GAAP ALERT No.10/2008
15 June 2008
By Colin Parker B.Bus FCA MAICD
Principal, GAAP Consulting, colin@gaap.com.au
Member of the Australian Accounting Standards Board
INTRODUCTION
Regulation Hot Spot: Highlights of ASIC Accounting Liaison Meeting
Amendments to Remuneration of Key Management Personnel
AASB June Meeting Agenda
Strengthened Independence Requirements from 1 July 2008
Ethics EDs Prospective Financial Reporting and Conformity with Auditing Standards
ED on Forensic Accounting Services by APESB
APESB Withdraws Superseded Professional Statements
AUASB June Meeting Agenda
Results of ASIC’s Audit Inspection Program
Rio Tinto $100,000 Continuous Disclosure Fine
Reporting to Shareholders by G100
IASB May Meeting Highlights
IASB June Meeting Agenda
IASB Forms Expert Advisory Panel on Financial Instruments Valuation
IOSCO’s Recommendations to Address Subprime Crisis
IOSCO to Expand Review of Audit Services
IPSASB June Meeting Agenda
Financial Reporting of Heritage Assets Update
Jim Dixon’s Recent Experiences
Regulation Hot Spot: Highlights of ASIC Accounting Liaison Meeting
By Jim Dixon FCPA, Associate, GAAP Consulting
The ASIC Accounting Liaison meeting was held in Melbourne on 6 June and addressed: Financial Reporting Surveillance Program (FRSP); Audit Inspection Program; Unlisted and Unrated Debentures; ASIC Policy Update; International Developments covering the recent International Forum of Independent Audit Regulators, and the recent meeting of International Organisation of Securities Commissions (IOSCO).
ASIC stated that its FRSP targeting methodology embodied no set approach and that each target was assessed according to the particular circumstances. Of the 250 reviews there were 23 individual follow ups. The main concerns included the treatment of goodwill and the measurement of impairment, determining the lowest level of arrangements representing a CGU, calculating value in use, determining the correct amount of minority interest in reverse acquisitions, fair value adjustments to investment properties, and determining the policy and the existence of an active market for intangibles. The next stage of the FRSP is to examine the reporting associated with 82 unrated, unlisted debentures
ASIC is to report results on the overall standard of auditing practice shortly (see ‘Results of ASIC’s Audit Inspection Program’). The main concern remains around inadequate documentation of audit evidence to support the conclusions arrived at in the working papers. Further comments covered the need for improvement in the regular review and assessment of internal performance.
ASIC requested that auditors ensure that they have fully implemented all requirements arising under CLERP 9, that there was continued testing of their independence, ongoing monitoring of quality assurance, and that the quality of audit files was enhanced. Specific areas for further future attention included; audit of related parties and following the requirements applicable to network of firms; approval of non-audit services; approvals when using the work of experts; and assessment of going concern.
ASIC released new class orders including: reducing and simplifying the requirements for wholly owned entities, including the removal of three requirements, amnesty for those previously not lodging the annual notice provided that they lodge by 30 June 2008, in future the solvency declaration needs to be signed by only one director, and the need for statutory declarations and certificates have been removed; relief for disclosing entities with short financial years; and reduced the lodging requirements for certain foreign-controlled small proprietary companies.
ASIC provided revised guidance for individuals and companies seeking registration as a company auditor or an authorised audit company. It has also made changes to AFS licensee annual reporting and auditor obligations; provided revised guidance on the use of experts and on the use of proforma information; and indicated that lodgement using Standard Business Reporting (XBRL) is expected to commence at 30 June 2010, and will probably involve a 2-3 year transition period for the full taxonomy to be implemented.
In reviewing financial reporting in a period of market turbulence, ASIC will review a range of practices including fair value impairments, off balance sheet events and transactions, debt/equity classifications, related party transactions, accounting for foreign exchange, AASB 101 disclosures relating to judgement and accounting policy, revenue recognition and expense deferral, going concern and disclosure of subsequent events. ASIC will also review the processes and documentation covering market turbulence.
Amendments to Remuneration of Key Management Personnel
Disclosing entities that are companies (listed or unlisted) will continue to only disclose the remuneration of key management personnel in their directors’ report, and will not be required to duplicate the information in financial reports as a result of the release of AASB 2008-4 ‘Amendments to Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities’, which amends AASB 124 ‘Related Party Disclosures’.
This amending standard is applicable to annual reporting periods ending on or after 30 June 2008, subject to such an annual reporting period not beginning before 30 June 2007. The AASB decided to allow disclosing entities that are companies to apply this standard to annual reporting periods beginning on or after 30 June 2007 that end before 30 June 2008.
Disclosing entities that are companies will avoid unnecessary duplication as a result of the amendment. Amending standard AASB 2008-4 relieves disclosing entities that are companies from having to print a considerable volume of the same information twice. As long as the information is disclosed in terms of s300A of the Corporations Act 2001 and Regulation 2M.3.03, duplication of this information will not be necessary.
While relief from duplication has been in place until now for listed companies, it was withdrawn for financial years beginning on or after 30 June 2007, as a consequence of the withdrawal of Corporations Act Regulation 2M.6.04. Accordingly, relief needed to be re-given and has now been expanded by the AASB to include all disclosing entities that are companies.
The following requirements have been deleted from AASB 124 ‘Related Party Disclosures’ as result of the amending standard:
Aus25.2 (Details of KMP) Aus25.3 (Changes in KMP after reporting date) Aus25.4 (Compensation) Aus25.5 (Principles of compensation) Aus25.6 (Modification of terms of share-based payments) Aus25.7.1 (Options and rights provided as compensation), and Aus25.7.2 (Equity instruments provided on exercise of options and rights granted as compensation)
The KMP disclosures as part of the directors’ report still need to be audited. The Corporations Act 2001 (s.308(3C)) states ‘If the directors’ report for the financial year includes a remuneration report, the auditor must also report to members on whether the auditor is of the opinion that the remuneration report complies with section 300A. If not of that opinion, the auditor's report must say why’. The Auditing and Assurance Standards Board is to shortly provide sample wording for this section of the audit report.
AASB June Meeting Agenda
The agenda for AASB 25 and 26 June meeting includes:
Superannuation Plans and ADFs: Consider disclosure principles and definition of accrued benefits Social Benefits: Consider submission on IPSASB ED Service Concessions: Educational session Cost of a Subsidiary: Consider draft Standard Conceptual Framework: Consider Preface to Exposure Draft Reporting Entity: Consider Preface to Discussion Paper Income Tax: Educational session Annual Improvements: Consider draft Standard Criteria for NFP departures from IFRS: Consider issues paper GAAP/GFS Entities within the GGS sector: Compare HoTARAC’s views with AASB’s tentative decision Interpretations: Consider recommendations of super contributions tax panel, and Differential Reporting: Consider Status report.
Strengthened Independence Requirements from 1 July 2008
Accounting firms that will become network firms under a newly-revised definition need to move quickly to ensure compliance, according to the Accounting Professional & Ethical Standards Board (APESB). APESB Chairperson Kate Spargo stated: “It’s important that all firms who will be considered network firms from July 1 act quickly to put in place the appropriate independence policies and procedures to ensure they’re compliant.”
The revised definition may have a significant impact on some small to mid-tier firms who may not have considered themselves network firms under the old definition. The revised definition strengthens independence requirements for audit and assurance engagements conducted by accounting firms who are part of a network. It will also ensure that independence requirements are implemented network-wide and provide greater clarity for firms about their responsibilities.
“While we know that many of the larger accounting firms already consider themselves a network firm, it’s possible some small to mid-tier firms out there who don’t consider themselves part of a network now will be under the new classification,” Ms Spargo said.
Under the revised definition, an accounting firm is considered part of a network when there is a larger structure aimed at co-operation in place and if one or more of the following apply: profit or cost sharing among the entities; share common ownership, control or management; common quality control policies and procedures; common business strategy; use of common brand name; or sharing of a significant part of professional resources.
“We strongly encourage firms to consider the impact of the revised definition on the way they do business”, Ms Spargo concluded.
Ethics EDs Prospective Financial Reporting and Conformity with Auditing Standards
The APESB has issued two exposure drafts for comment: ED 02/08 ‘Proposed Standard APES 345 Reporting on Prospective Financial Information included in a Disclosure Document’ and ED 03/08 ‘Proposed Standard APES 210 Conformity with Auditing and Assurance Standards’.
ED 02/08 ‘Proposed Standard APES 345 Reporting on Prospective Financial Information included in a Disclosure Document’ outlines the principles and mandatory requirements for members in public practice to abide by when they undertake reporting service engagements for clients. Key topics covered by the proposed standard include: fundamental responsibilities of members in public practice; professional independence; confidentiality, documentation and reporting; professional competence and due care; professional engagement; due diligence committees; public interest; and professional fees. The proposed standard introduces new requirements around the functioning of due diligence committees and is designed to ensure consistent practice across Australia.
Comments are sought on ED 02/08 by 16 July 2008. APES 345 will replace Professional Statement ‘F.2 Prospectuses and Reports on Profit Forecasts’. It is anticipated that APES 345 will be effective for engagements commencing on or after 1 January 2009, with early adoption permitted.
ED 03/08 Proposed Standard APES 210 ‘Conformity with Auditing and Assurance Standards’ outlines the principles and mandatory requirements for members to abide by when involved in the conduct of assurance engagements and related services engagements. Key topics covered by the proposed standard include: auditing and assurance standards; auditing and assurance guidance; public interest; independence; and professional competence and due care. The proposed standard has been updated in accordance with the new drafting conventions contained in the APESB’s ‘Due Process and Working Procedures’ document. APES 210 will replace APES 410 of the same name. Comments on ED 03/08 are sought by 4 July 2008.
ED on Forensic Accounting Services by APESB
The APESB issued ED 04/08 ‘Proposed Standard APES 215 Forensic Accounting Services’ that outlines the mandatory requirements and guidance for members who provide forensic accounting services. APES 215 has also been updated in accordance with recent court rulings concerning the conduct of forensic accountants and includes some mandated requirements that were previously only guidance under the old standards. Comments are sought by the 29 August 2008.
APES 215 covers the following topics: fundamental responsibilities of members; professional competence of members providing forensic accounting services; confidentiality requirements; professional engagement matters; expert witness services, lay witness services, consulting expert services and investigation services; quality control requirements; and professional fees.
APES 215 will replace APS 11 ‘Statement of Forensic Accounting Standards’ and GN 2 ‘Forensic Accounting’ and is designed to provide forensic accountants with additional guidance about their ethical responsibilities. The proposed standard will apply to members in public practice, as well as members in business (APS 11 applied to members in public practice). It is anticipated that the proposed standard will be effective from 1 July 2009.
APESB Withdraws Superseded Professional Statements
The APESB announced the withdrawal and replacement of the following professional statements, effective from 1 July 2008:
APS 1 ‘Conformity with Accounting Standards and UIG Consensus Views’ (replacement APES 205 ‘Conformity with Accounting Standards’ APS 2 ‘Terms of Engagement’ (replacement APES 305 ‘Terms of Engagement’) APS 6 ‘Statement of Taxation Standards’ (replacement APES 220 Taxation Services’), and APS 8 ‘Statement of Management Consulting Service Standards’ will also be withdrawn from 30 June 2008. This statement will not be replaced, as it is no longer relevant.
AUASB June Meeting Agenda
The agenda for 2 June meeting of the Auditing and Assurance Standards Board included:
ASAE 3100 ‘Compliance Engagements’ Guidance Statement – Auditor’s Report included in the Annual Directors’ Report Pursuant to S300a of the Corporations Act 2001 GS 009 ‘Financial and Compliance Audits of Self Managed Superannuation Funds’ Review Engagements, and ASA Redrafting.
Results of ASIC’s Audit Inspection Program
ASIC released the latest results of its audit inspection program and observed that Australia has a skilled audit profession committed to independence and audit quality. The report summarises the results of ASIC’s audit regulation activities from 1 July 2006 to 31 December 2007, which included audit inspections of 19 firms. ASIC’s audit inspection program commenced after the passing of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9). Since then, ASIC has published public reports on its inspection program to better inform firms, the investing public, companies, audit committees and other interested stakeholders.
ASIC significantly increased the number of audit and review engagements selected for review compared to prior periods, reflecting the evolving focus of the audit inspection program. ‘Our review of aspects of selected engagement files extends beyond monitoring compliance with the specific regulatory requirements and includes an assessment of whether sufficient and appropriate evidence is on file to support key decisions and significant judgements regarding the audit,’ said ASIC’s Chief Accountant Mr. Lee White.
Mr. White also noted that most firms inspected more than once by ASIC have committed resources and further enhanced quality control systems and processes to ensure compliance with the legislative requirements for auditor independence and audit quality. In contrast, some firms visited for the first time had not taken a proactive approach to planning and implementing effective policies, systems and processes.
‘The future focus of ASIC’s inspections will include those firms who audit significant public interest entities, and how firms are complying with the legally enforceable auditing standards. ASIC noted that ‘the downturn in market conditions experienced since late 2007 has introduced challenges for auditors that were not necessarily present in ASIC’s inspections’. ‘Specific areas of focus in the next inspection period will include technical consultations, using the work of experts, particularly in relation to fair value measurements, sectors that are at risk given the current market turbulence and using the work of other auditors,’ Mr. White said.
Rio Tinto $100,000 Continuous Disclosure Fine
Rio Tinto Limited (Rio Tinto) paid a $100,000 penalty after ASIC served an infringement notice alleging the company had failed to comply with the continuous disclosure provisions of the Corporations Act 2001, and relevant provisions of the ASX Listing Rules, in relation to its US$38.1 billion acquisition of Alcan Inc in 2007.
Rio Tinto agreed to pay the fine following the issue of an infringement notice by ASIC on 10 April 2008. The notice alleged that the company failed to comply with the continuous disclosure provisions by not immediately notifying the ASX of certain information about the acquisition. ASIC believes that by 2.30pm (AEST) on 12 July 2007, Rio Tinto was aware of the following information: Rio Tinto had made an offer to acquire all of Alcan’s outstanding common shares for US$101 per common share that valued Alcan common shares at US$38.1 billion; and the Alcan Board had agreed to unanimously recommend acceptance of Rio Tinto’s offer to Alcan shareholders, subject to the finalisation of a number of legal issues (the Information).
ASIC believes that from 2.30pm, the Information ceased to be confidential upon the publication of an article by Dow Jones Newswires which reported as follows: ‘Rio Tinto was last night in the closing stages of a deal to purchase Canadian aluminium giant Alcan Inc. to help the Canadian aluminium giant stave off a hostile bid from Alcoa Inc., according to people familiar with the transaction. A final deal should be announced early today, these people said, and was expected to carry an all-cash price tag approaching $100 a share, valuing the deal at about $37 billion.’
Under the Act, Rio Tinto was required to notify the ASX of the Information immediately upon it ceasing to be confidential. At approximately 3.40pm, Rio Tinto requested a trading halt in respect of its ASX listed securities. This trading halt was applied at 3.42pm and an announcement was made to ASX concerning the Information at approximately 4.00pm. Rio Tinto elected to comply with the infringement notice. As provided by the Act, compliance with the notice is not an admission of guilt or liability, and Rio Tinto is not regarded as having contravened subsection 674(2) of the Act (Obligation of an entity to provide information to market operator).
Reporting to Shareholders by G100
The Group of 100 together with Ernst & Young have developed a 10-page guide ‘Reporting to Shareholders – a Good Practice Guide’ that provides practical guidance to support the shareholder reporting process. The Guide topics include the purpose of annual report, reporting principles, summary of the guidelines, the guidelines in detail, concluding comments and an appendix that includes examples of good practice.
IASB May Meeting Highlights
Highlights of the 19-23 May meeting of the IASB included:
IFRS for Private Entities (small and medium-sized entities, or SMEs): The following decisions were made:
Title: Revised to ‘International Financial Reporting Standard for Private Entities’ Structure: A stand-alone standard, with no cross-referencing to full IFRSs Accounting policy options: All options in full IFRSs will be available Small listed entities: These are not to be included in the scope Entities that receive funds in a fiduciary capacity: An entity that holds funds in a fiduciary capacity as an adjunct to its principal business will be permitted to use the standard, and Subsidiary of an IFRS entity: Where a subsidiary of an IFRS entity uses the recognition and measurement principles in full IFRSs, it must provide the disclosures required by full IFRSs, not the disclosures required by the IFRS for private entities.
IAS 33 ‘Earnings per Share’: Reviewed a pre-ballot draft of an exposure draft proposing amendments to IAS 33.
IAS 39 ‘Financial Instruments: Recognition and Measurement’: In the context of its deliberations on the exposure draft ‘Exposures Qualifying for Hedge Accounting’ (September 2007), agreed an effective date of 1 January 2009, and that the amendments should be applied retrospectively.
Annual Improvements Process: Made two decisions in the context of IAS 38 ‘Intangible Assets’. Amended paragraphs 40 and 41 to clarify the description of the valuation techniques commonly used to measure intangible assets at fair value when they are not traded in an active market. These amendments should be applied prospectively. Made consequential amendments to paragraphs 36 and 37 to reflect the decision in the revised IFRS 3 ‘Business Combinations’, i.e., that if an intangible asset acquired in a business combination is identifiable, sufficient information exists to measure reliably the fair value of the asset. The effective date of the amendments is 1 July 2009.
Emissions Trading Schemes: Decided to address the accounting for all tradable emissions rights and obligations arising under such schemes, and accounting for activities that an entity undertakes in contemplation of receiving tradable rights in future periods. Decided issues to be addressed should not be constrained by existing IFRSs, but the Framework would still apply.
First-time adoption of IFRSs: Added a project to its agenda to address the challenges likely to be faced by jurisdictions and companies that are adopting IFRSs in the near future. An exposure draft of proposed amendments to IFRS 1 is to be developed.
Revenue recognition: Discussed a draft chapter on measurement for the forthcoming discussion paper on revenue recognition in which two measurement approaches are described. The ‘customer consideration’ approach, whereby the performance obligations are initially measured by allocating a proportion of the contract price to each individual obligation. Subsequently, a performance obligation is remeasured only if it is onerous. In the ‘current exit price approach’, performance obligations are measured at exit price both initially and subsequently. The IASB favours the former.
Fair Value Measurement: Announced plans to form an expert advisory panel, as recommended in the report of the Financial Stability Forum (FSF) ‘Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience’. The report recommended that the IASB should enhance its guidance on valuing financial instruments when markets are no longer active by establishing an expert advisory panel. It will assist the IASB reviewing best practices in valuation techniques, and formulating practice guidance on valuation methods for financial instruments and related disclosures.
These decisions will in due course be reflected in the AASB standards and in the AASB work program.
IASB June Meeting Agenda
The agenda for 17-20 June meeting of the IASB included:
IFRIC Interpretations: Ratify IFRIC X ‘Agreements for the Construction of Real Estate’ that provides an Interpretation of IAS 11 ‘Construction Contracts’ and IAS 18 ‘Revenue’ addressing the accounting for revenue and associated expenses by entities that undertake the construction of real estate; and ratify IFRIC X ‘Hedges of a Net Investment in a Foreign Operation’ that provides an Interpretation of IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ addressing hedge accounting of a net investment in a foreign operation Discontinued Operations (Amendments to IFRS 5): Final review of pre-ballot draft of the exposure draft International Financial Reporting Standard for Private Entities (formerly IFRS for SMEs): Continue consideration of recommendations for changes to the recognition, measurement, and presentation requirements in the proposed IFRS for SMEs Fair Value Measurement: Consider reaffirmation of its preliminary views in the ‘Fair Value Measurements’ discussion paper FASB Hedging project: An education session where FASB staff will discuss their Exposure Draft on hedge accounting Expert Advisory Panel on Valuing Financial Instruments in Inactive Markets: Consider an update on the June 13 meeting of the Expert Advisory Panel on Valuing Financial Instruments in Inactive Markets Annual Improvements Process: Discuss proposed amendments: IAS 7 ‘Statement of Cash Flows’ – Classification of expenditures; IAS 36 ‘Impairment of Assets’ – Unit of accounting for goodwill impairment test; IFRS 2 ‘Share-based Payment’ – Scope of IFRS 2 and revised IFRS 3 Financial Statement Presentation: Discuss whether IASB’s long-term views on presentation in the statement of comprehensive income should remain in the scope of phase B and if not, the impact of that scope change on the presentation of other comprehensive income, income taxes, and earnings per share; limiting the extent to which Phase B of the project results in new note disclosures; and the definition of the operating and investing categories, and preparation of the reconciliation schedule Extractive activities research project: Consider approaches for identifying when minerals and oil & gas assets should initially be recognised as assets on the balance sheet, and Conceptual Framework – Phase B: Continue discussion of the definition of a liability; consider when a statute gives rise to a liability and how to deal with uncertainty about the existence of a liability (and an asset).
IASB Forms Expert Advisory Panel on Financial Instruments Valuation
At its May 2008 meeting, the IASB announced its plans for forming an expert advisory panel in response to the recommendations made by the Financial Stability Forum. The advisory panel comprises experts from preparers, users, regulators and auditors; and have been selected based on their practical experience with the valuation of financial instruments in the current market environment.
The panel will assist the IASB in: reviewing best practices in the area of valuation techniques, and formulating any necessary additional practice guidance on valuation methods for financial instruments and related disclosures when markets are no longer active. The discussions of the panel members over the next few months will give the IASB insight into the type and extent of additional guidance that might be necessary in this area and the form of any such guidance. The discussions of the panel will provide input for the IASB’s work on financial instruments and fair value measurement.
At its 13 June meeting, the IASB has asked the panel to submit a description of practical issues experienced with the valuation and disclosure of financial instruments in the current market environment.
IOSCO’s Recommendations to Address Subprime Crisis
International Organisation of Securities Commissions (IOSCO) published a final report of its Technical Committee’s Task Force on the Subprime Crisis. The report contains an analysis of the underlying causes of the subprime crisis, the implications for international capital markets, and recommendations that address the issues facing securities regulators. ASIC is a member of IOSCO.
The report focuses on the market for structured finance products and the specific areas where failings were identified by the task force in November 2007. The paper contains a comprehensive analysis of the particular problems encountered in the four key areas, and contains recommendations by the Technical Committee for future IOSCO work to counter these issues in three of these areas: issuer transparency and investor due diligence; firm risk management and prudential supervision; valuation and accounting issues.
The Task Force on Credit Rating Agencies also published its final report on changes to the IOSCO ‘Code of Conduct Fundamentals for Credit Rating Agencies’. The changes contained in that report are aimed at strengthening their processes and procedures to protect the integrity of the ratings process, ensure that investors and issuers are treated fairly and safeguard confidential material information provided to them.
IOSCO to Expand Review of Audit Services
The Audit Services Task Force of the IOSCO Technical Committee announced its agenda which includes: transparency and governance of audit firms, including the intersection of governance with both firm viability and audit quality; the scope of audit reports, including varying levels of assurance in different circumstances, the possibility of enhanced disclosure of the bases for different levels of assurance, and the potential role of joint audits; and potential expansion of allowable organisational structures and forms to allow for greater firm viability and industry competition.
The Task Force also released its report ‘Contingency Planning for Events and Conditions Affecting the Availability of Audit Services’. The report is intended to assist IOSCO members in considering and preparing for potential contingencies involving audit firms that may affect the delivery of audit services in the global capital markets.
IPSASB June Meeting Agenda
The agenda for June 16-19 meeting of the International Public Sector Accounting Standards Board (IPSASB) included the following:
Conceptual Framework Phase 1: Approve Consultation Paper Conceptual Framework Phase 2: Discussion of issues Financial Instruments IAS 32/39/IFRS 7/Public Sector: Rules of the Road Analysis/Discussion of issues IFRS Convergence/IFRICs: Report and agreement of proposals Cash Basis Review: Update Entity Combinations: Rules of the Road Analysis/Discussion of issues Borrowing Costs: Approve Exposure Draft, and Intangible Assets: Project Brief and Discussion of Issues.
Financial Reporting of Heritage Assets Update
The UK Accounting Standards Board (ASB) issued a revised Financial Reporting Exposure Draft (FRED) that aims to improve the quality of the financial reporting of heritage assets. It applies to museums, galleries and other entities that house historic collections of art, antiques and books, or that own or manage land or buildings with important environmental or historical qualities. Comments on FRED 42 are requested by 10 October 2008.
The main feature of the proposals is that enhanced disclosures should apply to all entities that hold heritage assets, regardless of whether these assets are recognised in the balance sheet. These disclosures should provide readers with an understanding of the asset values being reported, as well as the entity’s policies for managing its total holding of heritage assets. The proposals also require heritage assets to be recognised in the balance sheet where information is available on cost or value. The ASB remains of the view that heritage assets are assets, and that the best financial reporting is secured when they are recognised as such in the balance sheet.
The ASB’s project on heritage assets addresses criticisms of the current financial reporting requirements for heritage assets. The proposals set out in FRED 42 have been developed from the Discussion Paper ‘Heritage assets: Can accounting do better?’, (January 2006) and FRED 40 ‘Accounting for heritage assets’ (December 2006). The Discussion Paper and FRED 40 both proposed that entities should be required to report heritage assets at a valuation in the balance sheet where this was practicable, otherwise a non-recognition approach was to be required. The Discussion Paper proposed the accounting policy should be applied for an entity’s total holding of heritage assets whilst FRED 40 proposed it should be applied for each individual collection.
Many of the proposals in the Discussion Paper and FRED 40 were welcomed by respondents, although there were concerns about the proposal to require separate consideration of each collection. Respondents commented that this would be difficult to implement and could cause difficulties for auditors. The ASB noted these concerns and was also aware that requiring valuation, where practicable, could result in even fewer heritage assets being recognised than under current practice.
The UK Discussion Paper formed the basis of a Discussion Paper released by the International Public Sector Accounting Standards Board, and the AASB. These UK developments may influence the future direction of the IPSASB project which may in turn influence the decisions of the AASB on heritage assets.
Jim Dixon’s Recent Experiences
Jim Dixon, Associate, GAAP Consulting, during the April-May period has been involved with the following:
Advice to client on the possible implications for classification of leases arising from the proposed implementation of various change processes Advice on accounting for real estate sales by a unit trust Presented training on financial instruments and year-end issues to staff of a city based chartered accounting firm Consultant to developing Australian Infrastructure Financial Management Guidelines for local and state governments Keynote speaker on financial reporting at the NSW CPA Public Sector Conference ‘Centering on Excellence’ Elected to the Committee of Management, and confirmed as Honorary-Treasurer of the Living Museum of the West Inc Attendee at ASIC Accounting Liaison Committee Meeting Presentation to ICAA discussion group on preparing for 30 June 2008, and Presented two 2 hour live online internet training sessions for public sector staff on financial instruments and financial reporting issues.
Outstanding Exposure Drafts
Accounting
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 29 September ‘An Improved Conceptual Framework for Financial Reporting: Chapter 1: The Objective of Financial Reporting and Chapter 2: Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information)’ – IASB and FASB 29 September ‘Preliminary Views on an Improved Conceptual Framework for Financial Reporting: The Reporting Entity’ – IASB and FASB
Ethics
31 August ‘Section 290 of the IFAC Code of Ethics for Professional Accountants, Independence - Audit and Review Engagements’ – IESBA
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