Monthly roundup - October 2012

Staying on top of developments

Author: Deepesh Malik and Debbie Hankey, Accounting Technical Group

October 2012 edition
Issued 07 November 2012

In this edition:

Monthly highlights

IASB issues investment entity consolidation amendments but AASB defers adoption

The Australian Accounting Standards Board (AASB) has tentatively decided to delay adoption in Australia of the International Accounting Standards Board’s (IASB’s) recently issued investment entities amendments until after due process is undertaken for additional note disclosures 'in response to concerns about the loss of consolidation information that would result from the IFRS amendments'.

The tentative decision was made at a meeting of the AASB held on 31 October and 1 November 2012. The AASB Action Alert (link to AASB website) outlines the concerns about the investment entity amendments and outlines a tentative decision that a forthcoming Australian-specific exposure draft "should propose disclosure of the three primary financial statements that would be produced under full consolidation".

The AASB papers note that the IFRS amendments are inconsistent with the AASB's stated policy of 'transaction neutrality' which states that the AASB "considers that the fundamental nature of the elements of financial statements and their qualitative characteristics are generally unaffected by different business models". The paper also notes that an approach other than making the amendments in line with the IFRS amendments would compromise the AASB's policy of only modifying IFRS for not-for-profit entities.

The IASB however in making their amendments noted that the exception to consolidation for investment entities has been introduced in response to comments from users that the most useful information for an investment entity is the fair value of its investments, whereas consolidation emphasises the financial position, operations and cash flows of the investee, rather than those of the investment entity.

The AASB is expecting to issue an exposure draft on its proposed additional disclosures before the end of 2012. Entities impacted by these developments are encouraged to comment.

Lease Project – on track for a revised exposure draft

In the nearly two years that the FASB and IASB (the ‘Boards’) have spent addressing comments received on their August 2010 exposure draft (ED), the Boards have made a number of changes to their proposed guidance on leases. Considering the significance of changes to the proposals from those outlined in the ED, the Boards decided to re-expose the lease accounting proposals for comment with a revised ED expected to be issued in the first quarter of 2013. Deloitte have issued an IFRS in focus newsletter in October which compares the proposals expected to be included in the forthcoming revised exposure draft and gives readers a good indication of the status of current deliberations.

Some of the implications of the expected changes to accounting for leases include:

  • an increase in the lease-related assets and liabilities on the balance sheet, affecting financial ratios in debt covenants
  • straight-line expense recognition for many real estate leases and accelerated expense recognition for many equipment leases affecting forecast patterns of profit recognition
  • other contracts that have a link to EBITDA may require re-negotiation due to the classification of lease payments in the income statement
  • system development and tracking for organisations with large volumes of lease contracts.

Considering the impacts of the proposed standard and the long term nature of many leases, we encourage entities to consider the expected ED and how it may impact their business.

The anticipated proposals may be revised yet again in the process of finalising the revised exposure draft and the requirements of the new leasing standards will depend on the outcome of the due process procedures. Entities are therefore encouraged to comment on the revised exposure draft when it is issued.

A final standard is likely to be issued in late 2013, with an effective date no earlier than annual reporting periods beginning 1 January 2015.

For further details, please refer IFRS in focus newsletter and our Lease Project page on IAS plus.

New pronouncements

(A listing of new accounting standards, interpretations, exposure drafts, discussion papers and similar documents issued during the month by the AASB and IASB/IFRIC, along with other IFRS-related documents by other bodies that may be of interest and related links to Deloitte publications and alerts. See also our What’s new in the December 2012 financial reporting cycle summary.)

International Accounting Standards Board (IASB)
Pronouncement Key dates More information

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

Provides an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities which meet the definition of an 'investment entity', such as certain investment funds. Instead, such entities would measure their investment in particular subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement

*(Note: Applicable, on a modified retrospective basis, to annual periods beginning on or after 1 January 2014, a year later than IFRS 10 which is applicable to annual periods beginning on or after 1 January 2013. The amendments can be applied early, and accordingly entities can elect to apply them from when they first apply IFRS 10, avoiding the need for investment entities to consolidate subsidiaries only in the first year of applying IFRS 10

Please note that the Australian Accounting Standards Board (AASB) has tentatively decided to delay adoption in Australia of these recently issued investment entities amendments (refer the monthly highlight above)).

Applicable to annual periods beginning on or after 1 January 2014

*(see note below regarding early adoption)

IAS Plus article

IASB press release

Australian Accounting Standards Board (AASB)
Pronouncement Key dates More information

No new significant pronouncements were issued by the AASB in October 2012.


Standard setter meetings

(A listing of meetings of various standard setters during the month or where documents were issued during the month in respect of the previous month’s meetings, with links to our analysis, agenda papers and so on)

Meeting Highlights More information
IASB regular meeting
15 - 19 October 2012

Topics discussed were as follows (click on the links for direct access to the Deloitte observer notes for that topic):

Deloitte Observer notes

IASB update
AASB regular meeting
31 October – 1 November 2012

Key issues discussed include:

  • Financial reporting by superannuation entities
  • Investment entities
  • IASB projects: leases, revenue from contracts with customers, and financial instruments
  • Operating Segments post implementation review
  • ASIC Consultation Paper 187 Effective disclosure in an operating and financial review
AASB alert (PDF 304kb)


New Deloitte publications

(Key IFRS-related and other publications issued by Deloitte during the month, not covered elsewhere. You can find full details and back issues of our various publications by following these links: Accounting alerts, IAS Plus publications, IFRS in Focus Newsletters, Webcasts, and Podcasts)

IFRS publications
Other publications
Deloitte comment letters
  • Deloitte comment letter (PDF 59kb) to to the IFRS Foundation on its draft review 'IFRS Foundation Constitution—Drafting Review: separating the role of the IASB Chair and the Executive Director.'

Other developments

(A brief listing of other financial reporting developments during the month. A full summary of all IFRS-related developments can be found in our October historical summary on IAS Plus. You can also subscribe to our Deloitte IAS Plus RSS feed to be kept informed of developments as they happen)

Australian-specific topics
  • The Australian Prudential Regulation Authority (APRA) has issued the final reporting forms and requirements for life and general insurers. It includes new prudential standards that apply to reporting periods ending on or after 1 January 2013. The AASB in its October board meeting discussed the need to amend the requirements in AASB 1038 Life Insurance Contracts in relation to the new APRA requirements
  • The Australian Securities Exchange (ASX) has released a revised draft of ASX Listing Rule Guidance Note 8 and related materials for public consultation. It aims to provide listed entities with clearer and more detailed information to help them understand and comply with their continuous disclosure obligations (ASX media release)
  • The Financial Reporting Council (FRC) has released the findings (PDF 819kb) drawn from the fifteen submissions received in response to its 'Managing Complexity in Financial Reporting' report, to examine complexities in financial reporting in light of widespread concern.(FRC media release) [The FRC is the peak body responsible for overseeing and advising the Government on the effectiveness of the financial reporting framework in Australia].
International Accounting Standards Board
  • The International Accounting Standards Board (IASB) has released IASB update October 2012 (PDF 589kb): staff summary of the tentative decisions reached by the IASB in the meeting held on 15-19 October 2012.
External Podcasts
  • IASB podcast on insurance contracts (link to website) discuss the current state of debate in the IASB/FASB joint project on insurance contracts. Focuses on the boards' transition requirements for the forthcoming Standard and the IASB decision on targeted re-exposure of Insurance Contracts proposal.
Other global news
  • The United Kingdom Financial Reporting Council (FRC) has published a discussion paper Thinking about disclosures in a broader context: A road map for a disclosure framework (PDF 1,210kb) on enhancing disclosure in financial reporting. The paper states that one of its aims is to influence the IASB before it commences its disclosure framework project, and it identifies a number of action points for the IASB
  • (IAS Plus article), (Robert Bruce column)
  • The European Securities and Markets Authority (ESMA) has published another batch of extracts from its confidential database of enforcement decisions taken by European national enforcers (IAS Plus article)
  • The International Integrated Reporting Council (IIRC) has launched an 'Integrated Reporting Emerging Practice Examples Database', which contains integrated reporting examples from businesses around the world (IAS Plus article)
  • The Enhanced Disclosure Task Force (EDTF) has presented a report Enhancing the Risk Disclosures of Banks (PDF 1,250kb) to the Financial Stability Board (FSB) recommending key enhancements to the risk disclosures made by banks (IAS Plus article) [The EDTF was formed in May 2012 at the initiative of the FSB and had wide geographic representation with participants from asset management firms, investors and analysts, global banks, credit rating agencies and external auditors].

Related links