Accounting alert 2007/17 - October 2007 AASB meeting highlights

The first day and a half of the AASB's two-day October meeting comprised a joint meeting with the New Zealand Financial Reporting Standards Board (NZ FRSB) to discuss issues of mutual interest, including how the Australian and New Zealand accounting standard setters could work closer together.

A range of issues were discussed, and in this Accounting alert we focus on the following developments:

exposure drafts - two international exposure drafts have been approved for issue locally
the AASB's submission on IFRIC Exposure Draft D21 Real Estate Sales
compliance with IFRSs
Australia/New Zealand convergence - differential reporting and not-for-profit paragraphs
the approval of AASB 1049
other developments: differential reporting and SMEs, superannuation contributions tax, income from non-exchange transactions, insurance contracts, other IFRIC projects, review of AAS 27, 29 and 31 and IASB/FASB conceptual framework.

Two international exposure drafts approved for issue locally

IASB ED 9 Joint Arrangements and IASB ED Proposed Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Exposures Qualifying for Hedge Accounting were issued in September 2007 by the International Accounting Standards Board (IASB). The AASB approved both exposure drafts for issue in Australia, with comments requested by 30 November 2007.

ED 9 Joint Arrangements

The main focus of the proposals is on the two aspects of the current accounting for joint arrangements that the IASB considers are an impediment to high quality reporting:

the current accounting for joint arrangements follows the legal form in which the activities take place. This does not always reflect the contractual rights and obligations agreed to by the parties. Shifting the focus to these rights and obligations will provide a more realistic reflection of the joint arrangement in the financial reports of the parties involved
the existing standard gives preparers a choice when accounting for interests in jointly controlled entities (equity method and proportionate consolidation), making it difficult to compare financial reports. The IASB proposes to remove that choice by requiring parties to recognise both the individual assets to which they have rights and the liabilities for which they are responsible, even if the joint arrangement operates in a separate legal entity. If the parties only have a right to a share of the outcome of the activities their net interest in the arrangement will be recognised using the equity method.

The ED also proposes new requirements for disclosing information about joint arrangements, subsidiaries, and associates, including a description of the nature of joint arrangements and summarised financial information relating to an entity's interests in joint ventures.

Read AASB ED XXX Joint Arrangements, as considered by the AASB at its October meeting (PDF 1,712kb).

ED on Proposed Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Exposures Qualifying for Hedge Accounting

IAS 39 (the international equivalent to AASB 139) permits an entity to hedge a portion of fair value or cash flows of a financial item as opposed to hedging all of the fair value or cash flows. This applies to both fair value and cash flow hedges. The IAS 39 ED aims to clarify, firstly, what risks can be hedged and, secondly, what portions of fair value or cash flows are permitted to be hedged.

The proposals and implications of the exposure draft are discussed in a special edition of our Deloitte IAS Plus Newsletters - click here to read the newsletter (October 2007, PDF 207k).

Read AASB ED XXX Exposure Draft of Proposed Amendments to AASB 139 Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting, as considered by the AASB at its October meeting (PDF 1,400kb).

Accounting for real estate sales

At present, there are currently divergent accounting practices for the recognition of revenue on pre-completion real estate sale agreements. Some developers recognise revenue on construction completion whilst others may record revenue earlier as construction progresses by reference to the stage of completion of the development. D21 aims to standardise the accounting practice among developers for pre-completion sales.

The Board's deliberations on D21 indicate it is concerned whether the principles espoused by D21 will be appropriate in all circumstances, a sentiment we share - you may like to read our Property Intellectual flyer on D21. The AASB have decided that its submission, while supporting the issue of an Interpretation on the issue, will disagree with the proposals that:

a real estate contract meets the definition of a "construction contract" in IAS 11 only if the construction services are 'to the buyer's specifications'
an indication of a real estate construction contract is that a buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress (whether it exercises that ability or not).

The AASB also intend to indicate in its submission to the IFRIC on D21 that it considers that the key difference between a real estate construction contract and a contract for the sale of real estate is that the former type of contract is for the provision of construction services over the contract term, while the latter type of contract is for the delivery of real estate at the end of the contract term.

Read the draft submission considered by the AASB at its October meeting (PDF 580kb).

Compliance with IFRSs

The boards of the AASB and the NZ FRSB considered proposed IASB disclosure requirements for entities that refer to IFRSs in describing the basis on which their financial statements are prepared but are not able to make an explicit and unreserved statement of compliance with IFRSs. The Boards considered the removal of the term 'Australian equivalents to IFRS' from accounting standards as it may wrongly imply that those financial statements are not IFRS-compliant.

We welcome the proposal to remove the term 'Australian equivalents to IFRSs' from the Australian accounting standards, and to employ language that more clearly articulates compliance with IFRSs by Australian entities.

Australia/New Zealand convergence

Differential reporting

The boards of the AASB and the NZ FRSB explored ways to develop a consistent differential reporting regime for Australian and New Zealand entities. They agreed that there are a number of areas where consistency may be achieved, including potentially:

reporting by mid-tier entities
reporting by wholly-owned subsidiaries of public companies
reporting by charities
for public sector not-for-profit entities/public benefit entities, requirements and guidance complementing full IFRSs.

Not-for-profit paragraphs

The Boards agreed they should strive to have similar not-for-profit and public-benefit entity requirements and guidance in Australian and New Zealand accounting standards, except where jurisdictional differences require it, and agreed a number of processes to action this decision. We welcome the progress made by the Boards in this area.

The Boards also agreed that a paper should be developed to form the basis of a joint policy for identifying when there is a NFP/public-benefit entity reason for modifying IFRS. The Boards tentatively decided not to amend the application of revised IFRS 3 Business Combinations (expected later this month) for not-for-profit/public-benefit entities. However, this issue will be further discussed at a future meeting.

AASB 1049 Whole of Government and General Government Sector Financial Reporting

The AASB have approved AASB 1049 Whole of Government and General Government Sector Financial Reporting for issue, subject to amendments for decisions made at the Board meeting and a staff editorial review. The Standard integrates GAAP/GFS harmonisation requirements for both GGS and whole of governments, combining the requirements of AASB 1049 Financial Reporting of General Government Sectors by Government and the modified proposals from ED 155. AASB 1049 will apply to annual reporting periods beginning on or after 1 July 2008, with early adoption permitted.

Other developments

The AASB also discussed the following topics:

Topic	Overview	Comments and more information
Differential reporting and SMEs	The AASB noted that the IASB has extended the submission deadline on the SME exposure draft to 30 November 2007. The AASB agreed to finalise its submission on the exposure draft at its meeting on 14-15 November	Deloitte Australian Insights podcast - Another shakeup in financial reporting Accounting alert 2007/10 May 2007 AASB meeting highlights Accounting alert 2007/03 IASB offers relief for SMEs 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' (from the AASB web site, PDF 1,714 kb) Draft AASB submission on the SME ED (from the AASB web site, PDF 616 kb)
Superannuation contributions tax	A sub-committee of the Board has been appointed to finalise the questions to be addressed in relation to superannuation contributions tax	Paper considered by the AASB at the meeting - suggested questions to be addressed (from the AASB web site, 17kb) Accounting alert 2007/16 September 2007 meeting highlights
Income from non-exchange transactions	The AASB and the NZ FRSB considered a draft issues paper that evaluated whether the term 'non-exchange transaction' was important, and the accounting for such transactions. There were various views expressed around the table, broadly, either being in support of the approach in AASB 1004 Contributions, or in support of the approach in IAS 18 Revenue and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. The issue will continue to be debated at future meetings for the development of a joint Discussion Paper that will eventually replace AASB 1004
Other IFRIC projects	The AASB intend to comment commending the IFRIC on exposure draft D22 Hedging of a Net Investment in a Foreign Operation proposals The AASB intend not to comment to the IFRIC on the tentative agenda rejections included in the September 2007 IFRIC Update	IAS Plus project page
Review of AAS 27, AAS 29 and AAS 31	The AASB considered responses to ED 156 and made several decisions, including to make a transitional provision to allow the non-recognition of land under roads acquired prior to the end of the transitional period, and to require subsequently acquired land under roads to be accounted for in accordance with AASB 116	Submissions on ED 156 considered by the AASB (from the AASB web site)
Insurance contracts	Both the boards of the AASB and NZ FRSB confirmed that their submissions would be supportive of the IASB exposure draft on insurance contracts	IAS Plus Newsletter Phase II of IFRS for Insurance Contracts: IASB Discussion Paper (PDF 1,282 kb) IAS Plus project page
IASB/FASB conceptual framework	The Boards were briefed on the status and timing of the different phases of the IASB/FASB conceptual framework project	IAS Plus project page

More information on above topics can be obtained from the AASB Action Alert (PDF 102kb) for the meeting.

The next meeting of the AASB is scheduled for 14-15 November 2007.


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