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At the final AASB meeting for 2007, the AASB made progress on a diverse range of projects, which included reconsidering the differential reporting regime, making numerous new Standards and finalising its submissions on a number of IASB proposals. Many of these projects are taking divergent paths – is it time for a rethink on the process of standard setting in Australia?
In this Accounting alert we focus on the following developments:
- differential reporting and SMEs – the first tentative steps towards a new financial reporting framework for Australia
- public sector and not-for-profit developments – new and revised pronouncements resulting the revise of AAS 27, AAS 29 and AAS 31, Invitation to Comment on a revised definition for not-for-profit entities and more
- other developments – KMP disclosures for managed investment schemes, recognition of franked dividend revenue, consolidation by superannuation plans, new Amending Standard and more.
Top | Differential reporting and SMEs | Public sector and not-for-profit developments | Other developments
Differential reporting and SMEs
The AASB considered the result of field tests in Australia of the IASB's proposed IFRS for SMEs (executive summary, from the AASB website, PDF 974kb) and considered constituent comments on its proposed revised differential reporting regime in Australia.
The AASB tentatively decided on a 'two-tier' reporting structure for for-profit entities reporting under the Corporations Act 2001, as follows:
- full IFRSs for 'publicly accountable entities', the definition of which would be discussed at a future meeting
- a choice for an entity that is not publicly accountable to elect either the IFRS for SMEs of full IFRS recognition and measurement requirements plus limited specified disclosures or, alternatively, full IFRSs.
The approach to other entities will be reconsidered at future meetings.
Time for a rethink on the process of standard-setting in Australia? A number of decisions and discussions at the December AASB meeting appear to reveal a gradual realisation by the Board that it may need to reassess how Accounting Standards are set and implemented in Australia. For instance, in this year alone the Board has issued ten Amending Standards plus accompanying erratum, on top of the 20 or so Amending Standards since the transition to A-IFRS began. Some of the Amending Standards are 'undoing' changes that the AASB originally made to IFRS Standards when making their Australian equivalents. Not-for-profit and public sector requirements have been brought into the body of IFRS Standards. As a result, the ability of constituents to clearly understand the reporting framework applicable to a particular financial reporting period is often difficult and complex – a point that the AASB itself recognises as it grapples to find a solution to allow constituents to 'call up' a compiled standard that applies to them. It is not to say that the AASB's approach has not served Australia well on its path to transition, nor that it might not be suitable in the future. But the pace of change is getting quicker. 'IFRS Mark II' and the 'IFRS for SMEs' both currently slated by the IASB for introduction from around 2009-10, promising a vast 'new wave' of accounting requirements – some complex and many radical. The International Public Sector Accounting Standards Board (IPSASB) is taking on a more proactive role in public sector standard setting. The AASB has committed to closer convergence with New Zealand. A new Federal Government has recently been elected with a stated agenda of red tape reform. Rather than an impossible task of reconciling competing priorities, perhaps these developments represent an excellent opportunity for the AASB and/or FRC to reconsider the standard setting process in Australia. Maybe new radical approaches are needed. Could two (or more) full sets of GAAP emerge? Should all the Standards be periodically reissued to incorporate all amendments to a particular date? Should the Corporations Act 2001 be amended to refer to 'pure' IFRS (perhaps at least for listed entities) with standards being approved by Parliament following the European model? The current developments highlight an opportunity for a wide-ranging review. Is it time for a rethink? |
More information
For more information about this topic, refer to the following:
- Deloitte Australian Insights podcast - Another shakeup in financial reporting - the AASB' s differential reporting proposals
- Invitation to Comment ITC 12 'A Proposed Revised Differential Reporting Regime for Australia and the IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities' (PDF 1714kb)
- Accounting alert 2007/15
- Accounting alert 2007/10
- Accounting alert 2007/03
- IAS Plus newsletter 'IASB offers relief for SMEs' (PDF 196kb)
- IAS Plus project page
- IASB project page on the SME project.
Top | Differential reporting and SMEs | Public sector and not-for-profit developments | Other developments
Public sector and not-for-profit entity developments
Review of AAS 27, AAS 29 and AAS 31
After originally deciding to approve them out of session at the last meeting (see Accounting Alert 2007/19), the AASB made the following Standards:
- AASB 1050 Administered Items (draft standard considered at the November meeting, from the AASB website, PDF 933kb)
- AASB 1051 Land Under Roads (draft standard considered at the meeting [subject to amendment for the outcome of the discussion at the meeting], from the AASB website, PDF 147kb)
- AASB 1052 Disaggregated Disclosures (draft standard considered at the November meeting, from the AASB website, PDF 124kb)
- a revised AASB 1004 Contributions (draft standard considered at the November meeting, from the AASB website, PDF 222kb)
- AASB 2007-9 Amendments to Australian Accounting Standards arising from the Review of AAS 27, AAS 29 and AAS 31 (draft standard considered at the November meeting, from the AASB website, PDF 174kb)
- revised Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities (draft Interpretation considered at the meeting, from the AASB website, PDF 622kb).
The final versions of the above Standards are expected to be made available on the AASB website shortly.
Not-for-profit entity definition
The AASB approved for issue an Invitation to Comment Proposed Definition and Guidance for Not-for-Profit Entities, which incorporates the New Zealand FRSB's definition and guidance on 'public benefit entities'. A copy of the document considered by the AASB can be downloaded from the AASB web site (PDF 123kb). The Invitation to Comment will be open for comment until 31 March 2008.
Our overview analysis of the revised definition can be found in Accounting alert 2007/16.
Other
The AASB also:
- received and discussed a report from its Advisory Panel on public sector grantor accounting for service concession arrangements, noting that public sector grantors should consider Interpretation 12 Service Concession Arrangements as part of the hierarchy in developing their accounting policy and, accordingly, they are not obliged to follow its requirements. The AASB decided to issue an Invitation to Comment on the forthcoming IPSASB Consultation Paper on accounting by grantors of service concession arrangements once it was issued by the IPSASB
- considered options on how to progress its joint project with the NZ FRSB on accounting for income from non-exchange transactions, splitting the project into short-term and longer-term phases. In relation to the short-term project, the options canvassed included withdrawing AASB 1004 Contributions and requiring not-for-profit entities to follow AASB 118 Revenue (and presumably AASB 120 Accounting for Government Grants and Disclosure of Government Assistance) instead, or adopting IPSASB 23 Revenue from Non-Exchange Transactions (Taxes and Transfers), with or without modification
- received a report on the IPSASB meeting held in November 2007
- to continue research into the suitability of applying the forthcoming revised AASB 3 Business Combinations to transactions by not-for-profit entities.
Top | Differential reporting and SMEs | Public sector and not-for-profit developments | Other developments
Other developments
The AASB also discussed the following topics:
| Topic | Overview | Comments and more information |
| Managed investment schemes – key management personnel disclosures | The AASB decided to refer to IFRIC the issue of whether a key management person must be a natural person and hold discussions with Treasury on other disclosures that could be relevant to managed investment schemes as an alternative to the Australian-specific requirements of AASB 124 Related Party Disclosures | The identification of KMP for managed investment schemes and how compensation is determined has been a long-running issue since transition to IFRS. This Board development is a welcome initiative which will hopefully resolve this issue |
| Recognition of franked dividend revenue | The AASB decided to issue an agenda rejection statement on this matter, as no diversity in practice has been noted and the IASB have projects on revenue recognition and income taxes that may influence this topic | We welcome the amendments made to the agenda rejection statement as it explicitly acknowledges the IASB projects currently underway on revenue recognition and income taxes |
| Superannuation plans and approved deposit funds | The AASB considered submissions received on its consultation paper on the consolidation of subsidiaries by superannuation entities and the matters raised by constituents at roundtable discussions held in Sydney and Melbourne in November. The Board tentatively decided to propose that a parent superannuation plan recognise all assets and liabilities held by a subsidiary at their fair values less or plus anticipated disposal costs in its consolidated financial statements. | Submissions received by the AASB on Consultation Paper "Consolidation of Subsidiaries by Superannuation Entities" (from the AASB website, PDF 1540kb) |
| Presentation of Financial Statements | The AASB approved Amending Standard AASB 2007-10 Further Amendments to Australian Accounting Standards arising from AASB 101, which replaces the term 'financial report' with the term used in the corresponding IFRS. | The Standard will apply to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted |
| Consideration of submissions on ED 157 Joint Arrangements | The AASB noted concerns about the IASB's proposals to remove proportionate consolidation and the proposed concept of 'shared decision-making'. | Accounting alert 2007/18 – Proposed changes to joint venture accounting IAS Plus newsletter: "Exposure Draft ED 9 – Proposed Changes to Accounting for Joint Ventures" (PDF 116 kb) Submissions received by the AASB on ED 157 Joint Arrangements (from the AASB website) IAS Plus project page IASB project page |
| Consideration of submissions on ED 158 Proposed Amendments to AASB 139 Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting | The AASB is generally supportive of the IASB's initiative to clarify which items are eligible for designation in a hedging relationship, but noted a number of concerns including that a more 'principles based' approach should be developed. | Accounting alert 2007/17 IAS Plus newsletter "Proposed Amendments to IAS 39 – Exposures Qualifying for Hedge Accounting" (PDF 207kb) Submissions on ED 158 Proposed Amendments to AASB 139 Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting (from the AASB website) IAS Plus project page IASB project page |
| Submissions on ED 159 Proposed Improvements to Australian Accounting Standards | Whilst the AASB supports the objectives of the IASB's annual improvements project, concern was expressed that a number of the items were more substantive than minor and could warrant a more thorough due process. | Accounting alert 2007/16 Submissions on ED 159 Proposed Improvements to Australian Accounting Standards (from the AASB website) IAS Plus project page IASB project page |
| Cost of an investment in separate financial statements | The Board noted that the IASB has issued an ED Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, which proposes amendments to IFRS 1 and IAS 27. The Board approved an ED with an Australian Preface. Comments on the IASB ED close on 26 February 2008 and the AASB has requested comments by 13 February 2008. | The ED proposes to allow a 'deemed cost' on transition to IFRS, require all distributions from subsidiaries, jointly-controlled entities or associates to be treated as dividend income and to require 'carry over' accounting for new parents in group restructures. The latter development will be welcomed by Australian financial institutions that are contemplating the creation of a 'non-operating holding company' (NOHC) structure IAS Plus project page IASB Press Release |
| Business combinations | A revised AASB 3 Business Combinations and amended AASB 127 Consolidated and Separate Financial Statements will be issued by the AASB shortly after the IASB issues their equivalent pronouncements, expected by mid-January | IAS Plus project page IASB project page |
More information on above topics can be obtained from the AASB Action Alert (PDF 51kb) for the meeting.
The next meeting of the AASB is scheduled for 7 February 2008.
Top | Differential reporting and SMEs | Public sector and not-for-profit developments | Other developments
