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The AASB met in Melbourne on 4-5 October 2006, approving two Standards and advancing a number of other projects. In this Accounting Alert, we analyse some of the developments emanating from the meeting.
In particular, we focus on:
Revised AASB 101
As forewarned in Accounting Alert 2006/10, the AASB made a revised AASB 101 Presentation of Financial Statements as part of its initiative to bring A-IFRS closer to IFRS. The revised Standard adopts the majority of the Australian-specific amendments in ED 148 – not the IASB proposals in the exposure draft. The revised Standard is applicable to annual reporting periods beginning on or after 1 January 2007, but early adoption is permitted.
The new Standard will be made available on the AASB website shortly. The analysis that follows is based on Deloitte observer notes from the meeting.
Removal of Australian illustrative financial statement formats
The impacts of the revised AASB 101 are to eliminate much of the Australian specific content in AASB 101, including the Australian illustrative formats of the income statement, balance sheet and statement of changes in equity which entities were previously ‘encouraged’ to adopt in preparing their financial statements.
| The removal of the Australian illustrative financial statement formats will offer additional flexibility to Australian entities in presenting their financial statements. Whilst not previously mandatory, in our experience the majority of entities followed the ‘encouraged’ Australian formats. With the issue of the revised AASB 101, some entities may wish to adopt alternative formats of their financial statements, particularly in relation to the balance sheet where it is common in other countries to reconcile total assets with total liabilities and equity, with non-current items being presented before current items. |
Other changes
In addition, the following requirements have been deleted from AASB 101:
- justification why a currency other than the Australian currency has been used
- disclosure of the length of the operating cycle
- disclosure of any economic dependency
- the explicit requirement to show retained earnings attributable to the equity holders of the parent
- references to concise financial reports, directors reports and remuneration report, rounding basis
- for not-for-profit entities, the requirement to make a statement of compliance with IFRS where they are able to do so
- certain application paragraphs
However, additional Australian requirements retained in the revised AASB 101 include the following:
- presentation of the financial report in English
- disclosure of franking credits attached to dividends and those available at the end of the reporting period
- disclosure of the amounts paid or payable to auditors
- disclosures of the nature, amount and time-banding of capital commitments and other expenditure commitments
- requirement to identify the report as either general purpose or special purpose
- definitions and example disclosures related to dividends and franking credits
- deletion of the ‘true and fair override’ available in IAS 1
| The vast majority of the Australian specific items retained in the revised AASB 101 can be justified as being jurisdictionally relevant such as disclosures around franking credits under the Australian imputation regime. However, the retention of requirements to disclose capital commitments and other commitments for expenditure is questionable. We do not believe Australian entities should be required to make such ‘general’ disclosures when their international counterparts are not required to do so. |
Should you early adopt the revised AASB 101?
At first blush, early adoption of the revised AASB 101 would seem a logical move to eliminate some unnecessary disclosures from the financial report and potentially allow additional flexibility in the presentation of the financial statements.
However, the revised AASB 101 incorporates the consequential amendments made to the original AASB 101 on the introduction of AASB 7 Financial Instruments: Disclosures. These additional requirements include the disclosure of the entity’s objectives, policies and processes for managing capital, which are detailed and prescriptive.
Therefore, by early adopting the revised AASB 101 to eliminate some minor disclosures, entities will effectively be required to expand their disclosures surrounding the capital management activities.
| As a result of the additional capital-related disclosures in revised AASB 101, early adoption of the standard is unlikely to be beneficial unless the entity has already decided to also early adopt AASB 7. Even those entities that wish to adopt alternative financial statement formats are not precluded from doing so under the existing AASB 101 and so would not be required to early adopt the revised AASB 101 to obtain this benefit. |
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The continuing evolution of standard setting
A diverse range of topics with important consequences for standard setting in Australia were covered by the AASB at this meeting. For more general information on this topic, see Accounting Alert 2006/09.
Forthcoming exposure draft on convergence
A draft exposure draft on proposed changes to A-IFRS (outlined in Accounting Alert 2006/09 and Accounting Alert 2009/10) was considered by the AASB and is expected to be issued in November. The revised Standards resulting from this process are expected to be finalised early in 2007 and applicable to annual reporting periods ending on or after 30 June 2007.
| We are strongly supportive of these proposals by the AASB – our view remains that A-IFRS should be brought as close as possible to full word for word compliance with IFRS. We continue to encourage constituents to comment on the proposals supporting deletion of as many specific Australian requirements as possible from A-IFRS. |
AASB’s continued deliberations on the IASB SME project
The AASB continue to grapple with whether, and if so how, the IASB SME project proposals should be implemented in Australia. The Board agreed that there is a need to revisit the current practice of identifying in the Standards the entities required to apply those Standards and decided that a draft discussion paper setting out possible alternatives to the current differential reporting regime be prepared for consideration at a future meeting.
More information on the SME project can be found in Accounting Alert 2006/07, Accounting Alert 2006/10 and on IAS Plus.
Sector Neutrality – the Simpkins Report
The AASB considered its submission in response to the FRC Consultation Paper on The Use of a Sector Neutral Framework for the Making of Australian Accounting Standards (the Simpkins Report). More information on the Simpkins Report, including our analysis of the key considerations can be found in Accounting Alert 2006/09.
The AASB’s stated view is that a single set of standards is the most effective way to develop and present standards generally. The Board supports a ‘guiding principle’ of a ‘transaction neutrality’ strategy for standards, under which like transactions are treated in the same way by all entities.
| We remain concerned that using IFRS as the basis for all standards in Australia may prove to be problematic in the long term. The IASB is mostly focussed on developing standards for large corporates listed on key stock exchanges and it has repeated refused to deal with not-for-profit and public sector issues, as the IASB conceptual framework project and IFRIC debate on service concession arrangements illustrate. In addition, the formats of financial statements under IFRS may not always be appropriate for not-for-profit and other non-corporate entities. |
Accounting by superannuation plans
The AASB considered three alternative approaches to the treatment of assets held by superannuation entities in the context of A-IFRS – based on the existing requirements of AAS 25, based on A-IFRS or in a manner consistent with the ‘fair value approach in AASB 1023 and AASB 1038. The Board decided that superannuation plans should be treated differently and that a discussion paper outlining the reasons for this approach should be prepared for the Board’s consideration.
| The objectives, time horizons and user needs of superannuation plans are different to corporate entities and therefore it will be interesting to see whether the AASB selects a measurement basis for assets that is inconsistent with that prescribed by IFRS. |
IASB conceptual framework proposals
The Board discussed a preliminary draft submission on the IASB’s Discussion Paper on the objective of financial reporting and qualitative characteristics of financial information, in light of the AASB Conceptual Framework Roundtables held on 8 and 12 September. The AASB’s submission will be finalised in light of comments received in response to its Invitation to Comment on the IASB Discussion Paper.
More information about the IASB Conceptual Framework project can be found on IAS Plus.
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Public sector developments
Review of AAS 27, AAS 29 and AAS 31
The Board met with public sector constituents to discuss their views on the treatment of particular issues arising out of the short-term review of the requirements in AAS 27, AAS 29 and AAS 31.
The meeting considered a series of topic-based consultation papers. The Board subsequently provided staff with directions for drafting an ED for consideration at a future meeting that proposes amendments to a number of Standards, to pick up the issues that currently addressed in AAS 27, AAS 29 and AAS 31 that are not adequately addressed in other Standards. In some cases, the Board decided to create new topic-based Standards that are applicable to only particular types of not-for-profit public sector entities.
Further information is available in the AASB Action Alert (PDF 45KB) and related topic-based consultation papers.
Extension of transition provisions for land under roads
The AASB made AASB 2006-3 Amendments to Australian Accounting Standards [AASB 1045] giving effect to the Board’s decision to extend the current land under roads transitional provisions for a further twelve months so that they do not lapse prior to the issue of amended or new Standards arising out of the review of AAS 27, AAS 29 and AAS 31 discussed above. The board made it very clear that this extension will not be repeated.
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Other developments
Accounting for petroleum resource rent tax (PRRT)
In an attempt to finalise a long-running issue on whether petroleum resource rent tax (PRRT) is an income tax within the scope of AASB 112 Income Taxes, the AASB decided to issue an “Items not taken onto the agenda” notice consistent with that issued by the IFRIC, and the AASB concluded that PRRT is within the scope of AASB 112.
| There are diverse views on whether or not PRRT is an income tax within the scope of AASB 112. This area is one where different interpretations may be possible. IFRIC’s consideration of this issue was general only and they acknowledged the judgement and difficulties in this area. In addition, by communicating the AASB’s decision in the form of a ‘rejection notice’ rather than an Interpretation, it is possible the AASB have not have sufficiently addressed the uncertainty in this area for the preparers and auditors of the financial statements of affected entities. |
Consideration of draft IFRIC Interpretations
As noted in Accounting Alert 2009/10, the AASB again considered two draft IFRIC Interpretations:
Other
The AASB also discussed the following topics:
More information on these and all of the above topics can be obtained from the AASB Action Alert (PDF 45 KB) for the meeting.
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