Accounting and Auditing News Today (ANT) Issue 46 - 23 November 2007

Welcome to the forty-sixth edition of Accounting & Auditing News Today for 2007. What follows is a brief update on changes and proposed changes in the financial reporting and auditing sphere.

1. AASB 7 operative for 31/12/07 year ends

Members are reminded that AASB 7 ‘Financial Instruments – Disclosure’ becomes mandatorily applicable for financial years beginning on, or after, 1 January 2007 (i.e. 31 December 2007 and 30 June 2008 year ends).

Released in September 2005, it replaces both AASB 130 'Disclosures in the Financial Statements of Banks and Similar Financial Institutions' and the disclosure requirements contained in paragraphs 51-95 of AASB 132 'Financial Instruments: Disclosure and Presentation'. Its purpose is to help shareholders gain an understanding of how management manages and controls financial risks, by requiring disclosure of the significance of financial instruments to an entity as well as qualitative and quantitative disclosures relating to the risk inherent in holding these financial instruments.

It is applicable to all reporting entities and covers all types of financial instruments. This includes the common ones like cash, accounts receivable and accounts payable, giving it wide-ranging application. Comparatives are required – as are parent entity disclosures – in consolidated accounts, which were previously exempted under AASB 132.

A copy of the standard is available on the AASB website and also in the Members’ Handbook. The AASB website also includes access to the IASB's “Basis for Conclusions” and “Implementation Guidance”, which assists members in applying the standard's requirements. Other information available to assist members apply the standard includes charter articles, specimen disclosures contained in the specimen financial reports of the major firms and technical conference papers. For more details on these resources, click here.

Members are also reminded that adoption of AASB 7 also requires the mandatory adoption of AASB omnibus 2005-10. Compiled standards incorporating the AASB 2005-10 amendments are available on Table 1 of the AASB website. It is not permissible to apply the requirements of an omnibus amending standard in a piecemeal fashion and therefore members are urged to take care to ensure they apply the versions of the standards that they actually require.
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The Australian Accounting Standards Board (AASB) has issued a proposed agenda rejection statement on the recognition of franked dividend revenue under AASB 118.

At present, the accounting standards do not specify whether an entity should recognise franked dividend revenue on a net or gross basis. The AASB considers that franked dividend revenue should continue to be recognised on a net basis, as there is no evidence of divergent practice. This is consistent with the decision taken by the UIG when it considered this issue in 1998, although it did not at the time consider the query warranted the formal issue of an Abstract.

The Institute proposes to support the AASB in this matter. Members with an alternative perspective on this issue are encouraged to email their view to our submissions inbox .

Comments for this issue proposal close 3 December 2007.
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The Institute is seeking member feedback on its draft submissions on ED 157 Joint arrangements and ED 159 Annual Improvements.

ED 157 (the Australian version of IASB ED 9 of the same name) proposes some significant changes to AASB131/IAS 31 “Interests in Joint Ventures”, in order to address some important deficiencies that have been identified in the quality of financial reporting for these types of arrangements. The ED is part of the ongoing IASB/ FASB convergence project. The draft submission is supportive of the proposals, which include the broadening of definitions, the shift of the accounting focus from legal form to that of contractual rights and obligations between the parties, and the removal of proportionate consolidation as an accounting option for parties recognising an interest in a joint venture (where they hold an interest in a share of the outcome generated by the activites of a group of assets and liabilities subject to joint control).

ED 159 is a long and wide-ranging exposure draft that proposes amendments to a large number of standards. The amendments are supposed to be minor, but we are not convinced that that is always the case.

The “Double Entries” international accounting newsletter of last week featured a link to a paper by KPMG in the UK, which summarised the proposals in the Annual Improvements ED (published in Australia as ED 159). The KPMG summary is an easy way into this lengthy and highly technical exposure draft and can be downloaded here.

The submissions are due to be lodged to the AASB by 30 November 2007. Members are encouraged to make their own submissions on the EDs to the AASB or may provide feedback to be included in the Institute submission by emailing techsubmissions@charteredaccountants.com.au by 28 November 2007.
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The Institute of Chartered Accountants is hosting the next Sydney AIFRS Corporate Discussion Group Meeting on Monday 10th December 2007 at its Sydney offices at 33 Erskine Street, Sydney NSW 2000.

The meeting will be chaired by David Southwell CA, CA for Group Reporting at Insurance Australia Group. Kim Heng, a partner within KPMG Australia's National Technical Advisory team, will be the guest speaker for this forum. She will be leading a discussion on the practical issues arising from the revised AASB 101 ‘Presentation of Financial Statements’ and the IASB’s Annual Improvements Project.

The lunchtime meeting will begin at 12.30pm at the Level 1 Conference Centre and conclude at 2:00pm. If you wish to attend this forum, please send your name, member number, position and organisation to benjamin.lau@charteredaccountants.com.au by Wednesday 5th December 2007.
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Following are some brief notes from the recent meeting of the Accounting Professional & Ethical Standards Board (APESB) held on November 20 2007. An expanded document listing the highlights from the meeting will be published by the APESB in due course.

• Network Firms: APESB considered responses to the exposure draft ED 03/07 and agreed to consider some minor redrafting of these amendments to the Code of Ethics (APES 110) before their finalisation and release. It is expected that these changes to the Code (inserting new paragraphs and definitions dealing with network firms) will be issued in the next few weeks.
• Impact of SRS amendments: APESB considered proposed amendments to APES 110 occasioned by the introduction of the Corporations Legislation Amendment (Simpler Regulatory System) legislation in July 2007, and determined to issue an exposure draft of these proposed amendments.
• Conformity with Accounting Standards (formerly APS 1): APESB considered responses to the exposure draft ED 05/07 and agreed to consider some further redrafting before finalising this standard for release in the near future.
• Compilation of Financial Reports (formerly APS 9): APESB considered a draft of a revision of the standard on compilation of financial reports (APS 9) based directly on the corresponding international standard ISRS 4410 Engagements to Compile Financial Statements. The board determined to strengthen the wording of the revision, and to consider that redraft at its next meeting.
• Terms of Engagement: APESB considered responses to the exposure draft ED 04/07 and agreed to consider some further redrafting before finalising this standard for release in the near future.
• Business Valuation: The Board considered a draft of a Business Valuation standard developed by the Business Valuation Taskforce of APESB. The Board requested clarification on certain matters and some further redrafting from the taskforce members. An exposure draft is expected to be released in the near future.

The International Accounting Standards Board (IASB) met on 13-16 November and their update summarising the decisions can be downloaded from the AASB website:

Revenue recognition

The staff summarised two revenue models that had been developed over the past year, then began discussing one of the models in more depth.

The model considered at this meeting recognises revenues as changes in contract assets and liabilities. That is, revenue is recognised when:

• An entity obtains a contract in which the underlying rights exceed the underlying obligations, as this would result in a new contract asset
• An entity subsequently satisfies its obligations in the contract by providing goods or services to the customer, as this would either increase a contract asset or decrease a contract liability

The actual amount of revenue recognised is derived from the net increase in the exit price of a contract asset, or the net decrease in the exit price of a contract liability.

Insurance

The Board’s discussion paper Preliminary Views on Insurance Contracts did not address policyholder accounting.

The Board noted that forthcoming responses to the Financial Accounting Standard Board’s (FASB) Invitation to Comment on insurance contracts (published in August 2007) may provide further information on the issue of policyholder accounting.

At this stage, the Board expects to deal with the issue of policyholder accounting in an exposure draft, without first publishing a discussion paper.

IAS 24 Related Party Disclosures

The Board continued its discussion of responses to the exposure draft State-controlled Entities and the Definition of a Related Party.

Share-based payment

The Board discussed three possible approaches for finalising the IFRS 2 amendment Vesting Conditions and Cancellations in light of the issues that have arisen since the IFRS was issued.

The Board also directed the staff to set up a small research group of staff and Board advisers to examine critical IFRS 2 issues, potential convergence between IFRS 2 and SFAS 123(R) and possible options for improving and simplifying the IFRS.

The amendment Vesting Conditions and Cancellations is expected to be issued in the first quarter of 2008.

Financial statement presentation

The Board tentatively decided:

• That the initial discussion document should describe the Board’s conceptual preference for presenting cash flow information using the direct method, and explain a cost-effective way of collecting that information
• That the document would seek input on the costs and benefits of preparing a statement of cash flows using the direct and indirect method
• To modify the information to be disaggregated in the reconciliation schedule (i.e. a reconciliation of the statement of cash flows to the statement of comprehensive income)
• To separate the presentation of valuation adjustments into valuation changes that are made every period, and those that are not

Business combinations

The Board decided to change the effective date of the revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements to 1 July 2009, with early adoption permitted.

Puttable financial instruments and obligations arising on liquidation

The staff reported the outcome of the public round-table discussions on responses to the exposure draft Financial Instruments Puttable at Fair Value and Obligations arising on Liquidation, published in June 2006. Issues raised at this discussion will be considered at the December meeting. No decisions were made.

Fair value measurements

The Board discussed preliminary definitions of current entry price and current exit price. These definitions will be used in a standard-by-standard review to assess whether each fair value measurement currently required or permitted in IFRSs was intended to be current entry price, or current exit price, or some other basis.

Conceptual framework

The Board discussed three topics relating to the measurement phase.
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Q: ANT recently made reference to an announcement by the International Audit and Assurance standards Board (IAASB) about the application of its new Auditing standards. What implications, if any, does this have for Australia?

A: Over the past 3 years, the International Auditing and Assurance Standards Board (IAASB) has been undertaking a project which involved a review of all its auditing standards in the interests of improving the clarity of wording and implementing new drafting conventions to ensure they were easy to consistently apply. Referred to as the “Clarity Project”, the IAASB was particularly focused on ensuring that the responsibilities of the professional accountant were clearly stated and that the standards were well structured.

The IAASB has now announced that the complete set of clarified international auditing standards will be effective for audits of financial statements for periods beginning on, or after, 15 December 2009. The purpose of the announcement was to enable national standard setters and regulators to effectively plan the implementation of new standards.

In response to the IAASB’s announcement, the AUASB agreed at its October meeting to revise and reissue the Australian Auditing Standards (ASAs) using the IAASB Clarity format. The revised suite of standards will be effective for audits of financial reports commencing on, or after, 1 January 2010 and will be released as exposure drafts during 2008 and early 2009.

For more information about the IAASB's clarity project and timetable, refer to the October 2007 communique on the IAASB website.
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Audit of Self Managed Superannuation Funds Workshop
Final chance to book - last workshop hosted in Melbourne on Friday 30 November.
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.

Superannuation Day
Final chance to book - last workshop hosted in Adelaide on Monday 26 November. Explore essential SMSF updates and insights, now that ‘Better Super’ reforms are in place. Delve into the planning issues and pitfalls, focusing on how to identify the triggers.

Audit Day
Throughout December in Adelaide, Sydney, Brisbane, Melbourne & Perth
Highlighting key audit topics. Sessions include: Auditing update; Audit of Not for profit and Registered Clubs, Audit Quality Control and independence requirements.

New Employees Workshop 2008
Throughout February in Brisbane, Melbourne, Sydney, Parramatta, Newcastle & Albury. Five day workshop.
Give your new employees the practical experience and real-life skills they need to deliver professionally at the New Employees Workshop.

National Audit Conference 2007 DVD
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.

Corporate Accountants Toolkit Series
*NEW PRODUCT* Access the latest updates in accounting standards and the impact of these changes on financial reporting requirements by purchasing Module 1 and Module 2 of the Corporate Accountants Toolkit.
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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.

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'
ED 33 'Amendments to IPSAS 4, The Effects of Changes in Foreign Exchange Rates'
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'
IASB ED 9 "Joint Arrangements"
IASB ED "Proposed Improvements to International Financial Reporting Standards"

Technical Query Service
The Institute's Reporting and Assurance 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.

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The Reporting and Assurance team comprises, Jeanette Dawes CA, Roslyn Hatton CA, Kerry Hicks CA, Claire Locke CA, Stephanie Kemp CA, Andrew Stringer; Benjamin Lau, Jane Ma and Adrian Tam - Reporting and Assurance Assistants. [ANT46_07_11_16.doc]