1. Final Institute submission – leases

The Joint Accounting Bodies have made a joint submission to the IASB and AASB on the IASB’s DP/2009/1 Leases – Preliminary Views, issued in Australia by the AASB as ITC 20.

Generally we supported the proposals in the discussion paper as they remove the opportunity for structuring transactions to remove them from the balance sheet. While the proposals seem conceptually sound, we have noted that in some instances the calculation of these figures will be complex due to the underlying structure of the lease arrangement in different industry segments.

Two major flaws in the draft must be addressed before proceeding to issue an exposure draft:

• The United States’ Financial Accounting Standards Board (FASB) and IASB must reach consensus on the proposal at an early stage
• The Boards cannot ignore the issue of lessor accounting as numerous entities act as both lessee and lessor using subleases. With the removal of operating leases, leases of property will come on balance sheet and this is the area where subleases are particularly common.

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2. AASB Improvements standards released

The recently issued IASB improvements standard (refer ANT 15/2009) standard has now been reissued in Australia as:

• AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Process [AASB 2 , AASB 138 and AASB Interpretations 9 & 16] applicable to annual reporting periods beginning on or after 1 July 2009 with early adoption permitted; and
• AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process [AASB 5, 8, 101, 107, 117, 118, 136 & 139] applicable to annual reporting periods beginning on or after 1 January 2010 with early adoption permitted.

The standards represent the conclusion of the second IASB improvements program which has as its purpose the making of necessary but non urgent amendments to IASB standards that would not otherwise form part of a major project. These changes are then processed collectively and issued by the IASB in one amending standard each year (usually in April/May).

This year’s improvements project has made 15 changes to 10 AASB standards and 2 Interpretations. By their nature the changes are not expected to have a significant impact in Australia as most seek to clarify meaning or remove unintended consequences relating to new or revised standards including AASB 8 Segment Reporting and AASB 3 Business Combinations.

The issues have been allocated to the 2 Australian omnibus amending standards based on their operative dates

Similar to the 2008 improvements, both amending standards have been structured so that each amendment can be considered separately for early adoption provided the early adoption conditions in the particular Standard or Interpretation are satisfied. Most amendments are to be applied prospectively.

The relevant issues (with potentially significant ones highlighted in bold) are:

AASB 2009-4:

• Scope of AASB 2 and revised AASB 3 ( AASB 2)
• Additional consequential amendments arising from revised AASB 3 (AASB 138)
• Measuring the fair value of an intangible asset acquired in a business combination (AASB 138)
• Scope of IFRIC 9 and revised IFRS 3 (IFRIC 9)
• Amendment to the restriction on the entity the entity that can hold hedging instruments (IFRIC 16)

AASB 2009-5:

• Disclosures of non-current assets (or disposal groups) classified as held-for-sale or discontinued operations (AASB 5)
• Disclosure of information about segment assets (AASB 8)
• Current/non-current classification of convertible instruments (AASB 101)
• Classification of expenditures on unrecognised assets (AASB 7)
• Classification of leases of land and buildings (AASB 117)
• Determining whether an entity is acting as a principal or as an agent (AASB 118)
• Unit of accounting for goodwill impairment test (AASB 136)
• Treating loan prepayment penalties as closely related embedded derivatives (AASB 139)
• Scope exemption for business combination contracts (AASB 139)
• Cash flow hedge accounting (AASB 139)

The bulk of these changes were exposed in the IASB’s Improvements ED issued here in August 2008 as ED 165 (refer ANT 31/2009). However the final standards include 3 issues deferred from the previous improvements project which have now been resolved. They also contain the amendments to IFRICs 9 and 16 proposed in the IASB’s post implementation review of these requirements issued here as ED 175 in February this year (a href="http://www.charteredaccountants.com.au/financial_reporting/publications/ant_archive_2009/A122919618#8" target="_blank">item 8 ANT6/2009). This leaves 2 issues from the 2008 ED which have not been included and have been deferred for resolution at a later date. Copies of the new amending standards are available on the AASB website.

Members are reminded that they need to be aware of the changes as they could impact the issued but not operative disclosures for their 30 June 2009 financial statements as required by paragraph 30 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

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3. ED 182 Minimum Funding Requirements

The AASB has released as ED 182 (PDF) the IASB’s recent exposure draft on the proposed amendments to IFRIC 14 – IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

The proposed amendments are aimed at correcting an unintended consequence of IFRIC 14, an interpretation of IAS 19 Employee Benefits. As a result of the interpretation, entities are in some circumstances not permitted to recognise as an asset some prepayments for minimum funding contributions.

ED 182 is available for download from the AASB website and is open for comment until 13 July 2009 to enable the AASB to comply with the IASB’s 27 July deadline.

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4. Revised AASB 1 released

As foreshadowed in item 7 ANT 20/2009, the AASB has now issued a restructured version of AASB 1 (PDF), which applies to annual reporting periods beginning on or after 1 July 2009.

The reissued AASB 1, now titled “First-time Adoption of Australian Accounting Standards” is based on the revised IFRS 1 issued by the IASB last November (refer ANT 47 5/12/08). The changes made to the standard do not alter the technical requirements but rather restructure it in order to make it easier for the reader to understand and to better handle future changes as adoption of IFRS continues around the world.

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5. Financial Instrument webcasts

As part of its comprehensive review of IAS 39 Financial Instruments (see item 3 ANT23/09) IASB staff have commenced hosting a series of short live webcasts to keep interested parties up to date on progress of the project to replace IAS 39.

The second of these webcasts will be held at 10am (London time) on Tuesday 23 June 2009, and repeated at 4pm (London time) on the same day for the convenience of participants in different time zones. The web presentation will be given by Gavin Francis, Director of Capital Markets and Sue Lloyd, Senior Technical Consultant and will be followed by a Q&A session where registered participants can send in questions for IASB staff to answer. The webcast will focus on the Board’s discussions at this week’s June meeting.

To register, go to the IASB website. The slides from the first presentation can also be viewed on the IAS 39 project page.

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6. IASB DP – Credit risk in liability measurement

The IASB has published for public comment a discussion paper on the role of credit risk in liability measurement. The paper is accompanied by a staff paper that describes the most common arguments for and against including credit risk in measuring liabilities.

Credit risk in liability measurement is often referred to as ‘own credit risk’. Existing International Financial Reporting Standards (IFRSs) require profit or loss resulting from changes in ‘own credit’ to be booked when debt is fair valued. From an accounting perspective there are good reasons for applying fair value measurement to both assets and liabilities. However, some see the outcome as counter-intuitive. Recent developments in the financial markets have led to increased concerns about gains that result from changes in the value of an entity’s liabilities.

The discussion paper responds to this concern. The issue of ‘own credit risk’ has relevance to other IASB projects, in particular in the accounting for financial instruments, insurance, fair value measurement and provisions, contingent liabilities and contingent assets.

The staff paper is open for comment until 1 September 2009 and can be accessed from the IASB website.

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7. Japan to adopt IFRS

On 11 June 2009, the Business Accounting Council (BAC), a key advisory body to the Commissioner of the Financial Services Agency (FSA), approved a roadmap for the adoption of International Financial Reporting Standards (IFRSs) in Japan.

The roadmap still requires the formal approval of the FSA which is expected to take place by the end of the month. If adopted, the roadmap would permit early adoption of IFRSs by listed companies for fiscal years beginning 1 April 2009. The roadmap proposes mandatory adoption of IFRSs from 2016, subject to a final decision being taken by 2012.

For further details please visit the news section of the IASB website.

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8. IPSASB May meeting notes and issue of ED 42

The meeting summary, for the 18-21 May 2009 meeting of the International Public Sector Accounting Standards Board (IPSASB) meeting, is now available.

Among other things, the IPSASB approved Exposure Draft (ED) 42 Improvements to IPSASs. The proposed amendments are to converge existing IPSASs with the relevant IFRSs and arise from the improvements adopted by the IASB in May 2008. The ED will be issued by June 30 2009, with a comment deadline of September 30, 2009.

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9. Doug Niven now Senior Executive Leader

This week ASIC announced the appointment of Doug Niven as Senior Executive Leader of the Accountants and Auditors Team. This role encompasses the position of Chief Accountant under The Australian Securities Investment Commission’s (ASIC’s) previous structure.

Doug brings a wealth of experience to the role having previously served as ASIC’s Deputy Chief Accountant where he oversaw the development of a financial reporting and audit policy and had a major role in ASIC’s financial reporting surveillance program.

Doug joined ASIC in 1998 bringing with him previous experience in auditing at Deloitte Touche Tohmatsu. He is a Chartered Accountant, regularly presenting to and participating in Institute discussion groups.

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10. ASIC Accounting Liaison Meeting

ASIC has just completed this year’s series of Accounting Liaison Meetings which provide insights into a number of accounting and auditing issues being addressed by ASIC. The sessions, attended by the Institute, have been led by Doug Niven. Areas covered included:

• Accounts Surveillance Program
• Audit Inspection Program
• Types of s311 notices received
• Updates in policies, class orders and regulatory guides
• International regulatory developments

Accounts Surveillance Program
ASIC are in the process of completing a review of approximately 100 listed company reports for 31/12/08, including full years and half years. The areas of focus have been those most of interest given the global financial downturn, and include going concern assessment, impairment calculation and disclosures, fair values calculation and disclosures, off-balance sheet arrangements, defacto control considerations, specific disclosures around judgements and assumptions made and financial instrument disclosures. Other areas reviewed included deferred expenditure, classification of debt versus equity, current versus non-current classifications, revenue recognition, estimates, related parties and subsequent events.

Audit Inspection Program
Audit practices have been very responsive to ASIC’s audit inspection process. Where ASIC has undertaken follow up visits improvements have been found. Areas for improvement noted included: communication from top down of independence messages, independence systems, partner rotation, audit quality monitoring programs, partners’ performance assessment process, audit documentation, auditing fair values, audit evidence, quality control, analytical procedures, subsequent events, using the work of another auditor, using the work of an expert, use of appropriate senior personnel. ASIC also noted that they will be performing inspections across networks for network firms.

Section 311 notices
The relevant ASIC guide which covers this area is Regulatory Guide 34, which was issued in December 2007. Approximately 200 notices are lodged under s311 of the Corporations Act 2001 annually. ASIC advised that the key areas cover: late lodgement of accounts, modified audit reports and insolvent/insider trading). ASIC reminds auditors to report significant contraventions under ss 311, 601HG and 990K. ASIC also encourages audit firms to establish a register of s311 reports.

Updates
Auditors were reminded about some issues in the area of auditor appointment and resignation. For example, when audit firms merge and one of the entities is dissolved, it is important to remember to organise resignations and appointments prior to any audit entities being dissolved.

International developments
It was noted that ASIC have been involved in various International Organisation of Securities Commissions (IOSCO) projects. IOSCO has recently released the Statement on International Auditing Standards recognising the importance of these.

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11. APRA releases Approved Audit Report Form

The Australian Prudential Regulation Authority (APRA) has released the Approved Audit Report Form titled Audit Report under SIS Act (PDF) for superannuation funds with reporting periods commencing on or after 1 July 2008.

In addition, the Australian Federal Police (AFP) has updated its National Police Check (NPC) Application Form (PDF). RSE licensee applications, Responsible Officers, Custodians and Investment Managers need to nominate Code No. 36 on the form to obtain the correct AFP search for APRA’s purposes.

They are now available on the APRA website.

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12. Revised APES 305 issued

The Accounting Professional and Ethical Standards Board (APESB) has recently Revised APES 305 Terms of Engagement. These minor amendments are editorial in nature and do not affect the mandatory requirements established by the existing APES 305. Accordingly, the effective date of APES 305 of 1 July 2008 remains unaltered.

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Query of the week

Synchronising year ends: Part 2

Q: Last week’s ANT query referred to synchronising financial year ends with a foreign parent. What are the requirements for an Australian parent company which acquires a subsidiary with a different year end?

A: The relevant requirements are set out in section 323D of the Corporations Act 2001 and also explained in ASIC Information release INFO 17 available on the ASIC website.

The requirements for determining the length of a financial year are contained in section 323D of the Corporations Act. In particular section 323D(3) requires that the parent entity in a group that has to prepare consolidated financial statements must take whatever steps are necessary to ensure all entities within its consolidated group have synchronised year ends.

The constitution of the consolidated group depends on the application of AASB 127 Consolidated Financial Statements and only those entities that fall within such a group can make use of the synchronisation mandate in section 323D(4).

In these circumstances the changing entity is permitted to either lengthen or shorten its financial year to achieve synchronisation but the change to its year end must be made within 12 months of the date on which the need to be part of a consolidated group occurs. In selecting the date for the new financial year end, the company cannot be required to have financial year that is more than 18 months after its previous financial year ended.

More details on all the ASIC requirements are contained in INFO 17 available on the ASIC website.

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Upcoming Meetings

Listed below are some of the upcoming meeting dates for the major boards. For a full listing, refer to the Institute website.

Financial Reporting

• AASB (24-25 June)
• IFRIC (9 July 2009)

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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.

17 July 2009 (IASB)

IASB/FASB Discussion Paper Leases – Preliminary Views

22 June 2009

Interpretation of the phrase “significant or prolonged” under IAS 39 Financial Instruments: Recognition and Measurement. (Refer to IFRIC’s May Meeting)

30 June 2009

IPSASB ED 36 Agriculture

3 July 2009 (AASB) and 31 July 2009 (IASB)

AASB ED 177 Derecognition (Proposed Amendments to AASB 139 and AASB 7)

IASB Exposure Draft ED/2009/3 Derecognising (Proposed Amendments to IASB 39 and IFRS 7)

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 drafts webpage.

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CFO of the Future Workshop Series 2009
From July to December 2009 in Sydney and Melbourne. Six proven strategic management and technical workshops designed to develop the insights, skills and direction of the CFO of the Future.

Business Valuations Workshop – Sydney Overflow 29 – 30 July 2009
A two day intensive workshop held on 29 July – 30 July 2009 in Sydney. This workshop will cover essential business valuation theory and methodologies and delegates will be populating a working excel model.

SMSF Auditor Training
The ATO is increasing its reviews of auditors and it’s vital that auditors of SMSFs uphold their competency by being up to date, to ensure clients receive high quality services. The Institute’s Audit of SMSF workshops in May and June 2009 have been very popular and are booked out at this time. The next round of workshops will be conducted in October 2009. Information about the October workshops will be available on the website around late July. Be sure to book your place early as the sessions are extremely popular and fill quickly!

Note: Members are not required to only complete or attend courses conducted by the Institute to meet the competency requirements for auditors of SMSFs . There are other providers in the market and these courses can meet the competency requirements.

View the Competency Requirements for Auditors of Self-Managed Superannuation Funds on the Institute’s website.

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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. Please note that this email address should not be used for technical queries.

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