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The August 2007 AASB meeting covered a wide range of topics, many of which relate to forthcoming pronouncements from the IASB. The AASB considered many forthcoming IASB pronouncements that will have widespread impacts on financial reporting from their application from 2009. The AASB’s tentative move towards issuing an Australian Interpretation on Petroleum Resource Rent Tax (PRRT) needs careful word smithing to limit its application and ensure it does not have unintended global implications.
In this Accounting alert we focus on the following developments:
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other developments – amendments to AASB 124
Related Party Disclosures deferred, superannuation entities, non-exchange transactions, IPSASB developments and more.
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Interpretations
Customer Loyalty Programmes
The AASB approved Interpretation 13 Customer Loyalty Programmes, which is equivalent to IFRIC 13 of the same name. The Interpretation will apply to annual reporting periods beginning on or after 1 July 2008, with early adoption permitted.
The Interpretation adopts a revenue allocation rather than a cost accrual approach for accounting for customer loyalty programmes. In other words, loyalty awards are not seen as costs that directly relate to the goods or services already delivered, rather they are separate goods or services delivered at a later date.
Interpretation 13 may have significant impacts on the way many entities account for customer loyalty programmes, including those provided by third parties. Due to these substantial impacts, the IASB requested IFRIC defer application of this Interpretation and only ‘permit’ rather than ‘encourage’ early adoption.
Further information about the Interpretation can be found in our IAS Plus newsletter (June 2007, PDF 106kb).
| The AASB also noted that entities which state compliance with IFRSs in their 30 June 2007 financial reports will need to consider the disclosure requirements of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, even though the Australian Interpretation was not published at year end. We believe that entities should also consider making disclosures about other pronouncements that have been issued by the IASB or IFRIC but not the AASB at the date of signing the financial report. See our analysis in our commonly asked questions around pronouncements on issue but not applied in the financial report. |
Interpretation 14
The AASB made Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Interpretation will apply to annual reporting periods beginning on or after 1 January 2008, with early adoption permitted.
Further information about Interpretation 14 can be found in our IAS Plus Newsletter (July 2007, PDF 221kb).
| We don’t expect Interpretation 14 to have widespread impact in the Australian context. |
Petroleum Resource Rent Tax (PRRT)
The Board considered the recommendation of its Advisory Panel on whether PRRT should be accounted for as an income tax in accordance with AASB 112 Income Taxes. A majority of the Board believed that PRRT is an income tax within the meaning of that term in AASB 112.
The Board further tentatively decided to move towards the issue of an Australian Interpretation on PRRT, but only after the AASB staff had liaised with IFRIC staff and the draft Interpretation has been exposed for public comment.
An Interpretation which merely states that PRRT is an income tax may not necessarily achieve the consistency that the AASB seeks in this matter. Because the nexus between taxable profits under PRRT and accounting profits is at best tenuous, numerous issues arise on applying AASB 112 when accounting for PRRT.
| The AASB needs to ensure it complies with its stated framework and due process for Interpretations, whereby Interpretations only be issued in rare and exceptional circumstances, and only on issues that are unique to Australia. If the AASB proceeds with an Interpretation in this area, the 'ring fencing' of its requirements to PRRT alone will be very important. It is also imperative that global repercussions be considered and we welcome the intention of the AASB to refer any proposed Interpretation to the IFRIC staff for consideration. |
Draft IFRIC Interpretations
The AASB noted that IFRIC has issued Draft Interpretations D21 Real Estate Sales and D22 Hedges of Net Investment in a Foreign Operation and is asking for comments on the Draft Interpretations by 17 September 2007.
For more information, see the IAS Plus summary pages on IFRIC D21 and IFRIC D22.
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Further instalments on ‘IFRS Mark II’ expected soon
Pronouncements expected soon
The AASB considered a number of forthcoming IASB pronouncements that will form part of ‘IFRS Mark II’ suite of Standards that are expected to apply from 2009.
These included the following:
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Pronouncements
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High level overview
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More information
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IFRS 3 Business Combinations
IAS 27 Separate and Consolidated Financial Statements
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Revised approach to accounting for business combinations and changes in ownership interests in subsidiaries.
The FASB and IASB will issue near word-for-word Standards on this topic. Would introduce the ‘full goodwill’ method to accounting for a business combination, although non-controlling (minority) interests could optionally be accounted for as a share of net assets.
New guidance around what is to be taken into account in accounting for the business combination may see more post-combination expenses recognised.
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Near-final drafts of the revised Standards are available for subscribers on the IASB website.
The IAS Plus project page on the Phase II proposals provides a comprehensive history of developments in this project.
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IAS 1 Presentation of Financial Statements
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First instalment (phase 'A') from this joint project with the FASB on how financial statements should be presented.
In the Australian context, this will often be a case of ‘back to the future’ with the financial statements being renamed, such that the balance sheet will be (optionally but preferably) called a ‘statement of financial position’.
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Near-final draft of the revised Standard is available for subscribers on the IASB website.
The IAS Plus project page on Phase A of this project provides a comprehensive history of developments in this project.
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IFRS for SMEs
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A separate financial reporting framework for ‘small and medium-sized entities’ (SMEs). The AASB formed tentative views on the IASB’s proposals at this meeting and is holding roundtables on 16 and 24 August 2007.
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Accounting alert 2007/03
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Other long-term IASB projects
The AASB considered an update on the IASB’s extractive industries research project which is being led by the AASB staff. The IASB is tentatively backing away from its initial preference for fair value accounting in the extractive industries. This project is not expected to yield any finalised pronouncements before 2012-2014. For more information on this project, see the IAS Plus project page on this topic.
The Board also debated fundamental issues surrounding the IASB’s project on insurance contracts and its submission to the IASB on its Discussion Paper Preliminary Views on Insurance Contracts. The Board will address specific questions for comment in the Discussion Paper at its next meeting. For more information on this topic, see our IAS Plus Newsletter (June 2007, 1282kb).
IFRIC request regarding IAS 39 issues
The AASB were informed of a request for research around the following issues related to IAS 39 Financial Instruments: Recognition and Measurement:
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the IFRIC tentative agenda decision regarding the application of paragraph 11A of IAS 39. The issue relates to whether the fair value option set out in that paragraph can be applied to all contractual arrangements with one or more embedded derivatives, including contractual arrangements with hosts outside the scope of IAS 39
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the IFRIC tentative agenda decision regarding the application of the requirement in paragraph AG 33(d)(iii) of IAS 39. The issue particularly relates to assessing the economic environment in which the transaction takes place in the context of determining whether a currency is commonly used in contracts to buy or sell non-financial items.
For more information, refer to the Deloitte observer notes from the July 2007 IFRIC meeting on IAS Plus.
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Other developments
The AASB also discussed the following topics:
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Topic
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Overview
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Comments and more information
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Amendments to AASB 124 Related Party Disclosures
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The AASB decided to defer its proposals to delete Aus25.1 to Aus25.9 of AASB 124 in view of Treasury plans to further revise s.300A of the Corporations Act 2001.
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This follows on from the AASB’s June meeting. Refer Accounting alert 2007/12.
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Employee benefits discount rate
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The issue of whether Australia has a deep market for high quality corporate bonds for the purposes of applying AASB 119 Employee Benefits is to be discussed by AASB staff with Reserve Bank of Australia staff.
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This issue is a result of the amendments made by AASB 2007-4. Refer to Accounting alert 2007/09
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Financial reporting by unlisted public companies
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The Board agreed on its submission to Treasury on its Discussion Paper
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Discussion paper on treasury website
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Superannuation entities
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A consultation paper proposing three models is expected to be issued shortly.
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AASB draft consultation paper on consolidation of subsidiaries by superannuation entities (AASB web site, PDF 68kb)
Accounting alert 2007/12
Accounting alert 2007/10
Accounting alert 2007/06
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IPSASB
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Discussion of the IPSASB’s July 2007 meeting and including a report on its social benefits project.
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IPSASB website
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Income from non-exchange transactions
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The AASB discussed a draft issues paper on non-exchange transactions that will be debated with the New Zealand FRSB in October 2007.
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More information on above topics can be obtained from the AASB Action Alert (PDF 146kb) for the meeting.
The next meeting of the AASB is scheduled for 5-6 September 2007.
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