICLES/ANT/ ANT35_07_09_06.doc. The Technical Standards team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Kerry Hicks CA, Claire Locke CA, Stephanie Kemp CA, Andrew Stringer; Benjamin Lau and Jane Ma - Technical Standards Assistants.