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Accounting alert 2009/05 - April AASB meeting

The AASB's one day April meeting saw the issue of a new exposure draft on financial reporting by superannuation plans and a number of new amending standards.

In this Accounting alert, we focus on:

Superannuation plans and approved deposit funds

Overview

After a long gestation period, the AASB approved an exposure draft for issue, ED 179 Superannuation Plans and Approved Deposit Funds, subject to editorial amendment. The exposure draft is expected to be available on the AASB's website shortly and will have a four month comment period. The proposals are likely to be implemented in 2011.

The AASB has decided to base the proposals in the exposure draft on existing Accounting Standards and the special needs of superannuation plans and approved deposit funds, rather than on IAS 26 Accounting and Reporting by Retirement Benefit Funds. This is because, in the AASB's view, IAS 26 has not been updated recently and includes treatments that would potentially reduce the quality of financial reporting by superannuation plans and approved deposit funds if it were adopted, e.g. a 'fair value override' in some cases.

Accordingly, the exposure draft proposes that superannuation plans and approved deposit funds prepare their financial statements in accordance with applicable Accounting Standards unless they are overridden by the proposals. However, consistent with much of the approach in AAS 25 Financial Reporting by Superannuation Plans, there is a fair value measurement bias in the proposals to ensure equity between different fund members.

Key changes

Some of the key changes from AAS 25 proposed by the exposure draft are:

  • There is no differentiation between the reporting requirements for various types of superannuation plans
  • A statement of cash flows, statement of changes in member's benefits and (if relevant) a statement of changes in equity would be required for all financial statements
  • All assets and liabilities would be measured at 'fair value less transaction costs' (rather than at 'net market value') - exceptions are made for vested benefits, accrued benefit, tax assets and liabilities, insurance contracts and goodwill
  • To explicitly require consolidation of controlled entities and remeasurement of goodwill or discount (a remeasurement gain) at the end of each period as the difference between:
    • The sum of a parent interest and the non-controlling interest in a subsidiary, and
    • The amount of the net assets of the subsidiary that are recognised by the parent.
The above summarises the proposed changes at a high-level, and there are many other changes proposed that impact recognition, measurement and disclosure by superannuation plans and approved deposition funds. We will issue a more detailed publication on the exposure draft once it has been published by the AASB.

Financial instruments amendments


Background

The Board made two Amending Standards that replicate amendments made by the IASB in March 2009:

  • AASB 2009-2 Amendments to Australian Accounting Standards - Improving Disclosures about Financial Instruments, which is applicable to annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009 (early adoption permitted)
  • AASB 2009-3 Amendments to Australian Accounting Standards - Embedded Derivatives, which is applicable to annual reporting periods ending on or after 30 June 2009 (early adoption permitted).

Both of these Amending Standards have short lead times before introduction.

AASB 2009-2 significantly extends the disclosure requirements of AASB 7 Financial Instruments: Disclosures. Extensive fair value disclosures are required by reference to a new three-level hierarchy, including which level has been used to measure each instrument, transfers between levels and a reconciliation of the movement in financial instruments classified in each level during the period. There are also amendments to liquidity risk disclosures, an expansion of the maturity analysis and a further enhancement of the relationship between qualitative and quantitative disclosures.

For more information about the amendments, see the following:

  • IAS Plus Update Newsletter 'IFRS 7 amended to improve disclosures about financial instruments' (PDF 115kb)
  • IAS Plus Update Newsletter 'Clarification regarding assessment of embedded derivatives' (PDF 96kb)
  • Agenda Paper 7.2 - Draft Proposed AASB 2009-x Amendments to Australian Accounting Standards - AASB 7 Disclosures (PDF 290kb)
  • Agenda Paper 7.3 - Draft Proposed AASB 2009-x Amendments to Australian Accounting Standards - Embedded Derivatives (PDF 260kb).
AASB 2009-2 and AASB 2009-3 use a new approach to the making of Amending Standards by the AASB. For the first time, amendments are presented by the AASB using 'strikeout' and 'underlined' text, but the final compiled version of Standards will not show the 'mark ups'. Whilst this is outwardly a minor change, it is hoped that it will make it easier for constituents to understand the meaning and effect of the numerous changes made to Standards and should be welcomed as a user friendly change in accounting standard setting.

Other matters

A high-level summary of the other matters discussed at the meeting is presented in the table below.

Topic Overview Comments and more information
SECTOR-NEUTRAL MATTERS
Interpretations In relation to the AASB's proposed Interpretation on Australian superannuation contributions tax, the AASB decided, in lieu of the IASB consideration of this matter, not to issue the Interpretation at this stage and instead monitor the IASB deliberations.

The AASB's decision is a common sense outcome that avoids the potential for conflict between AASB Interpretations and IFRS.

Agenda Paper 9.4.1 Submissions from constituents on draft Proposed Interpretation AASB 10xx Australian Superannuation Contributions Tax (PDF 899kb)

Agenda Paper 9.4.2 Draft Proposed Interpretation AASB 10xx Australian Superannuation Contributions Tax (PDF 347kb)

Presentation of financial statements The AASB considered its draft submission on the IASB's Discussion Paper Preliminary Views on Financial Statement Presentation and agreed to finalise the submission out of session.

The AASB appeared to agree in principle that some of the information proposed in the IASB's discussion paper was useful. However, some concerns were raised about the operating, investing and financing approach to the presentation of the statement of financial position (balance sheet).

There was also a view that the user needs of analysts (on which some of the proposals in the DP were based) may not be consistent globally and perhaps some Australian analysts were not that supportive of the developed approach to financial statement presentation.

IAS Plus Newsletter 'Preliminary Views on Presentation of Financial Statements' (PDF 208kb)

Agenda Paper 4.3 Submissions from constituents on ITC 19 Presentation of Financial Statements (PDF 238kb)

Revenue recognition The AASB continued to develop its response to the IASB Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers, with a view to finalising its submission at its May meeting.

It is understood that the AASB has some concerns about the emphasis on delivery for revenue recognition, particularly in relation to services.

IAS Plus Update Newsletter 'Discussion Paper proposes new basis for revenue recognition' (PDF 117kb)

NOT-FOR-PROFIT MATTERS
Borrowing costs

The Board made AASB 2009-1 Amendments to Australian Accounting Standards - Borrowing Costs of Not-for-Profit Public Sector Entities, which amends AASB 123 Borrowing Costs to reintroduce the option to allow public sector not-for-profit entities to expense all borrowing costs.

The amending standard is applicable to annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009.

One of the justifications for grant the exemption from AASB 123 is that there is widespread use of depreciated replacement cost by the public sector and there is uncertainty how the capitalisation of interest interacts with this concept.

Interestingly, the AASB has not chosen to extend the choice to private not-for-profit entities, apparently on the basis that no submissions were received requesting the extension to these entities. Accordingly, private not-for-profit entities will be required to capitalise borrowing costs where required by AASB 123.

Agenda Paper 6.2 Submissions from constituents on ED 176 (PDF 967kb)

Agenda Paper 6.5 Draft Proposed AASB 2009-x Amendments to Australian Accounting Standards - Accounting for Borrowing Costs (PDF 270kb)

Income from non-exchange transactions The AASB discussed a revised ED which is based on IPSAS 23 and decided that the proposed standard should take precedence over AASB 139 Financial Instruments: Recognition and Measurement relation to the recognition of financial assets and financial liabilities arising under non-exchange transactions.

This is a joint project with the New Zealand Financial Reporting Standards Board (FRSB). An ED is likely to be finalised at the AASB's next meeting and once the FRSB has had the opportunity to finalise its review of the proposed ED.

Agenda Paper 5.2 Draft ED Income from Non-exchange Transactions (Taxes and Transfers) (PDF 876kb)

ADMINISTRATIVE AND OTHER MATTERS
Asian-Oceanian Standard Setters Group (AOSSG) A preparatory meeting for the formation of the AOSSG was held in Beijing in April and the first meeting of the new group is expected to be hosted by Malaysia in November 2009. One of the objectives of the AOSSG might be to provide a greater voice to the Asian-Oceanian perspective on the IASB's activities.
Consultative Group The AASB will meet with its Consultative Group on Wednesday 20 May 2009. -
Board membership The Board noted that Brett Rix (Manager, Group Accounting - Policy and Governance, BHP Billiton) had been reappointed as a member of the board for a further term until 31 December 2011. -

More information on the above topics can be obtained from the AASB Action Alert (PDF 49kb) for the meeting.

The next meeting of the AASB is scheduled for 20-21 May 2009 in Melbourne.

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