GAAP ALERT No.16 /2008 To read online click here
15 September 2008
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Interpretation 15 ‘Agreements for the Construction of Real Estate’ Released
The AASB released Interpretation 15 ‘Agreements for the Construction of Real Estate’ that applies to the accounting for revenue and associated expenses by entities that enter into agreements for the construction of real estate directly or through subcontractors. It addresses two issues: Is the agreement within the scope of AASB 111 Construction Contracts or AASB 118 Revenue, and when should revenue from the construction of real estate be recognised? AASB Interpretation 15 is equivalent to Interpretation IFRIC 15 ‘Agreements for the Construction of Real Estate’, issued by the IASB. Interpretation 15 applies to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted.
Interpretation 16 ‘Hedges of a Net Investment in a Foreign Operation’ Issued
The AASB issued Interpretation 16 ‘Hedges of a Net Investment in a Foreign Operation’ that provides guidance on accounting for the hedge of a net investment in a foreign operation in an entity’s consolidated financial statements. Interpretation 16 applies to annual reporting periods beginning on or after 1 October 2008, with early adoption permitted. Prospective application is required. Interpretation 16 clarifies that:
The presentation currency does not create an exposure to which an entity may apply hedge accounting. A parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation The hedging instrument(s) may be held by any entity or entities within the group, and While AASB 139 ‘Financial Instruments: Recognition and Measurement’ must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ must be applied in respect of the hedged item.
2nd Improvements ED Released
The AASB released ED 165 ‘Improvements to Australian Accounting Standards’ based on the IASB ED of the same title. The objective of the IASB’s annual improvements project is to provide a streamlined process for dealing with a collection of miscellaneous, non-urgent but necessary minor amendments to IFRSs. The proposals in the ED, if adopted, would result in amendments to the following Australian Accounting Standards:
AASB 2 ‘Share-based Payment’: Scope of AASB 2 and revised AASB 3 AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’: Disclosures of non-current assets (or disposal groups) classified as held for sale or discontinued operations AASB 8 ‘Operating Segments’: Disclosure of information about segment assets AASB 107 ‘Statement of Cash Flows’: Classification of expenditures on unrecognised assets AASB 118 ‘Revenue’: Determining whether an entity is acting as a principal or as an agent AASB 136 ‘Impairment of Assets’: Unit of accounting for goodwill impairment test AASB 138 ‘Intangible Assets’: Additional consequential amendments arising from the revised AASB 3 ‘Business Combinations’, and measuring the fair value of an intangible asset acquired in a business combination, and AASB 139 ‘Financial Instruments: Recognition and Measurement’: Scope exemption of business combination contracts; application of the fair value option; cash flow hedge accounting; and bifurcation of an embedded foreign currency derivative.
It is proposed that two of the amendments in this Standard be applicable to annual reporting periods beginning on or after 1 July 2009, and that the remaining amendments be applicable to annual reporting periods beginning on or after 1 January 2010, with early adoption permitted. Comments are requested to the AASB by 20 October 2008.
Simplified EPS Calculation Proposals
The AASB has released ED 166 ‘Simplifying Earnings per Share: Proposed Amendments to AASB 133’. ED 166 seeks comments from Australian constituents on proposed amendments to AASB 133 ‘Earnings per Share’, the equivalent to IAS 33 ‘Earnings per Share’. The IASB has recently issued an ED as part of its convergence project with the US FASB. The AASB requests comments by 31 October 2008.
The objective of the IASB’s convergence project is to reduce differences between IFRSs and US GAAP that are capable of resolution in a relatively short time and can be addressed outside current and planned major projects. The proposals in the ED aim to achieve convergence of the denominator of EPS calculation according to IAS 33 and SFAS No. 128 ‘Earnings per Share’. The ED on IAS 33 sets out the principles for determining the denominator (the weighted average number of shares of the parent entity outstanding for the period) and the numerator (profit or loss attributable to ordinary equity holders) in EPS calculations.
FRC August Meeting Highlights
Highlights of 12 August meeting of the Financial Reporting Council included:
IASB Update by Sir David Tweedie (Chairman of IASB): Outlined that the next 12 months will determine accounting standards for the next ten years with nine key projects on the IASB’s work agenda that are scheduled to be substantially finished by 2011. The projects are:
Fair Value Measurement: Plans to issue guidance in the next few weeks
Consolidation: An exposure draft is due for release in the fourth quarter of 2008 with a revised standard being issued in the second half of 2009
Derecognition: This project aims to reconcile the different approaches the IASB and US GAAP have to derecognition with initial staff findings to be discussed at the joint meeting IASB/FASB meeting in October
Financial Instruments: The discussion paper ‘Reducing Complexity in Reporting Financial Instruments’ is open for comment until 19 September 2008
Financial Statement Presentation: A discussion paper is expected to be published in the third quarter of 2008
Liability/Equity: The IASB and the FASB are conducting a joint project to develop concepts for revenue recognition, and a general standard based on those concepts. The latter would replace IAS 11 ‘Construction Contracts’ and IAS 18 ‘Revenue’. A Discussion Paper will be released in the second half of 2008 Pensions: The Discussion Paper on Amendments to IAS 19 are sought by 26 September 2008 Leases: Discussion Paper is expected to be released in the fourth quarter of 2008 that will propose fundamental change in accounting for leases Outcomes of G100/FRC Review of Australia’s Experience in Implementing IFRS: The FRC and G100 commissioned PriceWaterhouseCoopers to survey G100 members on their experience with IFRS. The results will be considered at a future meeting. An FRC/G100 workshop was held on 11 August, and as result, a working group was established to consider and make recommendations to the IASB on disclosures Emissions Trading: The IASB is working towards having a standard for emissions trading finalised by 2010. If the standard is not finalised, Sir David considered Australia could apply the draft standard. Sir David provided an assurance that Australia would be provided flexibility to adopt a draft standard and still remain IFRS compliant.
IASB and FASB Updated MOU and Targets for 2011
The IASB and the US FASB published an update of their 2006 Memorandum of Understanding (MoU) that describes the progress made since 2006, and sets the goal of completing their major joint projects by 2011; the date a number of jurisdictions including Canada, India, Japan and Korea have announced plans to adopt or converge with IFRSs.
The MoU set the goal of concluding by 2008 whether major differences in a few focused areas should be eliminated through one or more short-term projects. The status of those short-term projects is:
Projects Completed: Converging IFRSs with US GAAP, the IASB published new standards on borrowing costs (IAS 23 revised) and segment reporting (IFRS 8). Bringing US GAAP into line with IFRSs, the FASB issued new or amended standards that introduced a fair value option (SFAS 159) and adopted the IFRS approach to accounting for research and development assets acquired in a business combination (SFAS 141R)
Ongoing Short-term Convergence: The IASB published an ED on joint arrangements (September 2007), and expects to release a final standard at the beginning of 2009. The IASB plans to publish a proposed standard on income taxes that would improve IAS 12 ‘Income Taxes’, and eliminate certain differences between IFRSs and US GAAP. The FASB is to publish a proposed standard on subsequent events in the second half of 2008. In that time frame, the FASB will review its strategy for short-term convergence projects in light of the possibility that some or all US public companies might be permitted or required to adopt IFRS at some future date. As part of that review, it will issue an Invitation to Comment containing the IASB’s proposed replacement of IAS 12. At the conclusion of that review, the FASB will decide whether to undertake projects that would eliminate differences in the accounting for taxes, investment properties, and research and development by adopting the relevant IFRS standards (IAS 12, as revised, IAS 40, and IAS 38), and
Short-term Convergence Work Deferred: Decided to defer completing projects on government grants and impairment until other work is complete.
The MoU (February 2006) set milestones to be achieved on major joint projects by 2008. At their April 2008 joint meeting, the IASB/FASB agreed on priorities and milestones to be achieved on those projects by 2011. They also agreed that the goal of joint projects is to produce common, principles-based standards.
In seven of the 11 areas identified by the MoU, the IASB/FASB have either completed a common standard, reached similar conclusions, or are currently working jointly to develop a common, high quality standard. In the other four areas, the IASB/FASB are at different stages of developing their approach to the topic to address immediate areas of concern. The projects and expected completion dates are:
Business Combinations: Project completed with FAS 141R issued in 2007, and the revisions to IFRS 3 issued in 2008 with a post-implementation review planned for the first half of 2012
Financial Instruments (replacement of existing standards): Discussion papers issued, but a completion date is yet to be determined
Financial Statement Presentation: Discussion paper in the third quarter of 2008
Intangible Assets: Decided not to add a project to their joint active agenda
Leases: Project added to the joint agenda with an estimated completion date of 2011 for accounting standard
Liabilities and Equity Distinctions: ED in 2009 and the estimated completion date for the accounting standard is 2011
Revenue Recognition: Estimated completion date is 2011
Consolidations: Final standard in 2009-2010
Derecognition: Final standard in 2009-2010
Fair Value Measurement: IASB ED in first half of 2009 and standard in 2010, and
Post-employment Benefits (including pensions): IASB ED in 2009 and standard in 2011.
The Boards will consider staggering effective dates of standards to ensure an orderly transition to new standards. Consistent with its current practice, the IASB will consider permitting early adoption of its standards.
IFRIC September Meeting Highlights
Highlights of 4 and 5 September meeting of International Financial Reporting Interpretations Committee included:
IFRIC D23 ‘Distributions of Non-cash Assets to Owners’: Completed redeliberations of draft Interpretation D2; voted and confirmed the consensus. The main changes relate to: clarifying the scope regarding common control transactions; specifying the measurement of the dividend payable; modifying the disclosure requirements; adding guidance on when to recognise the dividend payable. It is expected the final Interpretation will become effective for distributions recognised in annual periods beginning on or after three months after it is issued
IFRIC D24 ‘Customer Contributions’: On going redeliberations, and at November meeting will consider a revised draft of the Interpretation that takes into account the tentative views reached and includes a basis for conclusions and illustrative examples
Customer-related Intangible Assets: There is diversity in practice regarding which customer relationships have a contractual basis and those that do not. Agreed that the issue should be added to the agenda, and noted that the outcome of this project would not necessarily be an Interpretation
Regulatory Assets and Liabilities: Discussion was educational and no decisions were made, and the topic will be considered further at the November meeting
IFRIC Agenda Decisions: The following issues were not added to the agenda: IAS 17 ‘Leases’ – Time pattern of the user’s benefit; IAS 18 ‘Revenue’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’ – Accounting for trailing commissions’; and IAS 32 ‘Financial Instruments: Presentation” – Transaction costs to be deducted from equity, and
Tentative Agenda Decisions: Reviewed the following matters and tentatively decided that they should not be added to the agenda: IAS 39 ‘Financial Instruments: Recognition and Measurement’: Valuation of restricted securities; IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – Stable workforce assumption. These tentative decisions, including recommended reasons for not adding the items to the IFRIC agenda, will be reconsidered at the November meeting. Constituents who disagree with the proposed reasons, or believe that the explanations may contribute to divergent practices, are encouraged to communicate those concerns by 13 October 2008 by email to: ifric@iasb.org.
Expressions of Interest re AASB and AUASB Board Positions
The FRC is seeking expressions of interest from people wishing to fill part-time vacancies on the AASB and AUASB that become available in 2008-09. Board members of the AASB and the AUASB are responsible for developing, issuing and maintaining accounting and auditing standards respectively.
Participating as a board member provides a unique opportunity for an appropriately qualified person to contribute to leading edge developments in accounting and auditing standards, and to play a positive role in Australia’s financial reporting environment. The boards operate within a global context, and provide valuable input and influence over the development of international standards and their application to the Australian legal framework.
The boards comprise a range of people with particular skills, incorporating experience in business, accounting, auditing, law, academia or government. Prospective board members would usually be senior members in their respective area of employment/engagement, and have specialised qualifications in their field of endeavour. Applicants should have specific technical skills in their relevant area of expertise. Such technical skills need to be accompanied with an ability to conceptualise the overarching public benefit provided by standards.
Individuals should be able to communicate with influence in presenting and debating material amongst their fellow board members. Applicants must have strongly developed interpersonal skills to work collaboratively to reach decisions. People who join the boards are expected to thoroughly understand the topics of discussion, and have access to resources that will assist in their contribution to the debate. Board members attend eight to ten meetings per year, sometimes over several days per meeting. Additionally, time needs to be set aside for reading and researching the topics. Sitting fees and other expenses are paid in line with government regulations (www.frc.gov.au). Significant additional time input is required in reading and researching for each meeting.
Expressions of interest should address the selection criteria, as set out on the FRC website, and be submitted by 3 October 2008 to: Mr. Klaus Zimmermann, Chairman, FRC Nominations Committee, C/- The Treasury, Langton Crescent, Parkes ACT 2600, Attention: Darinka Zubovic, expressions of interest can also be faxed to (02) 6263-2770 or emailed to Darinka.Zubovic@treasury.gov.au.
Improved ASIC Disclosure Guidance for Unlisted Mortgage and Property Schemes
ASIC released final regulatory guides aimed at improving disclosure to retail investors by unlisted mortgage schemes and unlisted property schemes: Regulatory Guide 45 ‘Mortgage Schemes Improving Disclosure for Retails Investors’ (45 pages) and Regulatory Guide 46 ‘Unlisted Property Schemes Improving Disclosure for Retails Investors’ (36 pages). The guides cover the $42 billion under management in the unlisted retail mortgage scheme sector and the $28 billion unlisted retail property scheme sector. The guides contain requirements to be addressed by 30 November 2008.
In response to the submissions received, ASIC has: modified certain aspects of the benchmarks and disclosure principles and advertising guidance in the regulatory guides; clarified the method of communication of the information to retail investors; and modified the implementation timetables.
ASIC encourages responsible entities to communicate the enhanced disclosure information to investors; and it also encourages responsible entities, compliance committees and compliance plan auditors to engage with this guidance in a timely manner.
Benchmarks for unlisted mortgage schemes are:
Liquidity: Ability to satisfy withdrawal requests and other operational commitments Scheme borrowing: Policy on borrowing Portfolio diversification: Lending practices and portfolio risk Related party transactions: Risks associated with related-party lending, investments and transactions Valuation policy: Valuation practices Lending principles loan-to-valuation ratios: Property-related lending practices Distribution practices: Transparency of the scheme’s distribution practices, and Withdrawal arrangements: Transparency of the responsible entity’s approach to withdrawals of investments.
Disclosure principles for unlisted property schemes are:
Gearing ratio: Extent to which a scheme’s assets are funded by external liabilities Interest cover: Ability to meet interest payments from earnings Scheme borrowing: Information on the scheme’s borrowing maturity and credit facility expiry and any associated risks, including loan covenant information Portfolio diversification: Investment practices and portfolio risk Valuation policy: Valuation practices Related party transactions: Risks associated with related-party lending, investments and transactions Distribution practices: Transparency of the scheme’s distribution practices, and Withdrawal rights: Information where a scheme gives investors withdrawal rights.
ASIC has produced companion investor guides for both sectors to assist investors in understanding the enhanced disclosure and make better informed investment decisions. These guides will be released later this month.
AUASB September Meeting Agenda
The agenda for 9 September 2008 meeting of the AUASB included:
IAASB Matters: Quality Control – “Clarity” versions of Proposed ISA 220 (Redrafted) and Proposed ISQC 1 (Redrafted) - Implications for AUASB ASA Clarity Redrafting: Consider ASA 230 ‘Audit Documentation’, ASA 300 ‘Planning an Audit of a Financial Report’, ASA 600 ‘Group Audits’; ASA 540 ‘Audit of Accounting Estimates’; ASA 560 ‘Subsequent Events’; and ASA 570 ‘Going Concern’ ASAE 3100 Compliance Engagements Standard Business Reporting and XBRL AGS 1008 ‘Audit Implications of Prudential Reporting Requirements for Authorised Deposit Taking Institutions’, and GS 009 ‘Financial and Compliance Audits of Self Managed Superannuation Funds’.
Six More Clarity Exposure Drafts
Justin Reid, Associate, GAAP Consulting, notes that despite initial indications that the Clarity Auditing Standards would be just that, clarification, the ED’s being released do contain some significant changes. The accounting bodies in their comments on the first four ED’s point out that there are 73 new or elevated requirements that auditors must comply with.
With the addition of six further ED’s (see below) and with some of them described as being “major revisions”, the auditing profession is potentially faced with another period of the goal posts being shifted. Audit methodologies, manuals, programs, checklists and documentation will all be under the spotlight again just as they have been under the “force of law” changes over the last 2½ years. “Auditors need to start planning their transition to new standards” he concluded.
The AUASB released six exposure drafts, of Australian Auditing Standards (ASAs) in Clarity format, for comment by 15 October 2008. The six exposure drafts are: ASA 230 ‘Audit Documentation’, ASA 300 ‘Planning an Audit of a Financial Report’, ASA 540 ‘Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Disclosures’, ASA 560 ‘Subsequent Events’, ASA 570 ‘Going Concern’ and ASA 600 ‘Special Considerations – Audits of a Group Financial Report (including the Work of Component Auditors).
Audit QA Annual Report Issued by ICAA
The Institute of Chartered Accountants in Australia (ICAA) released its ‘Annual Report on the quality Review Program’ (20 pages) for the year ended 30 June 2008 in which it completed 480 quality reviews with a further 510 practices under review. The following reports were issued:
No departures from professional standards: 16.5 per cent Departure(s) from professional standards, not classified as serious: 72 per cent* Follow up review required: 11 per cent, and Referral to the Institute’s disciplinary processes for investigation: 0.5 per cent.
* This applies to practices where quality control policies and procedures appear substantially adequate to comply with regulatory and legal requirements, as well as professional standards, and policies and/or procedures appear to be generally adhered to. An example of a departure ‘not classified as serious’ is where there was insufficient documentation in a particular audit area.
“There are lessons to be learnt by public practitioners from this report” said Justin Reid, Associate, GAAP Consulting. “Firms should benchmark their policies and procedures against these findings”, he concluded.
In cases where non-compliance is identified, the ICAA ensures practices address the issues. Where more serious non-compliance issues are identified, follow up reviews are conducted, while in the most extreme cases, the ICAA’s Professional Conduct function steps in to investigate and impose sanctions, where required.
Once the review has been completed, the ICAA issues a report to the practice, highlighting areas of concern, and asking for these to be addressed. The ICAA then ensures members have taken the necessary steps to put things right. In extreme cases of non-compliance, members can be referred for disciplinary investigation and possible sanctions.
SMSF Audit Report and Q&A Released by the ATO
The ATO has released Self managed superannuation fund independent auditor’s report with instructions to be used if you are an approved auditor, and have been appointed by a trustee of self managed superannuation (SMSF) to give a report on the operation of that fund for each income year. This report applies from 1 July 2008.
The ATO has also released ‘Auditing a self-managed super fund – questions and statements to consider when auditing a self-managed superannuation fund (SMSF). The publication addresses 47 questions under the headings of: Does the Fund Meet the Definition of An SMSF?; Sole Purpose; Investment Restrictions; Contribution and Benefit Standards; and Administrative Obligations. It also provides statements relating to regulatory matters auditors should consider when completing an audit of a self-managed super fund (SMSF). The guide also notes auditors need to consider: the professional auditing standards, other professional standards, and the joint Competency Requirements for audits of SMSFs applicable to members of the CPAA, ICAA and NIA.
The Guide notes that following documents and papers should be part of the audit work files: copy of trust deed; appointment of trustees; election or notice to be a regulated fund; current audit engagement letter; trustee representation letter; financial report of fund; working papers including copies of all relevant documents that are important in providing evidence that support the findings and opinion; the management letter or completed audit finalisation report; and the completed audit report.
GAAP Consulting Network member David Sauer notes that the Guide provides an essential reference for SMSF auditors as the ATO continues its program of reviewing the audit files of over 900 SMSF auditors per annum.
Underlying Profit Discussion Paper Released by FINSIA and AICD
Research that indicates the use and presentation of non-statutory measures of incomes, such as underlying profit, is widespread. In response, new principles on profit reporting have been raised for debate by the Financial Services Institute of Australasia (Finsia) and the Australian Institute of Company Directors (AICD) in a discussion paper ‘Underlying Profit’. It aims is to encourage listed companies to adopt a transparent and consistent approach when reporting profit results to the investment community in a non-statutory manner.
Key draft principles in the discussion paper include:
Companies should report on the ‘underlying profit’ where relevant in addition to the statutory profit figure as the market is better informed by the reporting of a profit figure that reflects the result of on-going business activities and provides a reliable foundation for predicting the future operating result of the entity Reconcile the ‘underlying profit’ figure with the statutory profit figure and present the relevant adjustments in tabular form Do not discriminate between positive or negative ‘underlying profit’ adjustments to statutory profit figure, and Maintain consistent adjustments to the statutory profit figure between reporting periods.
This discussion paper is intended to encourage Australian listed companies to:
Recognise that the different users of financial reports have different information needs Adopt a transparent and consistent approach to the reporting of ‘underlying profits’ in communications provided to the investment community Adopt the term ‘underlying profit’ in preference to ‘normalised profit’, ‘result excluding exceptional items’, ‘underlying result’ and other terminology used to express modifications to the statutory profit figure Report on trends in their ‘underlying profit’ outcomes across reporting periods, and In all communications provided to the investment community, clearly show how the statutory profit derived from compliance with the accounting standards relates to the underlying profit figure.
Comment on ‘Underlying Profit’ is sought by 31 October 2008 and should be directed to: Mr. Russell Thomas, Director of Policy and Regulatory Affairs Financial Services Institute of Australasia, PO Box H99, Australia Square NSW 1215, or by email r.thomas@finsia.com; or Helen Eyles, Policy Advisor, Australian Institute of Company Directors, Level 2, 255 George Street, Sydney NSW 2000, or by email heyles@companydirectors.com.au.
G100 Guide to ASX Risk Principle 7
‘Recognise and Manage Risk – A Guide to Compliance with ASX Principle 7’ (28 pages), produced jointly by the Group of 100 and Deloitte, has been developed to provide general guidance in relation to compliance with ASX Principle 7. It is the second edition and follows the release in August 2007 of the revised principles.
IASB September Meeting Agenda
The IASB agenda for its 16-19 September meeting includes:
Credit Crisis – Proposed amendments to disclosure requirements: Discuss proposed improvements to disclosure requirements in relation to liquidity risk, fair value measurement, and off-balance sheet vehicles ED Proposed Amendments to IFRS 2 and IFRIC 11 – Group cash-settled share-based payment transactions: Consider a summary of the IFRIC discussions together with the rationale underlying the recommended changes from the proposals in the ED Annual Improvements: Consider clarification of IFRIC 13 regarding measuring the fair value of award credits First-time Adoption of IFRSs – Amendments to IFRS 1: Consider matters arising on review of draft of proposed amendments to IFRS 1, including deletion of proposals regarding IAS 17, Leases, and retrospective determination of fair values Revenue Recognition: Consider issues associated with the subsequent measurement of performance obligations; specifically, when and how performance obligations should be remeasured if deemed onerous, and whether performance obligations may need to be remeasured in other cases IFRS for Private Entities (formerly IFRS for SMEs): Continue consideration of recommendations for changes to the recognition, measurement, presentation and disclosure requirements in the proposed IFRS for SMEs Financial Instruments with Characteristics of Equity – European co-operatives education session: Representatives from the European Association of Co-operative Banks will lead an education session to discuss the instruments issued by European co-operative entities IFRS 2 ‘Share-based Payments’: Discuss a summary of the issues that have arisen since IFRS 2 Share-based Payments was issued (2004), and decide whether to add an IFRS 2 project to the technical agenda Fair Value Measurement: Discuss the highest and best use concept for assets in SFAS 157, and whether blockage factors should be excluded from a fair value measurement Amendments to IAS 24 ‘Related Party Disclosures – State-controlled Entities and the Definition of a Related Party’: Discuss an alternative proposal that makes to the exemption for state-controlled entities proposed in the exposure draft; and follow up issues of the definition of a related party and interaction with other IFRSs Insurance Contracts: Several respondents to the discussion paper ‘Preliminary Views on Insurance Contracts’ advocated a measurement that reflects the insurer intends (and in most cases must) settle the liability by paying the policy benefits as they fall due, rather than by transferring the liability to a third party. The IASB will discuss: why respondents prefer this notion to current exit value; similarities and differences between it and current exit value; and whether it corresponds to something that could be described as a measurement attribute Extractive Activities: Consider issues relevant to the drafting of the research project’s Discussion Paper, including chapter outlines and the types of questions that should be included, and Expert Advisory Panel on Valuing Financial Instruments in Markets that have become Inactive: Consider an update from the Expert Advisory Panel.
IPSASB Proposes Modifications to Borrowing Cost Accounting
The International Public Sector Accounting Standards Board (IPSASB) is seeking comments on its proposed changes to IPSAS 5 ‘Borrowing Costs’ in ED 35 ‘Borrowing Costs (Revised 200X)’. ED 35 proposes amendments to reflect that in many circumstances the capitalisation of borrowing costs as part of the cost of an asset is not appropriate for public sector entities.
This view is a departure from both IPSAS 5 and IAS 23 ‘Borrowing Costs’. The ED proposes that entities recognise borrowing-related expenses, such as interest or loan origination fees, during the period in which they are incurred. The ED also proposes, however, that where entities borrow funds specifically to acquire, construct or produce a qualifying asset, the entity has the option to capitalise those costs as part of the cost of that asset. Comments on ED 35 are requested by 7 January 2009.
“Public sector entities borrow for a variety of reasons, most of which are unrelated to asset acquisition,’ said Mike Hathorn, Chair of the IPSASB. “The IPSASB concluded that requiring public sector entities to capitalise borrowing costs as part of the cost of qualifying assets would not satisfy the qualitative characteristics of general purpose financial reporting, particularly related to the reliability of information reported. The immediate expensing of these borrowing costs instead will enhance the accountability of public sector entities.”
NIA Government Accounting Masterclass
The National Institute of Accountants is running its popular ‘Government Accounting Masterclass’ (8.30am-4.30pm) in Sydney on 28 October 2008, and the National Press Club, Canberra, on 20 October 2008. Key topics to be covered include:
Update from the AASB on accounting developments Update from the Audit Office Challenges in managing reporting issues and accountability Improving the efficiency and effectiveness of government activities Public Private Partnerships (PPP), and Asset Valuation and the Public Sector.
Colin Parker, Principal, GAAP Consulting, will speak on the topic of ‘Public Sector Accounting Standards Update’. Colin is also a member of the Australian Accounting Standards Board.
For further information please contact: National Institute of Accountants (NSW Division) 02 8262 6000, email: suzanne.fribbins@nia.org.au, or visit www.nia.org.au.
Outstanding Exposure Drafts
Accounting
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 20 September 2008 ‘Review of the Constitution: Public Accountability and the Composition of the IASB – Proposals for Change’ – 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 20 October ED 165 ‘Proposed Improvements to Australian Accounting Standards’ – AASB 31 October ED 166 ‘Simplifying Earnings per Share: Proposed amendments to AASB 133’ – IASB 7 November ‘Improvements to IFRS (Proposed amendments to International Financial Reporting Standards’ – IASB 5 December ‘Simplifying Earnings per Share (proposed amendments to IAS 33)’ – IASB
Auditing
15 October ASA 230 ‘Audit Documentation’, ASA 300 ‘Planning an Audit of a Financial Report’, ASA 540 ‘Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Disclosures’, ASA 560 ‘Subsequent Events’, ASA 570 ‘Going Concern’, and ASA 600 ‘Special Considerations – Audits of a Group Financial Report (including the Work of Component Auditors) – AUASB
Other
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