GAAP ALERT No.8/2008
15 May 2008
AASB May Meeting Agenda
The agenda for 21-22 May meeting of the AASB includes:
Meeting with the Consultative Group (work program and priorities, international activities, superannuation plans, differential reporting, and parent entity financial statements) Amendments to AASB 1049 ‘Whole of Government and General Government Sector Financial Reporting’: Consider proposed amendments arising from AASB 101 GAAP/GFS Entities within the GGS Sector: Consider project plan and issues Not-for-Profit Entities: Consider submissions on ITC 14 ‘Proposed Definition and Guidance for Not-for-Profit Entities’ KMP Disclosures: Consider submissions on ED and draft Amending Standard Superannuation Plans and ADFs: Consider disclosure principles and measurement of ‘higher of’ options Differential Reporting/SMEs: Consider issues in NFP sector, and Interpretations: Consider status of projects.
APESB May Meeting Highlights
Highlights of the Accounting Professional & Ethical Standards Board Limited (APESB) meeting held on 12 – 13 May included:
APES 110 ‘Code of Ethics for Professional Accountants’: Agreed to issue a compiled version, with an effective date of 15 February 2008 that incorporates recent changes to the network firm definition and Corporations Act amendments enacted in June 2007 by the Simplified Regulatory System (SRS) legislation
ASIC Financial Reporting and Auditing Targets for 30 June 2008
Mr. Lee White, the Chief Accountant of ASIC, during his key note address at the National Institute of Accountants Tasmanian State Congress, identified the financial reporting and auditing areas of interest in relation to the forth coming 30 June reporting period. The financial reporting topics identified included:
Off-balance sheet arrangements Financial instruments valuation and disclosure under AASB 7 (which was considered poor for 31 December 2007 year ends) Impairment Significant judgements Related party disclosures Accounting currency fluctuations Classification current/non-current debt Timing of revenue recognition Capitalisation of expenditure
The auditing topics identified included:
Approval and provision of non-audit services Rotation of audit partners Standards poorly applied (analytical review, fraud, sampling, compliance, risk) New network firm definition in the context of APES 320 systems and processes, and Documentation.
APRA Research on Superannuation Fund Governance
The Australian Prudential Regulation Authority (APRA) has released the results of its recent research on the governance practices of APRA-regulated superannuation funds. The research provides the superannuation sector with some important insights into how trustees and boards are governing funds. Importantly, it shows that all superannuation sectors seem to be successful in selecting experienced and qualified trustee directors.
The research, based on a detailed survey of superannuation trustees, found that there was little difference between the Corporate, Public Sector, Industry and Retail sectors in many areas of trustee policies and practices. In some areas, however, there were statistically significant differences between the sectors, with Retail trustee practice more often different from that of the other sectors.
Major findings included:
Trustee directors of the large funds were typically well qualified, experienced and reasonably well trained in their trustee duties Most boards (76%) have both independent audit and regular self-assessment to review compliance with the Superannuation Industry (Supervision) Act 1993 and other regulations Service providers are widely used in the superannuation industry, with the average fund using more than 13 service providers. Over 60% of retail directors have one or more associations with service providers, a figure that is double that for directors of corporate funds and almost three times that for public sector or industry funds Relative to the other trustees, retail trustees have fewer directors, shorter (but just as frequent) board meetings, and rely more on fund executives to take the initiative on most key decisions. By contrast, trustees in the other three sectors mostly make the decisions with the main input coming either from themselves, or from their consultants More than half of all retail trustee directors are employed by related parties or by the fund itself, and very few are nominated by fund members. By contrast, many industry, corporate and public sector trustee directors are member-nominated, and More than half of corporate, public sector and industry trustee directors are themselves members of their funds. About one in five Retail trustee directors are members of their funds.
IASB May Meeting Agenda
The IASB agenda for the 20-23 May meeting includes:
Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ – Exposures Qualifying for Hedge Accounting: Discuss three main issues concerning proposed amendments Annual Improvements Process: Discuss the following issues and the staff’s proposed amendments: project scope and process; future ‘Improvements to IFRSs’; IAS 38 Intangible Assets (valuation techniques, and additional consequential amendments arising from the recently issued IFRS 3) Earnings per Share: Discuss issues identified as result of the review of the staff draft of amendments to IAS 33 ‘Earnings per Share’ Emissions Trading Schemes: Discuss the types of schemes and activities that should be in the scope of the project approaches IFRS 1 – First-time Adoption of International Financial Reporting Standards: Issues to be considered include: derecognition of financial assets and financial liabilities; property, plant and equipment with embedded elements of cost that would not be included in accordance with IFRSs, such as those held by entities subject to rate-regulation; and accounting for related party transactions IFRS for small and medium-sized entities (SMEs): Consider staff recommendations for changes to the recognition, measurement, and presentation requirements in the proposed IFRS for SMEs Liabilities – Amendments to IAS 37: Consider an analysis of the comment letters received on the proposed amendments to the requirements in IAS 19 ‘Employee Benefits’ relating to termination benefits, and Revenue Recognition: Discuss a draft chapter of the forthcoming discussion paper that examines two alternative measurement approaches (current exit price and customer consideration) for the proposed revenue recognition model. The IASB will determine its preliminary view in favour of one of these measurement approaches or a hybrid of the two.
IFRIC May Meeting Highlights
Highlight of IFRIC meeting held on 8 May included.
IFRIC D21 ‘Real Estate Sales’: Completed its deliberations on the scope of the Interpretation, application of IAS 18, the identification of a component for the sale of land, disclosures, transition, and effective date. The final Interpretation was agreed. The main expected change in practice will be a shift from recognition of revenue using the percentage of completion method to recognition of revenue at a single point of time (e.g., at completion, upon or after delivery). Affected agreements would be mainly those accounted for in accordance with IAS 11 that do not meet the definition of a construction contract, and do not result in a ‘continuous transfer’. The Interpretation will be effective for accounting periods beginning on or after 1 January 2009 with retrospective application
IFRS 2 ‘Share-based Payment’ and IFRIC 11 ‘IFRS 2 Group and Treasury Share Transactions – Group cash-settled share-based payment transactions’: Considered a preliminary analysis of the comments received on the Exposure Draft published by the IASB (December 2007), and approved the proposed project timetable for its decision-making
Rate regulated liabilities: IFRIC received a request to consider whether regulated entities could or should recognise a liability (or an asset) as a result of price regulation by regulatory bodies or governments. IFRIC will consider the scope of the issue, and whether the issue should be added to the IFRIC’s agenda at its July meeting
IFRIC Agenda Decisions: IFRIC decided not to add the following topics to its agenda: IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ – Deposits on returnable containers; and IAS 19 ‘Employee Benefits’ – Settlements, and
Tentative Agenda Decisions: Decided that the topic of application of the effective interest rate method should not be added to its agenda. The IFRIC was requested for guidance on the application of the effective interest rate method to a financial instrument whose cash flows are linked to changes in an inflation index. The IFRIC noted that paragraphs AG6–AG8 of IAS 39 provide the relevant application guidance, and judgement is required to determine whether an instrument is a floating rate instrument within the scope of paragraph AG7 or paragraph AG8. This tentative decision, including recommended reasons for not adding the items to the IFRIC agenda, will be reconsidered at the IFRIC meeting in July 2008. Constituents who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, can express their concerns by 16 June 2008 by email to: ifric@iasb.org.
Decisions made by IFRIC in due course impact Australian reporting entities.
Review of the IPSASB
The International Federation of Accountants (IFAC), in partnership with the World Bank, is seeking expressions of interest from professional accountants to carry out an evaluation of the activities of the International Public Sector Accounting Standards Board (IPSASB). The IPSASB, an independent standard-setting board within IFAC, develops international standards and guidance to improve public sector financial reporting and fiscal management. The IPSASB’s activities are partly financed by World Bank funding grants and, under the funding terms and conditions, an external review of these activities is periodically performed.
The review will cover matters including the extent of adoption of IPSASB standards worldwide, the effectiveness of the World Bank’s involvement in the IPSASB’s work, whether developing nations have an effective voice in IPSASB activities, and whether the governance and management of these activities are transparent and accountable. The evaluator can also propose other suggestions for improvements to the IPSASB’s standards development program.
Applicants must have substantive prior experience in public sector accounting or auditing, be a professional accountant, and a member of a professional accountancy body. The requirements for the evaluator and the issues to be addressed are contained in the Terms of Reference for the Evaluation of Development Grants Facility Program. The deadline for submitting an application to be the evaluator is 12:00 pm (EST), May 31, 2008.
IASB Trustees Constitution Proposals
The Trustees of the International Accounting Standards Committee (IASC) Foundation, the oversight body of the IASB announced that they will seek further public input on the proposals related to the first part of the Constitution Review. A round-table discussion will be held in the coming weeks before the publication of the official consultation document.
The first part of the Constitution Review is addressing two issues; the governance, and public accountability of the Foundation and the composition of the IASB. The IASC Foundation will announce further information about the public round table, including participation and timing.
Though emphasising the priority of public accountability, the Trustees will conduct a thorough and transparent Constitution Review that will enable interested parties to raise any issues they wish the Trustees to consider and to provide opportunities to comment on proposals.
The Trustees have established a Constitution Committee, which comprises seven Trustees. The Trustees as a whole will reach conclusions on the Constitution Review and the Constitution Committee will help manage the process.
The Trustees have established the following procedures to help ensure an efficient and transparent process:
The Constitution Committee will make non-binding recommendations to the Trustees, and the Trustees as a whole will make final decisions regarding any changes in the Constitution Any discussions related to the Constitution during the full Trustees’ meetings will be held during the public sessions of Trustees’ meetings The Committee will engage in intensive public consultations before making recommendations to the full Trustees. The consultations will include: discussions with interested parties; possibly, public meetings or round-table discussions around the world; the publication of papers to assist those attending the public discussions of the Trustees or the Committee to follow the deliberations; and the publication of all proposals with a period for public comment before the Trustees reach a conclusion.
The Trustees will advance the Constitution Review in two stages: make proposals on the organisation’s public accountability and the size and geographical diversity of the standard-setting body, the IASB, and review other aspects of the Constitution.
Key milestone are:
March – April 2008: Trustees developed preliminary proposals and document for the Constitution Review June 2008: Publication of proposals on public accountability and IASB size/geographical diversity (the first part of the Constitution Review) with comment period to end in August or September 2008 October 2008: Trustees conclude the first part of the Constitution Review at Beijing meeting with changes to take effect for 1 January 2009 October – November 2008: Trustees publish a discussion document seeking views on other issues to be incorporated as part of the Constitution Review (the second part of the Constitution Review) April 2009: Trustees to publish other constitutional proposals on issues identified, and October – November 2009: Conclusion of the Constitution Review.
Outstanding Exposure Drafts
Accounting
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
Auditing
30 May ED 2/08 ‘Proposed Standard on Review Engagements ASRE 2400 Reviews of Financial Reports Performed by an Assurance Practitioner Who is not the Auditor of the Entity (Replacement of AUS 902)’ - AUASB
30 May ED 3/08 ‘Proposed Standard on Review Engagements ASRE 2405 Review of Historical Financial Information Other than a Financial Report (Replacement of AUS 902)’ - AUASB
30 May AUASB ED 4/08 ‘Proposed Amendments to ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity’ - AUASB
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