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Welcome to the nineteenth 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. Institute releases report on sub-prime mortgage crisis
The Institute has released a report on the US sub-prime mortgage market, which provides an insight into the various factors contributing to this credit crisis and the impacts this has had on the financial statements of financial institutions and investors in mortgage-backed securities.
The report is titled “The collapse of the US sub-prime mortgage market – Understanding the impacts under IFRS” and is available on the Institute website.
It concludes that responsibility for the collapse cannot be placed on one particular stakeholder. Borrowers, mortgage originators, investment banks, credit card agencies, preparers and investors each played a role in the collapse. Even those involved in protecting investors – including accountants, auditors, standard setters, legislators and regulators – need to reconsider their role.
The report recognises that none of the parties identified above can guarantee that investors will receive reliable and relevant information to assist in their decision-making process, without the will and support of others. The report finds that the accounting standards alone are not the answer. It is important to understand that much of the information provided to investors in advance of a securities purchase is not within the realm of the standard setters, but of the relevant regulator and/or legislator.
Discussions are already being held between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to determine how the accounting profession can assist regulators in this regard. As regulators and/or legislators and standard setters consider future changes, it is important that blame not be laid upon the traditional scapegoats, being the accounting and auditing profession. Regulators and/or legislators, in particular, need to consider all parties in any legislative changes.
2. Accounting bodies’ submission on ED 162
The Institute, CPA Australia and the NIA have prepared a joint submission to the Australian Accounting Standards Board (AASB) on ED 162 ‘Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities’. In it, the accounting bodies express their support for the AASB’s proposals to eliminate duplication of requirements between the standards and the Corporations Act, but suggest a minor amendment to fix the continuing problems of duplication faced by companies with 52-week financial years that do not end on exactly 30 June.
The submission can be viewed at http://www.charteredaccountants.com.au/A121374867.
3. Institute hosts forum on emissions assurance
The Institute last Monday hosted the first of two Australian Round Table forums on the topic of ‘Assurance on Disclosures of Carbon Emissions Information’, which were conducted under the auspices of the International Auditing and Assurance Standards Board in order to hear from users, preparers and assurance providers. The intention is to inform the planned development of an International Standard or Practice Statement on ‘Assurance on Carbon Emissions Information’. The forum attracted representatives of a diverse range of those interested in this area. The international project is being led by Professor Roger Simnett of the University of New South Wales.
4. AASB meeting highlights – 21-22 May 2008
The AASB met on 21 and 22 May 2008. The following outlines the key areas of discussion.
Amendments to AASB 1049
The Board agreed to issue an Exposure Draft to make amendments to AASB 1049 Whole of Government and General Government Sector Financial Reporting as a result of the issuance of the revised AASB 101 Presentation of Financial Statements and to clarify certain issues raised by constituents. The proposed amendments to AASB 1049 will bring it in line with the requirements of AASB 101, which implies that a statement of changes in equity will now be required and the title of the Operating Statement may change. The comment period for this ED will be one month.
GAAP/GFS Entities within the GGS sector
The Board discussed the harmonisation of Government Finance Statistics and GAAP and came to a tentative decision that the most appropriate option would be to adopt a version of AASB 1049, accompanied with an illustrative example.
Not-for-Profit Entities
It was noted that the submissions received on ITC 14 generally did not support the use of the term or the definition of public benefit entity. Constituents also felt that the not-for-profit definition was not adequate as it implied that an entity could never make a profit/surplus. The Board agreed to reconsider the issue and develop a more suitable alternative along with appropriate guidance on not-for-profit entities.
Key Management Personnel Disclosures
The Board agreed to issue a revised standard removing the remuneration disclosures that are already outlined in s300A of the Corporations Act. However, the standard will be approved out-of-session, due to amendment of the wording relating to its application/early adoption. The new standard is expected to be applicable for reporting periods ending on, or after, 30 June 2008, with wording yet to be finalised on early adoption.
Superannuation Plans and ADFs
The Board agreed on various disclosure principles, including using the fair value disclosure requirements of AASB 7 as a basis for fair value disclosures for all classes of assets and using AASB 7 and AASB 101 disclosures as a basis for members’ benefits disclosures.
Differential Reporting/SMEs
The Board considered differential reporting in the public sector and not-for-profit areas and tentatively agreed on the following:
- For private not-for-profit entities, there is to be only one tier (i.e. no size thresholds would be imposed), with three options being full IFRS, IFRS for SMEs or the recognition and measurement of full IFRS with reduced disclosures of the SME standard
- For the public sector, full IFRS would be required for federal, state and territory governments. For local governments, universities and other public sector entities, the above options as outlined for not-for-profits would be available subject to any specific jurisdictional reporting requirements.
5. AASB Consultative Group Meeting highlights – 21 May 2008
The Institute participated in the AASB Consultative Group meeting on 21 May 2008. The objectives, composition and terms of reference of this group are outlined in Policy Statement 2 ‘The AASB Consultative Group’.
The meeting covered the following areas:
- Work program and priorities
- International activities (IFRIC and IPSASB)
- Superannuation plans
- Differential reporting/SMEs
- Parent entity financial statements.
Work program and priorities
Members raised with the Board some comments on priorities determined for XBRL/SBR, not-for-profits (specifically charities), emissions reporting and public sector/IPSASB involvement.
International activities
Ruth Picker, IFRIC member, made some interesting observations. She noted that the IFRIC membership was increasing from 14 members to 16 members, this increase being filled by US representatives. This clearly shows the increased interest by the US in IFRS. Ruth also noted that the ‘A’ in front of IFRS does not do Australia any good within the international community. Some members agreed with Ruth’s comment, noting that this could be achieved by removing AUS paragraphs, adopting IFRS fully and creating separate standards for not-for-profits and public sector where necessary.
Peter Batten, IPSASB member, noted that the IPSASB are looking to digress from IFRS in regards to borrowing costs. It seems that the international public sector standard will allow a choice to expense borrowing costs on qualifying assets. This is an interesting development, as the Australian public sector will currently be required to capitalise borrowing costs on qualifying assets for 30 June 2010 year ends.
Superannuation plans
Members reviewed the progress on the superannuation standard and discussed consolidation of super funds in particular.
Differential reporting/SMEs
Members discussed the progress of the Board on this issue. Some members stressed to the Board the need to consider limiting increasing the reporting burden for SMEs.
It was noted that the Treasury is continuing to investigate reduced reporting obligations for very small unlisted companies limited by guarantee.
Parent entity financial statements
The Treasury indicated that they are investigating proposals to simplify parent entity financial statements. They indicated that input is required on associated cost savings associated with preparing only summary parent entity information.
6. SEC proposes to mandate XBRL
The US Securities and Exchange Commission (SEC) has proposed to mandate the use of XBRL (Extensible Business Reporting Language) for public company filings to the SEC’s EDGAR database. XBRL is a computer software language that labels companies' financial and other data with codes from standard lists (taxonomies) so that investors and analysts can more easily locate and analyse desired information.
Under this proposal, companies using US GAAP with a worldwide public float over $5 billion will be required to submit their primary financial statements, footnotes and financial statement schedules in XBRL format for fiscal periods ending in late 2008. Accelerated filers are required to comply with the new rules starting the following year and the remaining public companies would comply the year after that. This announcement will likely impact some Australian companies which are classified as foreign issuers in 2009.
XBRL US, the national consortium for XML standards for business and financial information reporting, is in support of the SEC’s proposal and has published an impact statement which outlines the effect of XBRL for public company reporting on key corporate reporting representatives.
To view the press release or download the impact statement, go to the XBRL US website.
7. FRC meeting highlights – 9 April 2008
The Financial Reporting Council (FRC) held its second meeting for 2008 on 9 April 2008 in Melbourne. The meeting discussed the following principal matters:
- Update on XBRL
- Update on recent international stakeholder meetings
- Discussion paper on the role of the auditor in relation to the preparation of a prospectus for an audit client
- Possible post-implementation review of the adoption of IFRS in Australia
- Reports from standards setters and committees
For further details, go to the FRC website.
8. IFAC seeks evaluator to review the IPSASB
The International Federation of Accountants (IFAC) is seeking expressions of interest from accountants interested in undertaking an external review of the International Public Sector Accounting Standards Board’s (IPSASB) activities. IPSASB is an independent standard-setting body within IFAC and develops international standards and guidance to improve public sector financial reporting and fiscal management. IPSASB’s activities are partly funded by World Bank funding grants and periodic reviews are a condition of the funding terms.
The review will involve matters such as the extent of adoption of IPSASB standards worldwide, the effectiveness of the World Bank’s involvement in the IPSASB’s work, whether developing nations have an effective voice in IPSASB activities and whether the governance and management of these activities are transparent and accountable.
To view the media release and the requirements for the evaluator, go to the IFAC website. Applications are due 31 May 2008.
9. ASIC Accounting Liaison meeting highlights – 16 May 2008
Last week the Institute attended the ASIC Accounting Liaison Meeting which covered the following areas:
- Financial Reporting Surveillance Program
- Unlisted and unrated debentures
- ASIC Policy changes
- International developments
Financial reporting surveillance program
It was noted that ASIC uses a risk-based approach covering all entities, in addition to a cyclical approach for ASX 200 companies when selecting listed entity financial reports to review as part of the surveillance program.
The issues identified as part of this year's review include goodwill allocation to cash generating units, impairment testing methods and disclosures, minority interest treatment in business combinations, reverse acquisition assessments, share-based payments not expenses appropriately at an IPO, revenue recognition associated with trailing commissions, impairment testing of intercompany loans, process of determining fair value and associated disclosures for investment properties and the satisfaction of active market criteria for intangible assets revaluations.
Owing to current market turbulence, future surveillance will see additional focus on entities that may be affected by the market conditions. Areas for focus include the determination of fair values, impairment calculations, classification of liabilities, AASB 7 disclosures, and off-balance sheet transactions.
ASIC issued RG 69 in relation to issuers of unlisted and unrated debentures. The first reporting by issuers under RG 69 has occurred. ASIC is reviewing the requirements for auditors in connection with half-yearly and annual financial reports and the benchmarks under that regulatory guide and intends to provide further guidance before the first reports by auditors are prepared. It is likely that the audit requirement will apply for years commencing on, or after, 1 July 2008.
ASIC policy changes
ASIC reminded us of some recent policy changes in the following areas:
- Wholly owned entity class order [Class Order 98/1418]
- Relief for half year accounts for disclosing entities with short financial years [Class Order 08/15]
- Foreign-controlled small proprietary companies and lodgement of Form 384 when taking advantage of Class Order 98/98
- Updated Regulatory Guide 180: Auditor Registration
- Changes to auditor notifications about AFS licensees [Regulatory Guide 34 Auditors obligations: reporting to ASIC]
- Update of policy on independent experts reports [Regulatory Guide 111 Content of Experts reports and Regulatory Guide 112 Independence of experts]
- Changes to AFS Licensee annual reporting [Forms FS 70 and 71]
Professional and Ethics News | |
10. APESB meeting highlights – 12-13 May 2008
The following decisions were made at the most recent meeting of the Accounting Professional and Ethical Standards Board (APESB) meeting held on 12 -13 May 2008:
- A compiled version of APES 110 Code of Ethics for Professional Accountants will be released in June 2008, with an effective date of 15 February 2008
- APS 8 Management Consulting Services standard withdrawn effective 30 June 2008
- APS 1 withdrawn, replaced with APES 205 Conformity of Accounting standards effective 1 July 2008
- APS 2 withdrawn, replaced with APES 305 Terms of engagement effective 1 July 2008
- APS 6 withdrawn, replaced with APES 220 Taxation Services effective 1 July 2008
- That the board proposes to apply APES 410 Conformity with Auditing and Assurance standards to all members and this change will be released as ED for 30 days in June 2008
- ED 01/08 Compilation of Financial Information will be finalised and released in June 2008 effective for engagements commencing on or after 1 January 2009.
- APES 225 Valuation Services will be issued in June 2008 with an effective date of 1 January 2009
- ED 02/08 Reporting on Prospective Financial Information in Disclosure Documents to released in June 2008 with an Exposure Period of 45 days.
- ED 04/08 Forensic Accounting Services to be released in June 2008 with an Exposure Period of 90 days
For more information visit the APESB website.
Novated Leases
Q: Should my client company be capitalising and amortising employees' motor vehicles covered by novated leases?
A: With any lease, it is always a case of looking at the agreement as leases can differ from each other in subtle detail. However, the usual novated lease is designed in such a way that the car belongs to the employee.
If the employee leaves, he or she takes the car and has continued responsibility for the lease payments. The company is only responsible for the lease payments as long as the staff member continues to work there.
Consequently, the substance of the arrangement is that the lease payments are a staff cost with the staff member being paid in kind, rather than in cash. The payments are not within the scope of AASB 117 ‘Leases’ and should be shown as part of wages and salaries. The company should also disclose its commitments under these arrangements in a commitment note.
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.
30 May 2008
AUASB ED 2/08 ‘Proposed Standard on Review Engagements ASRE 2400 Reviews of Financial Reports Performed by an Assurance Practitioner Who is not the Auditor of the Entity (Replacement of AUS 902)’
AUASB ED 3/08 ‘Proposed Standard on Review Engagements ASRE 2405 Review of Historical Financial Information Other than a Financial Report (Replacement of AUS 902)’
AUASB ED 4/08 ‘Proposed Amendments to ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity’
16 June 2008
AASB ITC 15 ‘Request for Comment on IPSASB Exposure Draft ED 34 Social Benefits: Disclosure of Cash Transfers to Individuals or Households and IPSASB Consultation Paper Social Benefits: Issues in Recognition and Measurement’
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.
Business Forum 2008 – ACT
Canberra, 3-4 June 2008
What’s your strategy for the year ahead? Join industry leaders and your peers as vital topics are addressed, key technical updates explored, and new ideas and options examined.
Audit of Self Managed Superannuation Funds Update
Throughout June in Adelaide, Perth and Sydney.
For those who attended the Audit of Self Managed Super Funds Workshops in 2007, the Audit of Self Managed Super Funds Workshops Update will give you thorough knowledge of the final competency requirements in just a few hours to be ready for 1 July 2008.
CFO of the Future Series
Throughout July, August, September, October, November, December in Sydney and Melbourne.
An invaluable opportunity for current CFO’s or aspiring CFO’s, to hear the latest, including updates on GST, stamp duties, CGT, property finance and risk management plus much more.
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.
Accounting & Assurance News Today is an initiative of the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia.
Disclaimer
This is an initiative of, and has been prepared by the Reporting and Assurance Team of the Institute of Chartered Accountants in Australia. While every effort has been made to ensure the accuracy of the information contained therein, neither the Institute nor its employees shall be liable on any grounds whatsoever in respect of decisions or actions taken as a result of using this publication. The information provided is a general guide only and should not be used, relied on or treated as a substitute for specific professional advice or referral to the relevant specific standard.
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