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Welcome to the twentieth 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. What’s new in June Charter
This month’s environmental issue of Charter has a range of articles that will inform members about the environmental reporting developments that are occurring within the profession. The articles include:
- An explanation of the developments in Accounting for Water – by Maryanne Slattery, Senior Manager in the Water Accounting Development Committee office
- A discussion on the importance of developing sustainable business practices – by Nick Ridehalgh of PricewaterhouseCoopers
- An explanation of the developments relating to emissions reporting (both in Australia and in Europe) – by Georgina Dellaportas of Ernst & Young
- An overview of the requirements of the National Greenhouse and Energy Reporting scheme, which becomes operative on 1 July 2008 – by Stephanie Kemp of the Institute of Chartered Accountants in Australia’s Reporting and Assurance Team.
These articles can be found on pages 20-24 and 60-71 of this month’s Charter. The ‘Technical Focus’ section also contains our regular roundup of financial reporting and auditing developments – ‘The Panel’.
Georgina Dellaporta’s article on emissions reporting makes reference to the withdrawn version of IFRIC and UIG 3 Emission Rights, which was issued in Australia in March 2005 and withdrawn shortly thereafter. To access a copy of this IFRIC’s requirements, click here.
2. Institute attends IFRIC/IASB technical roundtable
Representatives from the Institute’s Reporting and Assurance team attended a roundtable discussion with Bob Garnett, Chairman of the International Financial Reporting Interpretations Committee (IFRIC), and Warren McGregor, member of the International Accounting Standards Board (IASB). Discussions ranged over a number of issues including:
- Ways of simplifying IAS 39 Financial Instruments: Recognition and Measurement – should the IASB go straight to a complete fair value model, or have another interim stage?
- Inconsistencies in applying IAS 20 Accounting for Government Grants and Disclosure of Government Assistance and IAS 38 Intangible Assets to the grant of assets by government – the standards are inconsistent and what is really needed is a revision of IAS 20
- The length of interpretations – do long interpretations mean a move away from principles-based standards? Ideally interpretations would not be needed at all, but at present, with a number of countries converting to IFRS, the accounting community does need some detailed interpretations to assist them in applying professional judgement
- Whether there is a place for local interpretations as well as IFRIC’s
- The IFRS for Private Entities (new name for IFRS for SMEs) – at this stage it looks as if it will be a stand-alone document with no cross-reference to IFRS and some differences in recognition and measurement from full IFRS.
3. Ken Spencer Memorial Lecture highlights – 28 May 2008
The Financial Reporting Council in conjunction with the three accounting bodies (including the Institute) and KPMG hosted the Ken Spencer Memorial Lecture on 28 May 2008.
The presenter was Stephen A Zeff, a prominent academic based in the United States and author of many publications and books on financial reporting and auditing. His presentation covered:
- Recent developments in the United States regarding the use of International Financial Reporting Standards (IFRS) and the future of the Financial Accounting Standards Board (FASB)
- Future interaction between the U.S. Securities and Exchange Commission (SEC) and International Accounting Standards Board (IASB)
- Developments in the European Union (EU) including the EU endorsement process and how Australia and other IFRS country adopters will be affected by influence from the European Union and the United States.
4. GAA – technical information available from ICAEW
As a member of the Global Accounting Alliance (GAA), Australian Chartered Accountants are now able to access valuable resources from other GAA member bodies, including a free 3 month trial to the services of any of the Institute of Chartered Accountants in England and Wales (ICAEW) seven business sector faculties.
For more information, see the ICAA website.
5. AASB website updates
Action Alert 114, which provides details of the Board’s 21-22 May meeting, is now available for download from the AASB website (pdf). The meeting outcomes were summarised last week in ANT19/2008 (23 May 2008).
In addition, a copy of the approved minutes (pdf) for the Australian Accounting Standards Board (AASB) meeting on 17 April 2008 is now available.
Also now available on the AASB website is an updated project summary (pdf) on insurance contracts.
6. New IFAC report on quality of financial reporting
The International Federation of Accountants (IFAC) has now released the results of its 2007 survey entitled Financial Reporting Supply Chain: Current Perspectives and Directions. The survey was commissioned to investigate whether all the recent changes to financial reporting practices have in fact achieved their objectives of making financial reports more or less reliable, relevant and understandable.
The report examines four key areas of the financial reporting process: corporate governance and the preparation, audit and usefulness of financial reports. It concludes that while the relevance and reliability of financial information worldwide has improved, the understandability of financial reports has not. Positive benefits of all the changes included improved quality of information as a result of better standards and regulatory processes while negative aspects included the increasing complexity of reports, disclosure overload and the use of fair values which is impairing usefulness.
The report also calls for further improvements in the area of communication between all participants in the financial reporting supply chain process, higher quality short form reporting and better aligned internal and external reporting.
The full text of the report is available for the IFAC bookstore (pdf).
7. IFAC seeks public members for the IAASB
IFAC is seeking nominations for two public member positions on the International Auditing and Assurance Standards Board (IAASB), to commence in January 2009. Public members will participate in the development of assurance standards on greenhouse gas emissions and report on controls at third-party service organisations, as well as the development of other new and amended international standards following the IAASB’s rigorous due process.
Click here (pdf) for more information about the positions.
Auditing & Assurance News | |
8. AUASB meeting agenda – 2-3 June 2008
The next meeting of the Auditing and Assurance Standards Board (AUASB) will be held on 2-3 June 2008 in Melbourne. Items to be discussed include:
- ASAE 3100 Compliance Engagements
- ASA redrafting
- Guidance Statement – audit report included in the annual directors’ report pursuant to s300A of the Corporations Act 2001
- GS 009 Financial and Compliance Audits of Self Managed Superannuation Funds
- International matters
The agenda can be obtained from the AUASB website.
9. ASIC Audit Inspection Program
In the Australian Securities and Investments Commission’s (ASIC) findings from their latest round of audit inspections, outlined at the recent ASIC Liaison Meeting with the profession in Sydney, ASIC note that Australia has a skilled audit fraternity and quality is fundamentally sound. Those firms having their second and third visits reflect improvements. These firms are committing technical resources and generally have in place sound quality control procedures and training programs. However, the results for some firms visited for the first time are disappointing. In some cases, Audit methodologies do not fully comply with the force of law standards, monitoring systems are not up to date, engagement quality reviews are not being adequately performed, and client acceptance and continuance practices are not well documented.
While the majority of files reviewed were found to meet the required audit standards, there were instances where documentation on the engagement file failed to provide enough evidence to support certain audit assertions.
The future focus will be on those firms that audit entities of significant public interest. The latter will include companies that are in the unlisted retail finance sector, as well as those issuing unlisted and unrated debentures.
Particular areas of focus will be:
- Independence and audit quality, including documentation around significant audit judgements
- Sampling, fraud, analytical review, risk, related parties and compliance with laws and regulations standards
- Implementation of the new network firm definition
- Processes and documentation of approval to perform non-audit services
- Using the work of experts (especially around valuations) and other auditors
- Going concern considerations
- Audit consultations and associated documentation.
10. Federal government identifies priorities for financial reform
In a recent speech to Australian Investor Relations Association Conference in Melbourne, Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law outlined some of the new federal government’s priorities in the financial reporting arena.
He stated that the government is committed to establishing a well-defined best practice model for corporate disclosure and investor protection and will work to achieve this by introducing initiatives which will:
- Enhance the corporate governance framework
- Promote a national regulatory structure for all financial services
- Reduce the cost and complexity of financial statements
- Enhance the disclosure requirements contained in the directors’ report, including with respect to remuneration related disclosures.
The Senator also provided some information on what the newly formed financial services working group will address including ensuring the industry produces simple, standard and readable financial services disclosure documents.
View the full transcript of the minister’s speech.
11. Company directors’ survey launched
The Commonwealth Treasury, in conjunction with the Australian Institute of Company Directors, is in the process of surveying 600 Australian company directors (from S&P/ASX200 companies) which will provide to the Government valuable insight as to how current laws affect their decision-making processes.
Specifically, the survey examines the obligations imposed on directors under the Corporations Act 2001 and the implications of non-compliance. The Government expects the survey results to assist in the development of future reform proposals to address both corporate and director misconduct.
Foreign owned subsidiaries and reporting entity
Q: Is a small proprietary company whose ultimate controlling entity is an overseas listed company still considered to be a reporting entity? I know this was previously a requirement of APS 1 but understood it had changed?
A: To determine whether an entity is a reporting entity you need to refer to the definition; a reporting entity is ‘an entity in respect of which it is reasonable to expect the existence of users who rely on the entity's general purpose financial report for information that will be useful to them for making and evaluating decisions about the allocation of resources. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries. This definition is in Appendix A of AASB 3 Business Combinations and in the AASB's glossary of defined terms, and came into effect with the new suite of AASB international accounting standards, operative from 1 January 2005.
Under this definition the number of users dependent on general purpose financial reports for a small proprietary company is likely to be limited, so reporting entity classification may not be appropriate. However, as in all cases involving the application of reporting entity professional judgement is required in the circumstances.
Paragraph 15 of APS 1 Conformity with Accounting standards and UIG consensus views refers the reader to SAC 1 Definition of the Reporting Entity for the determination of a reporting entity. SAC 1 provides additional interpretative guidance to support the definition of reporting entity found in the accounting standards. However while paragraph 17 of APS 1 identifies an Australian company being a subsidiary of a foreign listed company as a reporting entity it is considered that this is no longer an automatic requirement because:
- This paragraph was based on a AASB standard that has changed since APS 1 was issued, and
- Paragraphs 16, 17 and 18 of APS 1 are guidance only on the interpretation of the standards at the time APS 1 was issued.
APS 1 has now been redrafted and replaced by APES 205 Conformity with Accounting Standards issued by the Accounting Professional and Ethical Standards Board (APESB) and operative from 1 July 2008.
In the period before APES 205 becomes effective, the status of those subsidiaries of overseas listed entities needs to be assessed by reference to SAC 1 on a case by case basis and therefore members are encouraged to carefully consider the relevant circumstances and document their decision.
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.
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
30 June 2008
AASB ITC 16 Request for Comment on IPSASB Consultation Paper Accounting and Financial Reporting for Service Concession Arrangements
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 CFOs or aspiring CFOs, 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.
The information is this email is confidential to the named addressee and subject to copyright. No one else may read, print, store, copy, forward or act in reliance on all or any of this email or its attachments. If you are not he intended recipient, any use, reliance upon, disclosure or copying of this email is prohibited and unlawful. If you have received this email in error please notify the sender. The Institute of Chartered Accountants in Australia (ABN 50 084 642 571) does not warrant that this email and any attachments are error or virus free and recommends that all attachments be checked for computer viruses.
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