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GAAP ALERT No.2/200815 FebruaryBy Colin Parker B.Bus FCA MAICD
The agenda for 12 February meeting of Australian Professional and Ethics Standard Board (APESB) included:
Charges against former HIH Chairman ASIC has noted the decision of the Commonwealth Director of Public Prosecutions (CDPP) not to proceed further with one of two charges brought by ASIC against the former chairman of HIH Insurance Ltd, Mr Geoffrey Cohen. Mr Cohen was committed to stand trial on 27 April 2007 on one charge of knowingly giving misleading information. A second and related charge was transferred at that time to the Supreme Court of NSW with the intention that it would be dealt with following the outcome of Mr Cohen’s trial on the primary charge. ASIC alleged that in the Chairman’s Address to Shareholders at the HIH AGM on 15 December 2000, Mr Cohen made misleading statements about the joint venture between Allianz Australia Ltd and HIH. These statements related to the effect of the joint venture on HIH’s cash flow and the payment of $200 million by Allianz to HIH. The CDPP declined to proceed further with the charge that Mr Cohen knowingly gave misleading information. The CDPP is proceeding with the second, related charge alleging that Mr Cohen did not take reasonable steps to ensure that the information he gave to shareholders at the HIH AGM was not misleading. This charge has been remitted to the Downing Centre Local Court in Sydney for hearing on 26 February 2008. Basel II Reporting Requirements Released by APRA The Australian Prudential Regulation Authority (APRA) released its reporting requirements for authorised deposit-taking institutions (ADIs) under the new Basel II capital adequacy regime, known as the Basel II Framework (the Framework). The reporting requirements deal with the calculation of minimum regulatory capital for credit risk, market risk, operational risk and, for ADIs approved by APRA to use the Basel II advanced approaches, interest rate risk in the banking book. APRA is also releasing a response paper that addresses issues raised in submissions on the draft reporting proposals released in September 2007. The majority of ADIs in Australia are using the standardised approaches available under the Framework. The reporting requirements for these ADIs broadly replicate the previous capital reporting requirements, with some additions in areas such as operational risk and securitisation. For ADIs approved by APRA to adopt the Basel II advanced approaches, the bulk of the reporting requirements are new. The full suite of Basel II reporting standards comes into effect on 1 April 2008, and the first submission of data will cover the period 1 January 2008 to 31 March 2008. The suite of reporting standards, forms and instructions and the response paper are available on APRA’s website: www.apra.gov.au/ADI/Basel-II-implementation-in-Australia.cfm. Financial Instruments Amendments by IASB Some financial instruments that would be considered equity, including some ordinary shares and partnership interests, allow the holder to ‘put’ the instrument (to require the issuer to redeem it for cash) are classified as liabilities, rather than as equity. The IASB issued amendments to improve the accounting for particular types of financial instruments that would require certain residual puttable financial instruments and certain residual financial instruments with limited lives to be classified as equity. The amendments are set out in Amendments to IAS 32 ‘Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation’. The amendments will apply for annual periods beginning on or after 1 January 2009, with earlier application permitted. The amendments to IAS 32 address this issue and require entities to classify the following types of financial instruments as equity, provided they have particular features and meet specific conditions: puttable financial instruments (e.g., some shares issued by co-operative entities); instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (e.g., some partnership interests and some shares issued by limited life entities). Additional disclosures are required about the instruments affected by the amendments. The agenda for items for 19-21 February meeting of the IASB includes.
Employee Benefit and Impairment Standards Released by IPSASB The International Public Sector Accounting Standards Board (IPSASB) has issued two new standards to further convergence with IFRSs; IPSAS 25 ‘Employee Benefits’, and IPSAS 26 ‘Impairment of Cash-Generating Assets’. For most public sector entities, employee benefits have a major impact on financial performance and financial position. IPSAS 25 sets out the reporting requirements for the four categories of employee benefits dealt with in the IASB's IAS 19 ‘Employee Benefits’. These are short-term employee benefits, such as wages and social security contributions; post-employment benefits, including pensions and other retirement benefits; other long-term employee benefits; and termination benefits. The new IPSAS also deals with specific issues for the public sector, including the discount rate related to post-employment benefits, treatment of post-employment benefits provided through composite social security programs, and long-term disability benefits. IPSAS 25 is effective for reporting periods beginning on or after 1 January 2011. IPSAS 26 ‘Impairment of Cash-Generating Assets’, which is based on IAS 36 ‘Impairment of Assets’, sets out the procedures for a public sector entity to determine whether a cash-generating asset has lost future economic benefit or service potential and to ensure that impairment losses are recognized in its financial reports. Non cash-generating assets, those used primarily for service delivery, are addressed separately in IPSAS 21 ‘Impairment of Non-Cash-Generating Assets’. IPSAS 26 is effective for reporting periods beginning on or after 1 April 2009. The AASB at its April planning meeting is likely to consider the extent to which IPSASB will be incorporated into Australian GAAP. Amendments to Review Engagements Standards by IAASB The IAASB has agreed to amend the following International Standards on Review Engagements (ISREs) to clarify to which engagements each respectively is to be applied: ISRE 2400 ‘Engagements to Review Financial Statements’; and ISRE 2410 ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’. These amendments, which are effective immediately, clarify the application of the ISREs and ISAE 3000 by eliminating a small gap in the apparent scope of the ISREs and ensuring that, as intended, there is no overlap in the scopes of the ISREs and ISAE 3000. ISRE 2410 applies in the case of a review by the entity's auditor of interim financial information only, while ISRE 2400 applies to all reviews of historical financial information excluding those conducted by the entity’s auditor. There is no directly relevant standard for reviews by the entity’s auditor of historical financial information other than interim financial information. The IAASB has amended ISRE 2410 to apply also to such reviews. This reflects the principal distinction between ISRE 2400 and ISRE 2410, which is that ISRE 2410 is written on the basis that the entity’s auditor is able to use his or her audit-based knowledge of the entity when carrying out a review of any historical financial information. The most common example of a review engagement that might be undertaken by an entity’s auditor is the review of interim financial information issued by a public company; other examples have arisen in practice, however, and the change makes clear that these also fall within ISRE 2410. To align the application of ISRE 2400, ISRE 2410 and International Standard on Assurance Engagements (ISAE) 3000, ‘Assurance Engagements Other than Audits or Reviews of Historical Financial Information’, the IAASB agreed to restrict the application of ISRE 2400 to a review of any historical financial information performed by a practitioner who is not the entity's auditor. Before this amendment, ISRE 2400 indicated that it may be applied ‘to the extent practicable’ to engagements to review other information. New Auditing Standard on Accounting Estimates and Fair Values issued by IAASB New requirements designed to enhance the rigor applied to auditing accounting estimates, including fair value accounting estimates, have released by the International Auditing and Assurance Standards Board (IAASB). International Standard on Auditing (ISA) 540 (Revised and Redrafted) ‘Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures’, requires the auditor to focus attention on areas of higher risk, accounting judgment, and possible bias, thereby assisting the auditor to form appropriate conclusions about the reasonableness of estimates in the context of an entity's financial reporting framework. ISA 540 adopts a risk-based approach to the audit of accounting estimates, including fair value accounting estimates. It addresses matters, such as, the auditor’s evaluation of the effect of estimation uncertainty on risk assessments, management's methods for making estimates, the reasonableness of assumptions used by management, and the adequacy of disclosures. ISA 540 provides expanded guidance on auditing fair value accounting estimates, including audit considerations relating to the proper application of the requirements of the financial reporting framework relevant to such estimates and the use of models in valuations. ISA 540 (Revised and Redrafted) combines ISA 540 (Revised) ‘Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures)’, and ISA 545 ‘Auditing Fair Value Measurements and Disclosures’. ISA 540 (Revised and Redrafted) is effective for audits of financial periods commencing on or after 15 December 2009. The IAASB also recommends that auditors be alert for relevant guidance that has been, or may be, issued by other organisations: for example, the paper ‘Determining Fair Value of Financial Instruments under International Financial Reporting Standards (IFRS) in Current Market Conditions’, issued in December 2007 by the world’s six largest accounting firms (under the auspices of the Global Public Policy Committee); the US PCAOB’s Staff Audit Practice Alert No. 2, ‘Matters Related to Auditing Fair Value Measurements of Financial Instruments and the Use of Specialists’, also released in December; and the UK Auditing Practices Board's (APB) Bulletin 2008/01 ‘Audit Issues when Financial Market Conditions are Difficult and Credit Facilities may be Restricted’. To meet your needs, we have completely revised www.gaap.com.au. The enhancements include:
Please visit www.gaap.com.au and let us know what you think. GAAP and GAAS Seminar – Updates, Insights and Tools for 30 June 2008 Our objective is to provide you with a practical update on financial reporting, auditing and ethics for the 30 June reporting season so that your risks can be effectively managed. There are two half-day sessions each bookable separately: GAAP – Financial Reporting for 30 June 2008 (8.30 am – 1.00 pm); and GAAS – Auditing and Ethics Update for 2008 (2.00 pm – 5.30 pm). Session 1 ‘GAAP – Financial Reporting for 30 June 2008’ topics: Accounting Standards and Interpretations Operative; Accounting Standards and Interpretations Issued but not yet Operative; Public Sector Accounting Standards Insight. Session 2: ‘GAAS – Auditing and Ethics Update for 2008 topics: Auditing Update; ASIC Auditor Surveillance Program Results; Audit Independence and New Ethical Rules’. View full seminar details. Our seminar speakers are experts in their fields, and highly experienced presenters:
Date: 5 May (Registrations from 8.00 am) Location: Medina Grand Melbourne, 189 Queen Street, Melbourne Seminar participant numbers is limited to 40. Price: $495.00 (including GST) for each half day; whole day $990.00 (including GST); please pay here. Proudly sponsored by Task Technology distributors of CaseWare products. Accounting 26 February Proposed Amendments ‘IFRS 1 First-time Adoption of International Financial Reporting Standards’ and IAS 27 ‘Consolidated and Separate Financial Statements’ – IASB Auditing 15 March Proposed ISA 210 (redrafted) ‘Agreeing the Terms of Audit Engagements’ – IAASB If you do not wish to receive future GAAP Alerts click here. Please forward this GAAP Alert to a colleague for their information and use. GAAP Alert registrations and removals can be made here. Consulting, Training, Information Services © GAAP.COM.AU |