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The AASB met for the last time this year on 13-14 December 2006 and dealt with a large array of issues.
In this Accounting Alert we focus on the following developments:
Interpretations - Australian equivalents to IFRIC 11 and IFRIC 12, PRRT, emission rights
other developments - differential reporting/SMEs, insurance contracts, common control transactions, and more.
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Segment reporting
The AASB debated the approach to an Australian equivalent to IFRS 8 Operating Segments. In particular, the AASB agreed to adopt the scope requirements of IFRS 8 in the equivalent standard AASB 8 Operating Segments. This will mean that the requirement to disclose segment information will effectively be limited to entities whose debt or equity instruments are traded in a public market or that that is in the process of doing so.
AASB 8 will supersede AASB 114 Segment Reporting and, consistent with the IASB’s recent policy on new/revised standards, will apply to annual reporting beginning on or after 1 January 2009. Early adoption will be permitted (with disclosure).
| We strongly support the AASB's decision to limit the scope of AASB 8 to be equivalent to IFRS 8. Relief from the requirement to prepare segment information will be welcomed by those reporting entities that do not have publicly traded securities. We expect that these entities may wish to early adopt AASB 8 once it has been made by the AASB to take advantage of its reduced scope. |
IFRS 8 largely brings IFRS into line with US-GAAP in relation to segment reporting. Key changes include:
- operating segments are identified on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker in order to allocate resources - not on the concepts of ‘business’ and ‘geographical’ segments
- measurement of disclosed segment information is based on the measurement methods used in those internal reports - which does not need to be in accordance with other IFRS requirements
- new disclosures around how segment information is determined, how the organisation is structured and about the entity’s products and services, geographical areas and major customers
- expanded segment information disclosures at interim periods.
| By focussing on internally reporting information, IFRS 8 will potentially cause entities to publicly reveal more information about how their businesses are structured and organised, some of which may be considered sensitive. Affected entities need to plan ahead for these changes to manage the impact of the new segment reporting requirements. Some other entities, particularly those reporting under both A-IFRS and US-GAAP, may already be preparing such information and may find early adoption attractive. |
The Board has also begun plans to conduct a longer-term review of segment-like reporting by not-for-profit entities in public and private sectors, but decided that it will not base Australian requirements on IPSAS 18 Segment Reporting.
Read more about IFRS 8 on our IAS Plus website.
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Interpretations
Group and Treasury Share Transactions
The Board considered draft Interpretation 11 AASB 2 – Group and Treasury Share Transactions, which is equivalent to IFRIC 11 IFRS 2 – Group and Treasury Share Transactions.
IFRIC 11 addresses how the share-based payment arrangements should be accounted for in the financial statements of a subsidiary that receives services from the employees in the following circumstances:
- a parent grants rights to its equity instruments direct to the employees of its subsidiary
- a subsidiary grants rights to equity instruments of its parent to its employees.
The AASB identified a number of issues with the transitional provisions of the Interpretation in the context of Australia’s transition to IFRS. As a result, the Board decided to defer approval until its February 2007 meeting and, in the interim, directed staff to liaise with the IASB/IFRIC in relation to its concern with the operation of the transitional provisions.
Our IAS Plus Newsletter analysing IFRIC 11 is available on IAS Plus (PDF 85KB). A draft of Interpretation 11 can be downloaded from the AASB web site.
Service concession arrangements
The Board agreed to consider IFRIC 12 Service Concession Arrangements at its February 2007 board meeting, with a view to approving an Australian Interpretation at that meeting.
IFRIC 12 deals with accounting by private sector operators involved in the provision of public sector infrastructure assets and services, such as roads and schools.
The Interpretation states that for arrangements falling within its scope, the infrastructure assets are not recognised as property, plant and equipment of the operator. Rather, depending on the terms of the arrangement, the operator will recognise a financial asset, an intangible asset, or both.
The Interpretation does not address accounting for the government (grantor) side of such arrangements. The AASB agreed to form an Advisory Panel to advise on accounting for service concession arrangements by these entities.
IFRIC 12 will apply to annual reporting periods beginning on or after 1 January 2008, but early adoption will be permitted.
Our IAS Plus Newsletter analysing IFRIC 12 is available on IAS Plus (PDF 128KB).
| The requirements of IFRIC 12 represent a substantial change to the method of accounting traditionally adopted for these types of arrangements. Affected entities may encounter numerous difficulties in applying the requirements of the Interpretation. Due to its significant impacts, we agree with the AASB’s submission to IFRIC on this matter that it may have been better for the IASB/IFRIC to defer application of the Interpretation until 1 January 2009 in line with the IASB’s other major projects. |
Petroleum Resource Rent Tax (PRRT)
The Board considered submissions received in response to its invitation to comment as to whether Petroleum Resource Rent Tax (PRRT) was within the scope of AASB 112 Income Taxes.
The Board acknowledged constituent concerns around a lack of due process on this matter and after debate agreed to:
- revise its original agenda rejection statement to remove the statement that PRRT is within the scope of AASB 112 Income Taxes
- form an Advisory Panel to recommend to the Board on whether PRRT should or should not be accounted for as an income tax under AASB 112.
We believe that a number of alternative approaches may be appropriate when accounting for PRRT. Accounting for PRRT as an income tax under AASB 112 introduces a number of significant accounting issues.
Our submission to the AASB outlined that we would prefer that the AASB either:
did not issue an agenda rejection statement on this matter, instead leaving it to constituents to determine an appropriate accounting policy for accounting for PRRT, or
that the AASB form an Advisory Panel to properly deal with the issue, but only if this issue is considered so significant as to warrant further investigation by the AASB.
Emission rights
The AASB considered a range of papers dealing with accounting for emission rights, particularly focussed on renewable energy certificates in the Australian context.
Given the increase importance of emission schemes around the world, the AASB decided that it should request the IASB to address the issue in the short term.
| IFRIC 3 Emission Rights developed by the IFRIC was withdrawn by the IASB, in favour of considering this matter as part of the wider project on government grants and intangibles. However, work on these projects has been deferred by the IASB pending the conclusion of work on other relevant projects. Accordingly, we consider it unlikely that the IASB will seek to deal with this matter in the short-term as suggested by the AASB and accounting in this area is therefore expected to remain uncertain for time to come. |
Other
The Board approved a revised AASB 1048 Interpretation and Application of Standards, which incorporates a reference to Interpretation 10 Interim Financial Reporting and Impairment.
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Public/NFP sector developments
Interaction of AASB 134 and AASB 1049
The AASB decided to amend AASB 134 Interim Financial Reporting to take into account its interaction with AASB 1049 Financial Reporting of General Government Sectors by Governments, making it clear that GGS interim financial reports are explicitly excluded from the scope of AASB 134. Concerns were raised by constituents that because of AASB 1049’s focus on reporting variances against original budgets, that there may be no interim budget against which to report interim financial information, rendering interim financial reports meaningless and/or misleading to readers.
Administered items and the review of AAS 27, AAS 29 and AAS 31
After consultation with constituents, the AASB effectively decided to put its project on administrative items on hold and so would not revisit this issue as part of its review of AAS 27, AAS 29 and AAS 31. Therefore, the AASB decided that the current requirements relating to administered items in AAS 29 Financial Reporting by Government Departments are adequate for the foreseeable future.
The AASB considered a draft basis for conclusions on the forthcoming exposure draft on amendments to AAS 27, AAS 29 and AAS 31. Transitional issues surrounding land under roads and heritage assets were considered. The full draft exposure draft is expected to be reviewed by the AASB early in 2007.
IPSASB developments
The IPSASB has approved IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers). The Board noted that the Australian, New Zealand and South African members had voted against the issue of IPSAS 23 and accordingly decided that it would it would invite the NZ FRSB to join with the AASB to develop a joint not-for-profit standard to replace AASB 1004 Contributions.
The AASB also considered draft submissions prepared by the AASB staff on IPSASB exposure drafts ED 30 Impairment of Cash-Generating Assets and ED 31 Employee Benefits.
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Other developments
Differential reporting/SMEs
The Board continued its deliberations as to how differential reporting should operate in light of the pending issue of the IASB’s Exposure Draft arising from its Small and Medium-Sized Entities (SME) project.
The Financial Reporting Council and Treasury have also confirmed that they consider that the responsibility for determining which accounting standards should be followed by each type of entity rests with the AASB.
It appears clear from the discussion that the AASB is moving further away from the ‘reporting entity’ concept as the basis for differential reporting, at least in relation to the for-profit sector. As noted in Accounting Alert 2006/12, the critical determinant would be based on the concept of ‘public accountability’ as defined in the IASB’s SME project.
This meeting considered some approaches that might be adopted in relation to various groups of entities, including the possibility of an AASB developed ‘size test’ for certain entities. The AASB also considered a staff paper and feedback from its not-for-profit focus group on the concept of public accountability and further discussed the elements of an alternative approach. No conclusions were made.
| Whilst this project is far from complete, it would appear that Australian for-profit entities should prepare for the eventual removal of the reporting entity concept from A-IFRS. The IASB’s SME proposals would introduce much more disclosure if they had to be adopted by entities currently classified as non-reporting entities. The AASB will need to carefully consider how the new regime will be applied in areas such as to wholly-owned subsidiaries of reporting entities that only prepare financial reports due to the operation of the Corporations Act 2001 (notwithstanding Treasury’s current ‘red tape’ proposals). |
IASB’s Insurance Project
The AASB considered a progress report on the IASB’s Insurance Contracts (Phase II) Project. The scope of the project in relation to health insurers and roadside assistance entities and a proposal to hold round tables in Australia on this topic were noted, along with a number of concerns surrounding the current ‘exit model’ being proposed by the IASB.
Common control transactions
The AASB considered a request from the IASB for input on whether to add a project on common control transactions to its agenda. The AASB decided to respond to the IASB outlining the issues involved, without necessarily providing input on resolving the issues that arise.
| Accounting for common control transactions has emerged as a significant area of uncertainty under A-IFRS. Numerous possible approaches have been suggested by accounting professionals in this area and the impacts in situations such as initial public offerings and restructurings can be profound. |
Other
The AASB considered the Corporate and Financial Services Regulation Review − Proposals Paper recently released by the Parliamentary Secretary to the Treasurer. The Board identified a number of concerns, particularly in relation to the proposals surrounding the remuneration report and its interaction with AASB 124 Related Party Disclosures, financial reporting for proprietary companies and parent entity financial statements and the potential need for amendments in relation to the requirements for the payment of dividends.
Further information about the proposals can be found in Accounting Alert 2006/13.
More information on these and all of the above topics can be obtained from the AASB Action Alert (PDF 51KB) for the meeting.
The next meeting of the AASB is scheduled for 14-15 February 2007.
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