GAAP ALERT No.4/2008
15 March 2008
By Colin Parker B.Bus FCA MAICD
Principal, GAAP Consulting, colin@gaap.com.au
Member of the Australian Accounting Standards Board
INTRODUCTION
AASB March Meeting Highlights
ED on Compilation of Financial Information released by APESB
Proposed Withdrawal of Management Consulting Services Standard by APESB
Proposed ASAE 3500 Performance Engagements
AUASB Guidance for Reporting on Investment Management Services
Infringement Notice Fine for Listed Entity
APRA and ASIC Release New Online Breach Reporting System
IASB Discussion Paper on Financial Instruments with Characteristics of Equity
IASB March Meeting Agenda
IFAC Survey on Performance Measurement in the Public Sector
Report on Improvements to Financial Reporting Supply Chain by IFAC
AASB March Meeting Highlights
The highlights of 5-6 March AASB meeting included:
Business Combinations: Approved three Standards arising from the completion of the IASB’s Business Combinations project that resulted in the issue of the revised IFRS 3 ‘Business Combinations’, and amended IAS 27 ‘Consolidated and Separate Financial Statements’. These Standards are: AASB 3 ‘Business Combinations’ (2008); AASB 127 ‘Consolidated and Separate Financial Statements’ (2008); and AASB 2008-3 ‘Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127’. Early adoption is only permitted in respect of for-profit entities. Prior to the mandatory application date of AASB 3, the AASB will consider the suitability of the revised AASB 3 for combinations of not-for-profit entities.
Puttable Financial Instruments: Approved AASB 2008-2 ‘Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation’, the Australian equivalent to the IASB ‘Amendments to IAS 32 Financial Instruments: Presentation’, and IAS 1 ‘Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation’. AASB 2008-2 applies to annual reporting periods beginning on or after 1 January 2009. Early adoption is permitted.
Superannuation Plans and ADFs: Agreed to give further consideration to the respective legal obligations of superannuation plans and employer sponsors in relation to members’ superannuation entitlements and, in particular, defined benefit obligations. Also agreed to: give further consideration to a set of principles to guide disclosure requirements for superannuation plans and ADFs; and consider the implications of the requirements in AASB 7 ‘Financial Instruments: Disclosures’ for the disclosure of information regarding the nature of investments held indirectly by superannuation plans and ADFs through investment vehicles.
Interpretations: Discussed the general direction on a submission on IFRIC Draft Interpretation D24 ‘Customer Contributions’.
Differential Reporting: Considered an issues paper on full IFRS recognition and measurement requirements with limited specified disclosures for an entity that is not publicly accountable. Decided to defer further consideration of this until the outcome of the IASB’s IFRS for SMEs is further advanced. The AASB will now progress the project in relation to differential reporting for not-for-profit entities.
Considered a draft Application Standard showing a change of application focus from ‘reporting entity’ to ‘general purpose financial statements’, and the use of a single Application Standard applicable to publicly accountable and non-publicly accountable Corporations Act entities (replacing application paragraphs in the individual accounting standards). Agreed to continue to pursue the approach of having a Standard dealing with the application of all other Standards, and decided that further development of the draft Application Standard should await the outcome of deliberations on differential reporting in the not-for-profit sector.
Emission Rights: In the context of proposed Australian emissions trading scheme, noted that the IASB has included a project on emissions trading schemes in its work program, and considered that it is preferable to await the outcome of that project than to develop an Australian Standard.
17 April Meeting: The AASB will hold a private meeting to discuss planning issues, including work program and priorities, relationships with the IASB and the IPSASB. AASB will also address in public: Interpretations, Superannuation Plans and ADFs, and IASB Discussion Papers.
ED on Compilation of Financial Information released by APESB
The Accounting Professional & Ethical Standards Board (APESB) has released an exposure draft of APES 315 ‘Compilation of Financial Information’ that clarifies the fundamental responsibilities of professional accountants who collect, classify and summarise financial information. APES 315 will replace APS 9 ‘Statement on Compilation of Financial Reports’.
APS 9 was limited to traditional financial statements prepared by accountants such as a balance sheet, or statement of revenue and expenses. In recognition of the wide range of financial information now managed by accountants, the scope of the revised standard has been broadened to include all financial information compiled by a professional accountant. It also reinforces the need for clearly documenting and communicating the agreed scope of work to be conducted, as well as the obligations in respect of performing such work.
Proposed standard APES 315 updates the ethical and professional conduct provisions to reflect APES 110 ‘Code of Ethics for Professional Accountants’, documentation requirements relating to terms of engagement and obligations in respect of performing, documenting and reporting on the work performed.
Comments are requested by 22 April 2008. The proposed standard APES 315 is expected to be operative from 1 January 2009.
Proposed Withdrawal of Management Consulting Services Standard by APESB
At its recent meeting, APESB agreed in principle to the withdrawal of APS 8 ‘Statement of Management Consulting Services Standards’. APS 8 was issued over 20 years ago to communicate the requirements of the professional accounting bodies in relation to the provision of management consulting services. Significant changes in the business environment, together with the recent issue of APES 110 ‘Code of Ethics for Professional Accountants’ has effectively made this standard redundant. APESB is seeking comments from interested parties who support or object to the withdrawal of the standard. Comments are requested by 18 April 2008.
Proposed ASAE 3500 Performance Engagements
The Auditing and Assurance Standards Board (AUASB) issued ED 1/08 Proposed ASAE 3500 ‘Performance Engagements’ to replace AUS 806 ‘Performance Auditing’ and AUS 808 ‘Planning Performance Audits’. Comments are sought by 15 April 2008.
AUS 806 applies to the conduct of performance audits, and AUS 808 applies to the planning for such audits. These Standards required an auditor to conduct performance audits in accordance with Australian Auditing Standards. However, the proposed ASAE 3500 has been developed as an adjunct standard to ASAE 3000 ‘Assurance Engagements Other than Audits or Reviews of Historical Financial Information’. Consistent with ASAE 3000, the proposed ASAE 3500 will apply to the conduct of both performance audit and performance review engagements by assurance practitioners in accordance with ASAEs.
AUASB Guidance for Reporting on Investment Management Services
The AUASB released Guidance Statement GS 007 ‘Audit Implications of the Use of Service Organisations for Investment Management Services’. It provides guidance to user and service auditors on reporting by investment management service organisations (including custodians, third party administrators, investment managers, registrars and financial institutions) to their clients for use as evidence in audits of clients’ financial reports.
Auditors who issue opinions on control reports or on statements of clients’ balances or transactions for investment management services organisations, who previously used the guidance in AGS 1026 or AGS 1042, will now use GS 007 for periods commencing 1 July 2008. GS 007 replaces AGS 1026 ‘Superannuation Funds – Auditor Reports on Externally Managed Assets’, which will be withdrawn. AGS 1026 applied only to superannuation funds. GS 007 extends the outsourced services covered to all investment management services, including custody, asset management, property management, superannuation member administration, investment administration and registry.
GS 007 also replaces the guidance in AGS 1042 ‘Reporting on Control Procedures at Outsourcing Entities’, to the extent that it applies to investment management services. AGS 1042, which is not limited to any specific outsourced services, will be amended, effective 1 July 2008, to apply only to services other than investment management services. The withdrawal of AGS 1026 and the amendment of AGS 1042 eliminates potential confusion caused by the overlap in the scope of existing Auditing and Assurance Guidance Statements.
GS 007 has considerably enhanced guidance to assist service auditors of investment management service organisations and user auditors of entities that use service organisations. Key features of the new guidance include:
Expands the scope of guidance to apply to all organisations providing investment management services, including custody, asset management, property management, superannuation member administration, investment administration and registry Separates guidance for “user” auditors and “service” auditors Enhances guidance for user auditors on obtaining sufficient appropriate audit evidence when investment management services are outsourced Clarifies the level of reliance which user auditors can place on service auditor’s reports and the scope of the assurance work underpinning those reports Facilitates greater transparency in control reports through the inclusion of descriptions of the nature, timing and extent of tests applied to controls in an attachment Facilitates greater transparency in special purpose auditor’s reports through the inclusion of uncorrected misstatements in an attachment Provides minimum control objectives for each investment management service to be addressed in controls reports Clarifies appropriate materiality levels for control reports and special purpose auditor’s reports
Enhances guidance on independence, particularly with respect to special purpose audit engagements Provides guidance on using control reports issued on a different reporting date to the user entity’s financial report, and Assists user auditors in meeting their requirements to report matters of governance interest under the Auditing Standards.
Infringement Notice Fine for Listed Entity
Listed mineral exploration company, Centrex Metals Ltd has paid a $33,000 fine following an ASIC investigation into its alleged failure to properly inform the market about the signing of a binding Heads of Agreement regarding the supply of hematite, a mineral form of iron oxide.
Centrex agreed to pay the fine following an infringement notice issued by ASIC on 12 February 2008. The notice alleges that the company failed to comply with continuous disclosure obligations contained in the Corporations Act by not immediately notifying the ASX about the signing of a binding Heads of Agreement with Baotou Iron & Steel (Group) Company Ltd. This binding agreement concerned the supply of hematite from the Centrex’s Wilgerup iron ore deposit on the Eyre Peninsula in South Australia.
The agreement committed Baotou to purchasing 1 million tonnes of Wilgerup hematite ore per year for a period of five years at the long-term international benchmark price. Centrex needed the Baotou Agreement, as well as other agreements concerning the supply of hematite ore which were later signed, to effect long-term contracts with Genesee & Wyoming, ABB Grain Limited and Flinders Ports for the transport and shipping of Wilgerup hematite ore.
ASIC believes that late in the evening of Friday 25 May 2007 Centrex became aware that the agreement with Baotou had been signed in China, but did not announce that information to the ASX until Wednesday 30 May 2007.
Centrex elected to comply with the infringement notice. As provided under the Act, compliance with the notice is not an admission of guilt or liability, and Centrex is not regarded as having contravened subsection 674(2) of the Act (obligation of an entity to provide information to market operator).
APRA and ASIC Release New Online Breach Reporting System
APRA and ASIC released a new online breach reporting system for dual-regulated institutions. The online system simplifies the process for regulated institutions to report breaches, and prospective breaches of a legal provision of an APRA-administered or ASIC-administered Act, standard or rule, as well as other matters that are required to be reported. The superannuation industry is already using an online system to report breaches to APRA.
The new system: enables all APRA-regulated institutions (authorised deposit-taking institutions, general insurers, life insurance companies, friendly societies and superannuation licensees) to report breaches to APRA online; and enables those institutions regulated by both APRA and ASIC to report breach notifications required to be lodged with both regulators through a single electronic breach report to APRA, thereby eliminating the requirement for dual-regulated institutions to provide separate breach reports for the same incident to both regulators.
IASB Discussion Paper on Financial Instruments with Characteristics of Equity
The International Accounting Standards Board (IASB) released a discussion paper on the distinction between equity financial instruments and other financial instruments (non-equity instruments). The discussion paper is the first stage of the IASB’s project to improve and simplify the requirements in IAS 32 ‘Financial Instruments: Presentation’. Constituents raised two broad classes of criticisms of the current requirements: the principles in IAS 32 are difficult to apply; and the application of those principles can result in an inappropriate classification of some financial instruments.
The FASB led the research stage of this project and published a Preliminary Views document ‘Financial Instruments with Characteristics of Equity’ in November 2007. The IASB has not deliberated on the proposals in the FASB document, and does not have a preliminary view. The objective of the discussion paper is to solicit the views of interested parties on whether the proposals in the FASB document are a suitable starting point for the IASB’s deliberations. The outcome of the consultations will be essential in determining the future direction of the project. If the project is added to the IASB’s active agenda, the IASB intends to undertake it jointly with the FASB. Comments are sought on discussion paper by 5 September 2008.
IASB March Meeting Agenda
The agenda for 11-14 March meeting of IASB includes:
Annual improvements process: Analyse exposure draft comments on the following topics: IAS 20 Government loans with a below-market rate of interest (Q19); IAS 38 Unit of production method of amortisation (Q29); IAS 23 Components of borrowing costs (Q20); IAS 36 Disclosure of estimates used to determine recoverable amount (Q27); IAS 1 Current/non-current classification of derivatives (Q6); IAS 27 Measurement of subsidiary held for sale in separate financial statements (Q21); IFRS 7 Presentation of finance cost (Q3); IAS 8 Status of the Implementation Guidance (Q7); IAS 41 Point of sale costs (Q38); and IAS 41 Biological Transformation (Q40) IFRS for SMEs: Consider a high-level overview of the responses to the Exposure Draft; and a draft work plan for completion of an IFRS for SMEs Financial statement presentation: Consider whether an entity should present income taxes in a separate section in the financial statements; and discuss what additional disclosures an entity should present if income taxes are no longer to be allocated to continuing operations, discontinued operations, and other comprehensive income IFRS 1 ‘First-time adoption of International Financial Reporting Standards’: Consider a request for amendments to IFRS 1 to take account of transitional issues faced by jurisdictions expected to adopt IFRSs in coming years. Issues to be considered include those relating to derecognition of financial assets and financial liabilities, retrospective determination of fair values and full cost accounting in the oil and gas industry IAS 39 ‘Financial Instruments: Recognition and Measurement’: Consider a summary of responses to the exposure draft of proposed amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement Exposures Qualifying for Hedge Accounting’ Extractive activities research project (education session): Receive an update on developments relating to the definitions of reserves and resources, including the SEC Concept Release on Possible Revisions to the Disclosure Requirements Relating to Oil and Gas Reserves. Consider research on minerals and oil and gas reserve and resource definitions, and approaches for identifying when minerals and oil and gas assets should initially be recognised as assets in the balance sheet.
IFAC Survey on Performance Measurement in the Public Sector
The International Federation of Accountants (IFAC) seeks participation in an online survey on the ways in which public sector entities set objectives, measure performance, and report on results. The survey can be accessed at www.ifac.org/publicsectorperformancesurvey. Responses are requested by 30 April 2008.
Currently, there is little information available about public sector performance measurement structures around the world. This global survey is designed to identify similarities and differences in performance measurement structures, and the extent to which these structures help public sector entities meet their objectives. The survey also seeks examples of strengths and weaknesses of performance measurement structures and what can be done to further improve the assessment, monitoring and reporting of financial and non-financial performance in the public sector.
The survey is part of a project to help accountants in business and others in evaluating and improving performance measurement systems. The results will also assist IFAC’s Professional Accountants in Business Committee in considering specific public sector aspects when developing its principles-based guidance.
Report on Improvements to Financial Reporting Supply Chain by IFAC
A new report released by IFAC, Financial Reporting Supply Chain: Current Perspectives and Directions, emphasises that significant efforts to strengthen financial reporting in recent years have resulted in improvements in three key areas: corporate governance, the process of preparing financial reports, and the audit of financial reports. Despite improvements to the financial reporting process, the report identifies that the understandability of financial reports has not improved.
Among the key findings, the survey found that corporate governance has improved, supported by an increased focus on corporate governance, and changes to company codes and standards. Survey participants indicated that convergence to international standards, enhanced regulations governing financial reporting, and improved internal control over financial reporting systems all contributed to enhancing the reliability and relevance of the reports. Improvements to audit standards and practices and strengthened independence rules were seen as having contributed to enhanced audit quality.
To address the usefulness of financial reporting, survey participants recommended:
Improving communications among participants in the financial reporting supply chain Producing financial and business information that is relevant, reliable and understandable Including more business-driven information in financial reports, and Promoting the use of technology to enable users to compile their own information.
The Report’s findings are based on an independent global survey of participants in the financial reporting supply chain. The survey sought to determine the extent to which the financial reporting process, and financial reports themselves, have improved and where there is need for further action to make them more relevant. The Report can be downloaded from the IFAC website. IFAC welcomes comments and feedback on the report, which can be submitted at the above web address or by email.
if you do not wish to receive future GAAP Alerts please click here.
Please forward this GAAP Alert to a colleague for their information and use.
© GAAP.COM.AU
|
