.jpg)
The AASB met in Melbourne on 8-9 November 2006, approving a new exposure draft and advancing a number of other topics. In this Accounting Alert, we analyse some of the key developments resulting from the meeting.
In particular, we focus on:
ED 151 Australian Additions to, and Deletions from, IFRSs
The AASB finalised its deliberations on differences between A-IFRS and IFRS in relation to for-profit entities and has agreed to issue ED 151 Australian Additions to, and Deletions from, IFRSs. The exposure draft is expected to be made available on the AASB website by the end of November with comments closing on 31 January 2007.
The proposed changes are largely in line with those we outlined in Accounting Alert 2006/09 but with some changes – it is expected that the ED will propose to:
allow the use of proportionate consolidation for jointly-controlled entities, rather than requiring equity accounting
remove the Australian-specific requirements from AASB 130 and AASB 132
However, it is understood that the Australian-specific requirements in AASB 6 Exploration for and Evaluation of Mineral Resources, will be retained.
The AASB has also moved the proposed application date of the amendments to annual reporting periods beginning on or after 1 July 2007, with early adoption permitted.
| We are strongly supportive of the AASB’s progress on bringing A-IFRS in line with IFRS. However, we question whether the ‘area of interest’ concept should be retained in AASB 6. In our experience, many Australian entities adopt approaches that differ from the area of interest method and the stricter impairment requirements under the Australian standard potentially put Australian entities at a competitive disadvantage to their international counterparts. The resources sector tends to compete for funds on a global basis and accordingly it is important that A-IFRS and IFRS should be brought into line in this area. |
Top
End of the reporting entity concept?
The AASB continued to debate the appropriateness of the ‘reporting entity’ concept in Australia in light of the IASB’s SME Project and its proposals in the Reporting Financial Performance exposure draft. At this meeting, the AASB considered a number of options considering various combinations of concepts of ‘reporting entity’, ‘public accountability’ and the reporting requirements under the Corporations Act 2001. Various options for both the for-profit and not-for-profit sectors were discussed.
The AASB decided that an approach using ‘public accountability’ as the distinguishing factor between entities that apply A-IFRS and those that might apply a SME Standard would be an appropriate alternative. However, the Board acknowledged this concept would need to be modified for application to not-for-profit entities.
A move away from the ‘reporting entity’ concept in relation to for-profit entities has the potential to substantially increase the financial reporting burden on corporate Australia even if the IASB’s SME Standard is introduced in Australia. Many smaller entities already struggle with the requirements of A-IFRS as companies are effectively required to apply the recognition and measurement requirements of all A-IFRS Standards (although there is some disagreement over this), even though their disclosure requirements are reduced compared with reporting entities.
| In our view, these developments highlight the urgent need for reform of the financial reporting framework in Australia, particularly for those entities reporting under the Corporations Act 2001. We understand Treasury is to propose amending the large/small proprietary test as part of the Federal Government’s ‘red tape review’. However, notwithstanding these developments, in our view there are too many entities that are required to prepare financial reports and formal reporting requirements should be eliminated for a wider range of entities. |
Top
Public/NFP sector developments
Administered items
The Board reviewed a revised paper that compares and contrasts three views about government departments and the resultant accounting implications of each view:
View 1 – a government department undertakes some activities on behalf of its government and other activities in its own right – there is a distinction between administered and controlled items
View 2 – a government department is an ‘arm of government’ – there is no distinctions between administered and controlled items – all items are controlled
View 3 - a government department undertakes all of its activities on behalf of its government – there is no distinction between administered items and controlled items – all are administered.
The AASB is to revise and reissue the paper to public sector constituents seeking their input.
Implementation review for not-for-profit entities
The AASB considered a collation of issues raised by a number of public sector constituents with a view to finding a way forward with dealing with those issues. The project will be progressed in conjunction with the existing program of the New Zealand FRSB and initially will be focussed on public sector entities. A detailed analysis and proposals for this project will be considered early in 2007.
Top
Other developments
Accounting for petroleum resource rent tax (PRRT)
At its October 2006 meeting, the AASB decided on an ‘agenda rejection statement’ (PDF 15kb) that stated Petroleum Resource Rent Tax (PRRT) was an income tax that was within scope of AASB 112 Income Taxes.
A number of constituents (including Deloitte) lodged unsolicited submissions with the AASB in response to the AASB’s decision. The Board acknowledged that it had not invited constituents to comment specifically on the agenda rejection statement and now invites comment on it, in particular whether constituents agree or disagree with Board’s view and their reasons. Submissions are due by Monday 4 December 2006.
A copy of our original submission to AASB on this matter can be downloaded below. We encourage affected entities to comment on the AASB’s views.
Accounting by superannuation plans
The AASB debated accounting by superannuation plans and tentatively decided on a full fair value accounting model that incorporates realisation costs should be applied to superannuation entities. This approach is different to the treatments required and permitted under A-IFRS. A paper is to be prepared on this matter for consideration by the Board.
| The decision on superannuation plans somewhat undermines the AASB’s continued adherence to the concept of ‘transaction neutrality’ in standard setting. The use of IFRS as the basis for all accounting standards in Australia appears to be slowly unravelling, reflecting the complexity of accounting responses to increasingly sophisticated transactions and issues in financial reporting. The arguments developed by the AASB to justify the departure from IFRS for superannuation entities could equally be applied to other sectors. User needs between different sectors may necessitate further departures from IFRS in the future. |
IASB extractive industries project
The AASB received an update on the progress of the extractive activities research project of the IASB. The research project team has been discussing the suitability of using fair value as the measurement objective in accounting for minerals and oil and gas reserves and resources.
As noted in the Deloitte observer notes from the October 2006 meeting, the IASB did not see the benefit of going forward with this project if it were to be based on historical cost as a measurement objective.
| Notwithstanding the lack of support from users, the IASB appears to be favouring a fair value measurement objective for extractive activities. The IASB has asked its research team to further explore which difficulties arise on fair value measurement of resources and reserves. Whilst the final outcome from this project is not expected for a number of years, the use of fair value measurement for reserves and resources would have a significant impact on financial reporting by mining and oil and gas entities. |
More information on the extractive activities project can be found on IAS Plus.
IASB conceptual framework proposals
The AASB discussed a draft submission on the IASB’s Discussion Paper on the objective of financial reporting and qualitative characteristics of financial information. The Board decided its submission should recommend the inclusion of the concept of ‘stewardship’, de-emphasise cash flows, consider the evaluation of resource allocation decisions, clarify the distinction between relevance and materiality and removal of the concept of independent verification.
Consideration of IFRIC matters
The AASB considered the following:
Other
The AASB also discussed the following topics:
the AASB's contribution to the IASB's intangible asset project
liability adequacy test – agreed not to amend AASB 1023 General Insurance Contracts and decided not to refer this matter to IFRIC
fair value measurements – the
IASB’s forthcoming Discussion Paper expressing views and seeking comment on FASB’s SFAS 157
Fair Value Measurements will not be separately issued in Australia, but will be notified to Australian constituents by way of a Media Release
consultative group – receiving feedback on various proposals and projects.
More information on these and all of the above topics can be obtained from the AASB Action Alert (PDF 43KB) for the meeting.
Top
