Accounting alert 2010/11 - September AASB meeting
The AASB’s September meeting was held on 1-2 September 2010.
This two day meeting largely consisted of the AASB considering its responses to numerous exposure drafts and requests for comment from the IASB, FASB and other bodies. However, a number of other important matters were also considered.
The analysis below discusses the highlights from the meeting.
Employee benefits - defined benefit plans and long service leave
Discussions at the meeting
The AASB discussed its proposed response to IASB ED/2010/3 Defined Benefit Plans – Proposed amendments to IAS 19.
Although the AASB agreed to generally support the proposals, a number of key concerns arose, including:
- The absence of a generally accepted principle under IFRSs for determining which items should be presented in other comprehensive income (OCI) – without such a principle, it is difficult to determine which items should be presented in OCI and whether the proposals are appropriate
- The extension of the proposed treatment from defined benefit funds to include long service leave and similar long-term employee benefits
- Various other concerns.
Impact on accounting for long service leave
As we noted in our May edition of Monthly Roundup, the proposals in IASB ED/2010/3 could impact the way long service leave and similar obligations are accounted for under IAS 19/AASB 119 Employee Benefits.
The ED proposes entities should recognise all changes in defined benefit obligations and in the fair value of plan assets when those changes occur, eliminating the ‘corridor’ option currently available under AASB 119.
Also proposed is a new presentation approach for changes in defined benefit obligations and the fair value of plan assets. Entities would split changes in the defined benefit obligation and the fair value of plan assets into three components:
- Service cost (presented in profit or loss)
- Finance cost (also presented in profit or loss)
- A remeasurement component (presented in other comprehensive income (OCI)).
This approach would apply to long service leave and similar long-term employee benefits, so that changes in the carrying amount of the liabilities for these employee benefits would also be required to be split into these components. The remeasurement component, due to changes in estimates of variables such as future salaries and the expected length of service, would be recognised in other comprehensive income (OCI) rather than profit or loss.
|This outcome, whilst perhaps ostensibly attractive in that some elements of expense (and income) would be presented outside of profit or loss, would require more detailed analysis and calculation of long service leave and similar liabilities. If implemented, entities may need to consider more extensive use of actuaries in the measurement of these types of liabilities to meet the new recognition and disclosure requirements.|
Audit fee disclosures
Nature of the issue
The AASB discussed constituent concern regard the applicability of the parent entity specific audit fee disclosures required by paragraph Aus138.1 of AASB 101 Presentation of Financial Statements in light of the recent changes to the Corporations Act 2001 to eliminate the requirement to present parent entity separate financial statements (see Accounting alert 2010/08).
Paragraph 138.1 requires the following:
“An entity, other than a group, shall disclose the amounts paid or payable to:
(a) the auditor of the entity for an audit or a review of the financial statements of the entity;
(b) the auditor of the entity for non-audit services in relation to the entity, disclosing separately the nature and amount of each of the non audit services provided by the auditor; and
(c) a related practice of the auditor for non-audit services in relation to the entity, disclosing separately the nature and amount of each category of non-audit service.”
The AASB agreed that these disclosures are not required in notes to consolidated financial statements as the financial statements are those of the group, rather than the parent. This seems a logical conclusion given the paragraph refers to “other than a group” in the paragraph. The Australia-New Zealand harmonisation proposals (see Accounting alert 2010/09) would also simplify and clarify the audit fee disclosures.
|This issue continues to illustrate that the changes to the recent Corporations Act 2001 can have wide-ranging impacts. We continue to identify uncertainties in relation to the application of some of the changes, particularly the elimination of parent entity financial statements and the changes to the payment of dividends. Final resolution of some of these issues may require legal or ASIC interpretation.|
Superannuation plans and approved deposit funds
Discussions at the meeting
The AASB continued redeliberations in its superannuation plans project (to replace AAS 25 Financial Reporting by Superannuation Plans), considering disclosure requirements (such as segment information) and a number of sweep issues.
The AASB also decided to re-expose the proposals before their finalisation. An exposure draft is likely later in the year, reproducing all the proposals but requesting comment on major changes from the original proposals in ED 179 Superannuation Plans and Approved Deposit Funds.
It is understood the AASB acknowledged the finalised proposals will represent a significant change for affected entities. Therefore, it is expected the AASB will set a long time frame before the new Standard will be implemented, perhaps as far away as 2014-2015 (presuming the Standard is finalised during 2011).
By the time the new Standard is implemented, many of the current IASB projects will be finalised and the accounting landscape will look quite different. For instance, the current IASB deliberations around ‘investment companies’ being exempted from consolidation may be directly relevant to superannuation plans.
The following is a summary of the other matters discussed at the meeting:
AASB comment letters
The AASB discussed its comment letters on the following topics:
|Proposal||AASB response (high-level summary)||More information on proposals|
|IASB ED/2010/7 Measurement Uncertainty Analysis Disclosure for Fair Value Measurements||The AASB disagrees with the disclosure of a measurement uncertainty analysis||IFRS in Focus newsletter (PDF 60kb)|
|IASB ED/2010/5 Presentation of Items of Other Comprehensive Income||Concerns with timing and does not address fundamental issues relating to the presentation of financial performance and when items should be presented in OCI||
IFRS in Focus newsletter (PDF 68kb)
|IASB ED/2010/6 Revenue from Contracts with Customers||Concern the notion of ‘control’ is too focussed on physical delivery, the measurement basis is different to other standards and the inclusion of credit risk in the measurement of revenue||
IFRS in Focus newsletter (PDF 97kb)
|IASB ED/2010/9 Leases||Staff are organising meetings with constituents to identify key issues||
IFRS in Focus newsletter (PDF 111kb)
|IASB ED/2010/8 Insurance Contracts||AASB held an education session, discussing the main features of the ED||IFRS in Focus newsletter (PDF 105kb)|
|IASB Request for Comment: FASB Financial Instruments Exposure Draft||The AASB accepts the mixed model in IFRS 9 Financial Instruments, but prefers a number of items in the FASB proposals||
IAS Plus news story
United States Heads Up
|IVSC ED Proposed New International Valuation Standards||Support for alignment of the definition of ‘fair value’ between IVSC and IASB standards, but IVSC should not define fair value for financial reporting purposes||IAS Plus news story|
- Related party disclosures in the public sector – further research to be undertaken
- Proposed amendments to IFRS 1 – noted the IASB’s publication, AASB ED might be expected in due course (this change may be relevant to entities moving between ‘tiers’ under the AASB’s revised differential reporting regime). (IFRS in Focus newsletter, PDF 63kb)
- IFRS 9 – AASB to write to the IASB on the treatment of puttable instruments under IFRS 9
- Interpretations – noted recent proposals on stripping costs and annual improvements
- AASB policies and procedures – revised version to include matters such as AASB due process, differential reporting (RDR) and other matters.
The next meeting of the AASB is scheduled for 27-28 October 2010 in Melbourne. This will include a joint meeting with the New Zealand FRSB via videoconference.