Accounting alert 2008/10 - July 2008 AASB meeting highlights
Most of the AASB's July 2008 meeting was devoted to a joint meeting with the New Zealand Financial Reporting Standards Board (FRSB) where a number of joint projects were progressed. The AASB also approved (out-of-session) an Amending Standard dealing with costs of investments in subsidiaries, joint ventures and associates and agreed to amend concise financial reporting requirements.
In this Accounting alert we focus on the following developments:
- Joint meeting with FRSB - progress on emission trading schemes, when IFRS should be modified for not-for-profit (NFP) entities, accounting for non-exchange transactions and guidance on accounting for business combinations by NFP entities
- Other developments - investments in subsidiaries, joint ventures and associates, concise financial reporting, Interpretations and related parties.
Closer ties to be congratulated
We continue to support the joint initiative of the AASB and FRSB to work closely on a number of projects. Notwithstanding the smaller size of the Australian and New Zealand economies by world standards, the respective boards have continued to 'punch above their weight' in the rapidly globalising accounting environment.
IFRS quickly becoming ubiquitous in the for-profit sector and the International Public Sector Accounting Standards Board (IPSASB) is working towards equivalent standards in the not-for-profit sector. Regional groupings of standard-setters are emerging to represent the interests of their constituents, including a new group being formed in Asia-Pacific (as discussed at the meeting). The key challenge for the AASB and FRSB is not to be marginalised by these processes, whilst retaining their respective mandates and strongly representing the interests of their constituents.
The political, economic and social environment of Australia and New Zealand are not that different, particularly when contrasted with the many other countries and systems around the world. Business is increasingly demanding consistency between states and across the Tasman, with reduced red tape. New challenges and global economic shifts are underway.
In this context, the AASB and FRSB working together in the accounting arena is a positive step in the right direction. Some worthwhile objectives could include:
- Eliminating remaining differences in accounting standards between Australia and New Zealand as rapidly as possible
- Working together to achieve harmonisation and consistency in differential reporting and the accounting requirements for private entities (SMEs)
- Presenting a strong and united voice to the IASB, IPSASB and regional standard-setter groups highlighting the particular needs of Australian and New Zealand constituents
- Highlighting the need for reform on both sides of the Tasman where law and regulations prevent the harmonisation in accounting requirements.
Overview of matters discussed at the joint meeting
|Topic||Overview||Comments and more information|
|Emissions trading schemes||The boards discussed how to progress the project and directed staff to develop a paper that outlines processes the boards could follow in the event the IASB project does not progress in a timely manner. The accounting implications from the government's perspective will also be considered.||
We would strongly prefer that the AASB does not 'go it alone' in developing accounting requirements for emissions trading schemes, particularly as the AASB would be constrained by existing IFRS requirements.
IAS Plus Newsletter on the IASB's Discussion Paper on The Reporting Entity (July 2008, PDF 156kb)
IAS Plus Newsletter on IASB's Exposure Draft Conceptual Framework Objective and Qualitative Characteristics (July 2008, PDF 143kb)
|Long-term fiscal sustainability||
The IPSASB is working on a project that would provide insights into the decisions of governments in the longer term.
The boards agreed to monitor this project as it progresses towards a consultation paper in the first half of 2009.
For example, this project would consider how to reflect the long-term impact on government fiscal positions of new government spending programs, tax changes, and so on. Reporting on this type of concept is likely to be 'outside' the normal framework of concepts, as governments generally have discretion to change programs at will.
|IPSASB report||Mike Hawthorn, IPSASB Chairman, gave a verbal report on the IPSASB's work program and current activities. Of interest, it was noted that the IPSASB has established a liaison committee with the IASB to jointly pursue projects.||IPSASB project summaries|
|Other||The boards received a report on the activities of the IASB Standards Advisory Committee (SAC), a presentation on the status of the IASB's financial statement presentation project and considered the respective board positions on differential reporting and SMEs.|
Cost of an investment in a subsidiary
Following its June 2008 meeting (see Accounting alert 2008/09) the Board approved 2008-7 Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate out of session.
AASB 2008-7 applies to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted. The Board noted that if an entity applies the changes to AASB 127 Consolidated and Separate Financial Statements for an earlier period, it would need to disclose that fact and, in that period, apply the related amendments to AASB 118 Revenue, AASB 121 The Effects of Changes in Foreign Exchange Rates and AASB 136 Impairment of Assets.
|We will update our What's new in financial reporting for June 2008 guide when AASB 2008-7 is publicly released by the AASB. Click here to access the What's new guide .|
The Standard will apply for annual reporting periods beginning on or after 1 January 2009 with early adoption permitted.
When made, this Standard will:
- Remove the definition of the 'cost method' from AASB 127 Consolidated and Separate Financial Statements and amend AASB 118 Revenue to require dividends to be presented as income in the separate financial statements of the investor
- Implement consequential amendments to AASB 136 Impairment of Assets, introducing a new indicator of impairment for investments in subsidiaries, jointly controlled entities and associates where a dividend has been recognised
- Amend AASB 127 to require the separate financial statements of a new parent formed as the result of a specific type of reorganisation to measure the cost of its investment in the previous parent at the carrying amount of its share of the equity items of the previous parent at the date of the reorganisation
- Amend AASB 1 to allow first-time adopters to use a deemed cost of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements.
|In our global and Australian submissions on the IASB/AASB exposure drafts, we did not support the proposals around the measurement of cost in the separate financial statements of a new parent. In our view, the amendments are not so much the granting of an 'exemption', but rather they limit accounting policy choices in relation to the specific category of transactions with which it deals. We would have preferred that the proposed amendments be debated more fully in the context of the IASB's project on accounting for common control transactions.
Furthermore, the amendments are not restricted to the formation of a new ultimate parent entity, but also extend to the formation of a new parent within a group. In our view, the accounting requirements for such transactions may also be considered non-authoritative guidance on other classes of common control transactions.
A copy of our global comment letter to the IASB on the original exposure draft can be downloaded from our IAS Plus website (PDF 160kb).
More information about the amendments can be found in our IAS Plus Newsletter (PDF 102kb).
|Topic||Overview||Comments and more information|
|Concise financial reports||The AASB agreed to amend AASB 1039 Concise Financial Reports to achieve consistency with AASB 8 Operating Segments and AASB 101 Presentation of Financial Statements (2007)||The question of whether concise financial reports have become an anaconism under IFRS will need to be debated by the AASB and Treasury in due course|
|Related party disclosures||The AASB decided to develop a plan for a project on related party disclosures by not-for-profit public sector entities. The project will consider the approach in other countries and the requirements of AASB 124 Related Party Disclosures and IPSAS 20 Related Party Disclosures.||
One of the contentious areas to be addressed by the board as part of this project will be the disclosures around key management personnel.
Agenda paper 4.2 Related Party Disclosures in the Australian Not-for-Profit Public Sector - Project Plan (PDF 250kb)
|Interpretations||The board intends to issue Australian equivalents to IFRIC 15 Agreements for the Construction of Real Estate and IFRIC 16 Hedges of a Net Investment in a Foreign Operation at its August meeting.||
IAS Plus Newsletter on IFRIC 15 (July 2008, PDF 133kb)
IAS Plus Newsletter on IFRIC 16 (July 2008, PDF 122kb)
More information on above topics can be obtained from the AASB Action Alert (PDF 51kb) for the meeting.
The next meeting of the AASB is scheduled for 27 August 2008 in Melbourne.
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