Accounting alert 2010/04- April AASB meeting highlights
AASB likely to push forward with RDR
The AASB’s March meeting was held 28-29 April 2010 and progressed projects such as differential reporting, superannuation, possible extension of the exemption from consolidation and GAAP/GFS harmonisation.
Differential reporting (RDR)
Whilst the AASB did not make any decisions, a report was given by staff on the comment letters received on ED 192 Revised Differential Reporting Framework. Over 70 submissions were received and initial analysis indicates majority support for the proposed Reduced Disclosure Regime (RDR) over the possible Australian adoption of the IFRS for SMEs. This may be an early indicator in favour of the AASB proceeding with its proposals.
The key question around the AASB’s proposed differential reporting regime is whether the AASB should be involved in establishing the reporting ‘mandate’ (who has to report) rather than simply the reporting framework (how an entity has to report). The AASB has developed a view that the reporting mandate is a matter for regulators rather than standard setters. It is understood the AASB intends to work with regulators to encourage them to consider their reporting mandates in light of the proposals.
The ‘reporting entity’ concept is only proposed to be eliminated from Accounting Standards. ‘Special purpose financial reports’ will still be possible, but not for any entity with a reporting mandate referring to full compliance with Accounting Standards (such as currently occurs under the Corporations Act 2001).
Considered in this light, much of the ire directed at the proposed RDR is perhaps a reflection of the extensive reporting mandates being prescribed by regulators. For instance, another solution to the dilemma might be to lift the thresholds for ‘small proprietary companies’ and widen the concept to other companies and eliminate the need for wholly-owned subsidiaries to prepare financial reports under the Corporations Act. Equally, removal of a requirement for full compliance with ‘Accounting Standards’ in other governing legislation for entities such as co-operatives and trusts would remove the requirement to comply with the extended regime.
However, it would appear likely this issue will become highly political if the AASB moves towards finalising its proposals in their current form
The other topics discussed at the meeting were as follows:
- Consolidation exemptions – the AASB considered the possibility of making amendments to the consolidation exemptions currently in AASB 127 Consolidated and Separate Financial Statements to permit more entities to be eligible for the exemption, particularly not-for-profit entities and those applying the forthcoming RDR. A number of issues were identified, including whether it is appropriate for a ‘Tier 1’ (full IFRS) entity gaining an exemption if it is a subsidiary of a ‘Tier 2’ (RDR) entity. Further analysis was requested. More background on this issue can be found in Accounting alert 2010/03
- Financial instruments – the AASB received an update on various projects (financial liabilities, derecognition, hedge accounting and impairment) and is developing an increasingly negative view of the IASB’s impairment model as it is considered to be a function of revenue recognition (i.e. why should interest income received be ‘deferred’ in an impairment allowance account during the life of a receivable?)
- Joint arrangements – the AASB decided to encourage the IASB to reconsider its decisions not to address the inconsistency between the consolidation/reporting entity model and the requirement to eliminate unrealised profits in relation to contributions to joint ventures, and also recommend the interaction between the revised joint operation accounting requirements and foreign currency translation be clarified
- National Standard Setters (NSS) – discussion on issues arising such as whether IFRS 1 can be applied more than once, whether ‘key management personnel’ under IAS 24 can include entities other than people and whether property, plant and equipment under construction can be measured at fair value
- Interpretations – update on the March 2010 IFRIC meeting (see IAS Plus Update 10-05)
Public sector and not-for-profit matters
- Superannuation – deliberations continued on ED 179 Superannuation Plans and Approved Deposit Funds. The AASB also decided to consider the (potentially substantial) impact of the IASB’s current proposals for an ‘investment company’ exemption from consolidation separately from the ED 179 redeliberations
- GAAP/GFS harmonisation – the AASB decided to develop a further exposure draft that will be different to the proposals in ED 174 Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities within the GGS. It will remain to be seen whether the revised proposals will receive majority support from affected constituents (effectively the Federal, State and Territory governments)
- Impairment of statutory receivables – the AASB again confirmed its view that statutory receivables should be tested for impairment under AASB 136 (rather than AASB 139) but declined to develop an amendment, agenda decision or proceed with a project on this matter
- IPSASB report – update from Tim Youngberry, the Australian member of the IPSASB.
- AASB planning – the AASB’s key themes moving forward are likely to be on communication and relevance in the region and input into global standard setters projects. This reflects the AASB’s role effectively as a ‘standard taker’ in the IFRS space – the emphasis needs to be on greater AASB input in the early stages of projects. Longer term, this ‘standard taker’ approach may also occur in relation to public sector (and potentially not-for-profit) entities if Australia moves towards IPSASs issued by the IPSASB for these entities
- Comment letters - the AASB debated the comment letter process and agreed future submissions should be lodged electronically and be posted on the AASB web site shortly after the closing date for comment. The process for handling ‘confidential’ submissions was also discussed.
The next meeting of the AASB is scheduled for 17 May 2010 in Melbourne and will focus on the RDR.