GAAP ALERT No.7/2008
30 April 2008
By Colin Parker B.Bus FCA MAICD
Principal, GAAP Consulting, colin@gaap.com.au
Member of the Australian Accounting Standards Board
ED 162 Related Party Amendments
ITC 16 Service Concession Arrangements Released by AASB
Sub-Sahara Pays $33,000 Continuous Disclosure Fine
ASIC Reports on Better Disclosure in Unlisted Unrated Debentures
CALDB Cancels QLD Auditor’s Registration
FRC February Meeting Highlights
IASB April Meeting Highlights
IFRIC May Meeting Agenda
Enhanced GAAP Resources
In-house Financial Reporting and Auditing Courses for 30 June 2008
Colin’s Corner
ED 162 Related Party Amendments
ED 162 ‘Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities’ has been released by the AASB that proposes exempting disclosing entities that are companies from the key management personnel disclosures contained in AASB 124 ‘Related Party Disclosures’.
ED 162 proposes to exclude disclosing entities that are companies from the application of AASB 124 paragraphs Aus25.2 to Aus25.6, and Aus25.7.1 and Aus25.7.2. AASB 124 paragraphs Aus25.7 and Aus25.7.3 to Aus25.9.3 will still apply to disclosing entities that are companies. As a result of the amendments to s.300A of the Corporations Act 2001 and Regulation 2M.3.03 in 2007, companies are required to report remuneration information in the remuneration report in terms of the Corporations Act and Regulation 2M.3.03, and report the same remuneration information in their financial statements in terms of AASB 124 paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and Aus25.7.2.
Corporations Act Regulation 2M.6.04 permitted listed companies to avoid making the same disclosures twice. The Corporations Amendment Regulations 2007 (No. 2) removed that regulation. The AASB considered that it is appropriate to continue to avoid duplication by relieving disclosing entities that are companies from complying with the paragraphs in AASB 124 that have now been included in the Corporations Act and Regulation 2M.3.03.
Comments are sought on ED 162 by 19 May 2008. The AASB envisages that the revised standard will be applicable for annual reporting periods ending on or after June 2008.
ITC 16 Service Concession Arrangements Released by AASB
The AASB has released ITC 16 International Public Sector Accounting Standards Board (IPSASB) consultation paper ‘Accounting and Financial Reporting for Service Concession Arrangements’. The paper identifies issues and provides proposals to be considered in the development of international guidance for grantors (typically public sector entities) of service concession arrangements. Comments are sought by 30 June 2008.
Mineral Exploration Company Pays $33,000 Continuous Disclosure Fine
Sub-Sahara Resources NL (Sub-Sahara) paid a $33,000 fine following an ASIC investigation. ASIC alleged Sub-Sahara failed to properly inform the market about metallurgical test results obtained from the Zara Gold Project, a joint venture in Eritrea in which the company has an interest. Sub-Sahara elected to comply with the notice. As provided under the Act, compliance with the notice is not an admission of guilt or liability, and Sub-Sahara is not regarded as having contravened section 674(2) of the Act.
Sub-Sahara agreed to pay the fine following an infringement notice issued by ASIC on 16 April 2008. The notice alleged that the company failed to comply with continuous disclosure obligations contained in the Corporations Act by not immediately notifying the ASX of positive gold recoveries from three ore samples taken from a deposit within the Zara Gold Project. ASIC believed that by 4.13 p.m. Western Standard Time (WST) on 19 July 2007, Sub-Sahara was aware of the metallurgical results but did not announce that information to the ASX until 11.44 a.m. WST on 24 July 2007.
ASIC Reports on Better Disclosure in Unlisted Unrated Debentures
ASIC released its ‘Report 127: Debentures – Improving Disclosure for Retail Investors’ that presents the findings of a review into disclosures made by each of the unlisted, unrated debenture issuers against the new disclosure regime. The disclosures are based on benchmarks on issues ranging from equity capital levels to enhanced transparency of valuations that arise from ‘Regulatory Guide 69 Debentures – Improving Disclosure for Retail Investors’ (October 2007). The Guide requires debenture issuers to disclose against eight benchmarks on an ‘if not - why not’ basis in their prospectuses and on-going disclosures.
ASIC has also developed and implemented advertising guidance ‘Regulatory Guide 156 – Debenture Advertising’ for all debenture issuers and publishers, setting out standards that it expects issuers to meet when advertising debentures that are offered to retail investors. These guidelines became effective at the end of January 2008. ASIC continues to monitor the standard of advertising among the debenture issuers.
ASIC has complemented the improved disclosure required from issuers with a new publication ‘Investing in Debentures? – Independent Guide for Investors Reading a Prospectus for Unlisted Debentures’ designed to provide further explanation of the new benchmarks.
ASIC has also commissioned research to better understand the profile and motivations of investors in unlisted and unrated debentures, and released its report ‘Understanding Investors in the Unlisted Unrated Debenture Market’. The research shows that the most important investment features for unlisted unrated debentures were the return/interest rate, the perceived low level of risk and the protection of funds invested. Nearly half the investors in this type of product were investing to produce income for their retirement or long-term savings.
ASIC will continue to monitor the disclosures made by debenture issuers over the next 12 months, and will also conduct further visits with debenture issuers in October 2008. A future report has been foreshadowed for release in April 2009.
CALDB Cancels QLD Auditor’s Registration
The Companies Auditors and Liquidators Disciplinary Board (CALDB) cancelled the registration of Mr. Ross Edward Hellyer following an application by ASIC. Mr. Hellyer’s registration as an auditor was cancelled for failing to lodge a Form 912 ‘Annual Statement by an Auditor’ as required under the Corporations Act. The annual statement discloses to ASIC the currency of the auditor’s practising capacity, audits performed and compliance with registration requirements. Mr. Hellyer was also ordered to pay ASIC’s costs.
ASIC’s application was also supported by Mr. Hellyer’s failure to maintain current auditing techniques and standards. The CALDB stated that it was imperative that registered auditors and liquidators are financially resourced and equipped to practice up-to-date techniques and to keep abreast with current requirements and professional standards.
FRC February Meeting Highlights
The Financial Reporting Council (FRC) held its second meeting for 2008 on 9 April 2008. A key audit independence issue considered by the FRC was the perceived incompatibility between the Australian due diligence committee arrangements, and the US interpretation of the application of their auditor independence requirements. The FRC will raise this with the Australian Professional and Ethical Standards Board, seeking an indication of whether this is an issue that the Board would explore.
IASB April Meeting Highlights
Highlights from the 14 – 18 April meeting of the International Accounting Standards Board included:
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate: Considered submissions received on ED ‘Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate’ (December 2007). Reaffirmed the following proposals:
An entity, at its date of transition to IFRSs in its separate financial statements, may use a deemed cost to account for investments in subsidiaries, jointly controlled entities, or associates The deletion of the definition of the ‘cost method’ from IAS 27 An entity is required to present dividends from investments in subsidiaries, jointly controlled entities and associates as income in its separate financial statements In a reorganisation in which equity instruments are issued by a new parent in exchange for equity instruments of the previous parent, the new parent must measure the cost of its investment in the previous parent at the carrying amount of the equity instruments of the previous parent in the separate financial statements of the previous parent at the date of the reorganisation The receipt of a dividend from its subsidiary, jointly controlled entity or associate may be an indicator of impairment; it is now not proposed to test for impairment Entities should apply the amendments prospectively, with the exception that entities would be permitted to apply retrospectively the requirements related to the formation of a new parent The effective date for the amendments will be 1 January 2009, with early application permitted
Liabilities – Amendments to IAS 37: Continued deliberations on responses to the ED. Reaffirmed the previous conclusion that commercial pressures do not amount to obligations to the parties affected by the restructuring, and decided not to change the ED proposals. Decided to add a requirement for entities to disclose details of restructuring activities that includes a description of the restructuring, the segment affected, any impairment charges recognised, the total costs associated with the restructuring and the nature and timing of those costs
Financial Instruments – Recognition and Measurement: Considered comments on the ED ‘Exposures Qualifying for Hedge Accounting’ (September 2007), and decided that any amendments to IAS 39 should address only: designation of a purchased option in its entirety as a hedging instrument of an item that contains no optionality, so that no ineffectiveness results, and the hedging of inflation risk in particular situations
Joint Ventures: Discussed submissions received on ED 9 ‘Joint Arrangements’, and reaffirmed the principles in it
IFRS 5 Amendments: IASB and FASB decided to develop a common definition of discontinued operations based on operating segments as defined in their segment reporting standards, and to require common disclosures related to components of an entity that have been disposed. The proposed amendments to IFRS 5 will be applied prospectively from a date to be determined when the amendments are finalised, with one exception: the amounts in the statement of comprehensive income should be restated on the basis of the revised definition of discontinued operations for all periods presented’. If an entity reclassifies its amounts presented in prior periods, it must disclose that fact and the amounts reclassified
Annual Improvements: In the context of 2008 improvement project, discussed whether IAS 39 ‘Financial Instruments: Recognition and Measurement’ paragraph 2(g) excludes from its scope ‘contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date.’ Decided to amend that paragraph to clarify that the scope exception applies only to forward contracts entered into before the acquisition date (i.e., before the date the acquirer obtains control of the acquiree) by an acquirer and a vendor in a business combination, to buy or sell an acquiree at a future date
IFRS for SMEs: Educational session held to discuss findings of the field testing on the exposure draft. No decisions were made
Revenue Recognition: Discussed three draft chapters of its forthcoming discussion paper on revenue recognition
Consolidation: Agreed that exposure draft would be issued in the third quarter of 2008 that includes a new definition of control and disclosure framework. This project focuses on improving the current requirements, rather than a fundamental review, and
Response to Credit Crisis: Reviewing areas where IFRS financial reporting could be improved including fair value, measurement, consolidation and derecognition; disclosures of off-balance sheet items; and disclosures about fair value measurements. In part, the ED being developed on consolidations includes enhancements to IFRS 7, in relation to the disclosure of information about off-balance sheet risks and fair value measurement.
IFRIC May Meeting Agenda
The IFRIC agenda for 8 May meeting included:
D21 ‘Real Estate Sales’: Final redeliberations and consideration of draft Interpretation D22 ‘Hedges of a Net Investment in a Foreign Operation’: Final redeliberations and consideration of draft Interpretation ED IFRS 2 ‘Share-Based Payment; and IFRIC 11 IFRS 2 ‘Group Treasury Share Transactions’: Preliminary discussion on comment letters Review of Tentative Agenda Decisions: IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ – Deposits on returnable containers; and IAS 19 ‘Employee Benefits’ – Settlements, and Tentative Agenda Decision: Application of the Effective Interest Rate Method.
Enhanced GAAP Resources
Justin Reid CA has been appointed an Associate of GAAP Consulting. Justin has 14 years experience in providing audit and assurance service. He will lead our audit training and advisory services (including, GAAS and independence advice, quality assurance reviews, and development of quality control policies and procedures for firms). Justin has held senior positions with WHK Group Ltd, and Moore Stephens.
Justin joins Colin, Jim, and our network colleagues David Sauer, Stephen La Greca and Greg Pound to meet your financial reporting and auditing needs.
In-house Financial Reporting and Auditing Courses for 30 June 2008
GAAP Consulting can provide two half-day courses on financial reporting and auditing to help you prepare for the 30 June 2008 year end.
Financial Reporting for 30 June 2008 addresses: Accounting Standards and Interpretations Operative (AASB 7 ‘Financial Instruments: Disclosure’, AASB 101 ‘Presentation of Financial Statements’, Amending Accounting Standards, Interpretation on share-based payments, embedded derivatives, and Recap of ‘Routine’ Year End Considerations); and Accounting Standards and Interpretations Issued but not yet Operative (Borrowing Costs, Operating Segments, Inventories, Puttable Financial Instruments, Business Combinations and Consolidations, and Interpretations on treasury share transaction, Australian Petroleum Rent Resources Tax, customer loyalty programs, service concessions), and Auditing Update for 2008 addresses: Preparing for an ASIC Inspection; ASIC Auditor Surveillance Program Results; Latest Auditing Standards and Guidance; New Rules on Audit of SMSFs; and Audit Independence.
We also offer refresher courses on individual accounting and auditing standards. These courses include financial instruments, impairment, preparing for an audit, the risk-based auditing standards, and audit independence.
Colin’s Corner
During the January-April period, the GAAP Consulting team has been involved with:
Litigation Support: Advice on GAAP and GAAS, and Expert Witness Testimony Advice on Service Concession Arrangements Input into a manual on accounting for infrastructure assets Review of audit content for a software provider Preparation of internal and external financial reporting newsletters for accounting firms Participation at audit committee meeting as an independent member Participation at AASB meetings (February, March, April) Chairing AASB Roundtable on Not-for-Profit Definition and Guidance Financial reporting presentations: Preparing for 30 June Audit, 30 June Financial Reporting Update, Business Combinations, Customer Loyalty Programs, and Financial Instruments Disclosure Auditing presentations: The Risk Standards, and 30 June 2008 Audit Update Assistance with preparation of an audit tender and facilitation of tender team rehearsal, and Quality Control Review of audit files for an audit firm.
In relation to a recent half-day in house training course of ‘Financial Reporting for 30 June 2008’ Mr. Jude Lau, HLB Mann Judd Melbourne, stated that ‘the team found that the session was very informative and useful’.
Jim Dixon FCPA, Associate, GAAP Consulting, is presenting a paper on public sector accounting standards ‘Preparing for 30 June 2008 and Beyond’ for the CPA Conference ‘Centreing on Excellence’ 22 May in Sydney.
Outstanding Exposure Drafts
Accounting
19 May ED 162 ‘Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities’ – AASB 16 June Request for Comment ITC 15 on IPSASB ED 34 ‘Social Benefits: Disclosure of Cash Transfers to Individuals or Households’ – AASB 16 June IPSASB Consultation Paper ‘Social Benefits: Issues in Recognition and Measurement’ – AASB 30 June ITC ‘Accounting and Financial Reporting for Service Concession Arrangements’ – AASB 15 July ED 34 ‘Social Benefits: Disclosure of Cash Transfers to Individuals or Households’ – IPSASB 15 July Consultation Paper ‘Social Benefits: Issues in Recognition and Measurement’ – IPSASB 1 August Discussion Paper ‘Financial Instruments with Characteristics of Equity’ – AASB 1 August Consultation Paper ‘Accounting and Financial Reporting for Service Concession Arrangements’ – PSASB 22 August Discussion Paper ‘Reducing Complexity in Reporting Financial Instruments’ – AASB 5 September Discussion Paper ‘Financial Instruments with Characteristics of Equity’ – IASB 19 September Discussion Paper ‘Reducing Complexity in Reporting Financial Instruments’ – IASB 19 September Discussion paper ‘Preliminary Views on Amendments to IAS 19 Employee Benefits’ – IASB
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