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Accounting alert 2009/12 - December AASB meeting highlights

The lull before the storm

The AASB’s December meeting was held on 9-10 December 2009. The AASB’s last meeting for the year covered a large number of topics, but did not produce a large volume of output in terms of finalised documents or decisions. We anticipate 2010 will be a busy year for preparers and their auditors given the number of AASB and IASB projects expected to complete in the next 12 months.

Differential reporting

Agreement on the next steps

The AASB considered a time line for issuing an exposure draft on its differential reporting project, intended to accompanying the recently issued Consultation Paper Differential Financial Reporting – Reducing Disclosure Requirements. More information about the proposals can be found in Accounting alert 2009/11 and our associated press release.

Consistent the commentary in the Consultation Paper, the AASB decided that the exposure draft should be posted progressively on the AASB website during December and January. Only once the full exposure draft is available it and the Consultation Paper will be ‘formally’ opened for comment, for a minimum two-month comment period.

What will the exposure draft cover?

The exposure draft will be the key document in the AASB’s proposed differential reporting framework. It is expected to provide a standard-by-standard analysis of which disclosures will be required to be made by entities applying the ‘full recognition and measurement limited disclosure’ regime proposed in the Consultation Paper.

A lot of constituent interest might be expected in the proposed disclosures, particularly in finding the right balance between disclosures necessary to keep users sufficiently informed and the costs of producing information by ‘non-publicly accountable’ entities.

As we noted in Accounting alert 2009/11, the amount of disclosure relief is not as great as many might expect. This is due to the ‘overriding’ principle of all publicly available financial reports prepared in accordance with Accounting Standards being considered ‘general purpose financial reports’.

In our view, the key to making this new reduced disclosure regime successfully function will depend on two important and related topics. The first is the reporting mandate, i.e. which entities are required to prepare and lodge financial reports. A revisit of the reporting requirement under the Corporations Act and other governing regulation will be important to ensure there is reporting only where it is in the public interest. The second is the development of a reduced disclosure regime appropriate for the class of entities applying it – the AASB will need to be fair but flexible in developing its proposals.

Finally, in the event the cut off for financial report is set too low by regulators, the AASB may need to reconsider a ‘third tier’ of disclosures for much smaller entities to reduce the reporting burden on these entities. This third tier could be made operational by using the ‘reporting entity’ concept, subject to a relatively low threshold or other cut off point.

Will the AASB meet its June 2010 deadline?

One of the AASB’s key objectives is for its new differential reporting regime to be in place for optional early adoption at 30 June 2010. This would allow entities for which the proposals are beneficial to take advantage of the new requirements in the current financial year, e.g. reporting entities currently making disclosures under all standards would be able to avoid some disclosures in their June 2010 financial reports.

The analysis being undertaken by the AASB will be voluminous and detailed. There is some possibility that the issue of the ED will slip past the February 2010 deadline, making redeliberation and finalisation of the proposals very tight to meet these goals.

Entities hoping to take advantage of the reduced disclosure regime need to be cognisant of the timeframes and uncertainties involved. In addition to the possibility of delays in finalising the exposure draft, the AASB’s Consultation Paper acknowledges other approaches are possible and in the event clear constituent preference is for another model, the overall reform is expected to be delayed, certainly beyond June 2010, and possibly much further.

Other topics

The other topics discussed at the meeting were as follows:

General
  • Related parties – agreement to issue a revised version of AASB 124 Related Party Disclosures, incorporating recent global amendments for government owned entities and a revised definition of ‘related party’. The new Standard applies from 1 January 2011
  • Financial instruments – updates on measurement of financial liabilities, amortised cost and impairment
  • Management commentary – education session, proposals to be compared with ASX guidance
  • IASB update – updates and discussions on emissions trading schemes, leases, revenue recognition and IFRIC developments
Public sector
  • GAAP/GFS harmonisation – the AASB agreed to the drafting of a Standard for entities within the General Government Sector, for possible adoption at the February meeting – possibly overturning the previous decision to issue guidance only
  • Impairment of ‘statutory receivables’ – agreement on testing these items (such as income tax receivables) under AASB 136 Impairment of Assets rather than AASB 139 Financial Instruments: Recognition and Measurement
  • Control in public sector – agreed to a new project to be conducted over a number of phases
  • Currency on issue – project to proceed with low priority
  • IPSASB – decision to comment on proposals on reporting long-term fiscal sustainability
Not-for-profit
  • Service performance reporting – consideration of the project, its interaction with the differential reporting project, New Zealand convergence and other projects
  • Superannuation reporting – start of deliberations of the proposals in ED 179 Superannuation Plans and Approved Deposit Funds - highlights include deciding on an overriding fair value measurement objective for defined benefit obligations, and to not permit fair values to be adjusted for transaction costs.

More information on the above topics can be obtained from the AASB Action alert (PDF 76kb) and Board papers for the meeting.

The next meeting of the AASB is scheduled for 3-4 February 2010.

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