Accounting alert 2010/03- March AASB meeting highlights
Inching towards convergence
The AASB’s March meeting was held in New Zealand on 17-18 March, much of it a joint meeting with the New Zealand Financial Reporting Standards Board (FRSB).
The Boards get serious about common standards
At the last joint AASB/FRSB meeting (see Accounting alert 2009/10), the Boards moved towards issuing an exposure draft that would achieve closer convergence between Australia and New Zealand in financial reporting requirements applying to for-profit entities (not-for-profit and public sector entities will be considered in later stages of the convergence project).
A working draft of the exposure draft, as discussed at the meeting, is available on the AASB’s website (PDF 504kb). The finalised exposure draft is expected to be released in May with a three-month comment period. The current expectation is the new requirements will be applicable to periods beginning on or after 1 January 2011.
Principles applied in developing the proposals
In formulating the working draft of the ED, the paragraphs of each standard in which either jurisdiction had modified source IFRSs were examined. Each of these modifications was considered and the following principles were generally applied (reproduced from the working draft):
- When an IFRS paragraph has previously been removed or amended, it is proposed to reinsert the paragraph or realign the wording with source IFRSs
- When one or other jurisdiction has an additional requirement to source IFRS it is proposed to be removed, unless there is specific domestic justification for retaining a different disclosure requirement, in which case it is proposed to relocate it to a separate disclosure Standard
- When both jurisdictions have disclosure requirements in addition to the source IFRSs that are considered to remain relevant, it is proposed to converge them and have the converged paragraph and any associated material relocated to a separate disclosure standard, for example, disclosure of auditor remuneration. Where it is not possible to converge an existing requirement it is proposed as an additional requirement in that jurisdiction.
Exclusions and issues
A number of requirements were excluded from the review, including the Framework, insurance-related standards, superannuation fund accounting and AASB 6/NZ IFRS 6 Exploration for and Evaluation of Mineral Exploration. In addition, a number of key questions remain to be resolved, including:
- How to best address the requirement for an intermediate Australian/New Zealand parent to prepare consolidated financial statements where its ultimate parent prepares consolidated financial statements that comply with AASB Standards, rather than IFRSs (see also the related discussion by the AASB below)
- Australian-specific disclosures included in AASB 124 Related Party Disclosures, often considered a corporate governance, rather than financial reporting, matter
- Whether Australian domestic Interpretations should be retained.
The proposals would result in core standards much more closely aligned with ‘pure’ IFRS, eliminate excessive disclosure and create a ‘one stop shop’ standard for additional disclosures over and above IFRS. However, as noted above, whilst the ED will represent an important and welcome step in full Trans-Tasman and IFRS convergence for both countries, more work will need to be done.
In some cases, the proposed amendments may be beneficial and early adoption may be attractive, particularly where the proposals permit new IFRS options (e.g. use of multiple presentation currencies in financial reports) or to eliminate disclosures.
The on-going Trans-Tasman convergence process promises significant benefits and cost reductions to entities operating in both countries. The holy grail is that financial reports would be prepared in the same manner and for the same entities in both countries, without the need to consider differences in law, regulation or accounting standards (even though the same requirement may well be enacted differently between the countries, e.g. through corporations law in one jurisdiction and accounting standard in another).
The commitment of the Boards is a common sense and logical approach to accounting standard setting in today global realities and should be welcomed. The initiative also indirectly endorses other global convergence initiatives, such as the IFRS-USGAAP convergence project and will serve by example to defend the goals of IFRS against calls for more national control over standard setting.
Nature of the issue
An issue has been identified in relation to the exemptions from consolidation contained in paragraph 10 of AASB 127 Consolidated and Separate Financial Statements.
Because IFRS is promulgated without consideration of a ‘differential reporting’ framework, the ability to avoid consolidation under IAS 27 is partially dependent on an intermediate or ultimate parent of the entity producing consolidated financial statements complying with IFRS. This works fine where the ultimate parent is, for example, a listed company applying IFRS.
However, in the Australian context, not-for-profit entities are generally unable to claim compliance with IFRS and accordingly, the exemption is technically not available even if the ultimate parent produces general purpose consolidated financial statements complying with all Australian Accounting Standards. Similar issues would arise in the event the proposed ‘reduced disclosure regime’ (RDR) is implemented as the ultimate parent might apply the RDR and so would not technically be ‘IFRS compliant’.
A possible solution
The AASB staff paper (PDF35kb) proposed to add additional material to AASB 127 to clarify if the ultimate or any intermediate parent of an entity produces consolidated financial statements available for public use, that do not comply with International Financial Reporting Standards, because either the parent has applied the Reduced Disclosure Regime, or the parent is a not-for-profit entity that has applied Aus paragraphs, that entity can still qualify for the exemption in paragraph 10 not to present consolidated financial statements, if it complies with all of the other conditions in paragraph 10.
The AASB agreed to seek further information on the potential impact of a change before finalising the proposed extension of the consolidation exemption.
|Whilst technical in nature, if this development is ultimately proposed and implemented, it will address one of the emerging issues with the AASB’s differential reporting proposals in relation to entities applying the RDR. More information on the proposed RDR can be found in Accounting alert 2010/02.|
The other topics discussed at the meeting were as follows:
Joint AASB/FRSB meeting
- Joint work program – agreed to joint working arrangements, including progressing joint projects and sharing ideas on projects of common interest
- IASB liabilities project – decided views to be included in each Board’s submissions to the IASB on ED/2010/1 Measurement of Liabilities in IAS 37, focussing on the need for one measurement principle (whilst supporting the ‘lowest of’ proposal in the ED in the interim) and that measurement should be an entity-specific measure (therefore objecting to the proposal that present values should be consistent with observable market prices)
- IASB financial instruments project – the Boards expressed concern the IASB’s projects on debt versus equity, classification and measurement of financial liabilities and hedging may not reduce complexity
- Income from non-exchange transactions – initial comment letter analysis, to further consider the ’performance obligation’ notion
- Reporting on the long-term fiscal sustainability of public finances – decided to generally support the IPSASB’s preliminary views in IPSASB Consultation Paper Reporting on the Long-Term Sustainability of Public Finances, subject to comments received
- IPSASB service concession arrangements exposure draft – agreed to issue the ED in Australia and normal due process in New Zealand
- Control in the public sector – agreed to the draft project plan
- Planning day – Boards confirmed their strong desire to continue to work together
|The Boards continued consideration of IPSASB matters indicates a longer term need to evaluate whether accounting standards for the public sector, and perhaps the private sector not-for-profit sector, should be based on standards promulgated by the IPSASB rather than IFRS.|
- GAAP/GFS harmonisation – agreed to conduct a post-implementation review of AASB 1049 Whole of Government and General Government Sector Financial Reporting to focus on implementation experience at an operational level, rather than a review of the fundamentals of the Standard
- AASB planning – topics for an AASB-only strategy session scheduled for the April meeting to be agreed out of session
- AASB work program – to be updated for the impacts of the IASB’s work program.
The next meeting of the AASB is scheduled for 28-29 April 2010 in Melbourne.