Accounting alert 2008/02 - February 2008 AASB meeting
The AASB's first meeting for 2008 was a one-day affair held on 7 February 2008. Although the meeting did not produce a lot of concrete outcomes, some progress was made on many of the Board's ongoing projects.
In this Accounting alert we focus on the following developments:
- Responding to IASB developments - share-based payments, business combinations, revised Framework and puttable instruments
- Public sector and not-for-profit developments - service concession arrangements, non-exchange transactions, social benefits, departures from IFRS, revised 'not-for-profit entity' definition and more
- Other developments - accounting for defined benefit obligations by superannuation plans.
Amendments to AASB 2
The AASB made Amending Standard AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions and Cancellations. This Amending Standard will introduce into AASB 2 Share-based Payments the recent amendments made to IFRS 2 Share-based Payment by the IASB.
The amendments will be applicable to annual reporting periods beginning on or after 1 January 2009 and:
- Clarify that vesting conditions are those conditions that determine whether the entity receives the services that result in the counterparty's entitlement
- Restrict the definition of vesting conditions to include only service conditions and performance conditions
- Amend the definition of performance conditions to require the completion of a service period in addition to specified performance targets
- Specify that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment.
In making AASB 2008-1, it is understood that the AASB did not replicate the transitional provisions contained in the equivalent IASB amendments. The transitional provisions in the IASB amendments require retrospective application of the requirements. The AASB intended that that same outcome be achieved under AASB 2008-1 due to the operation of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.
For more information, see the following:
- Draft AASB 2008-X Amendments to Australian Accounting standards arising from AASB 2 (considered by the AASB at the meeting, PDF 91kb)
- IAS Plus Newsletter 'Amendments to IFRS 2 for Vesting Conditions and Cancellations' (PDF 126kb)
- IAS Plus project summary
Business combinations (phase II)
The AASB considered proposed draft Standards AASB 3 Business Combinations (2008), AASB 127 Consolidated and Separate Financial Statements (2008) and AASB 2008-X Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127.
After deliberation, the AASB did not proceed with making the Standards but instead decided to further consider the not-for-profit and public sector paragraphs required to implement the Standards in those sectors. The Standards will be further considered at the AASB's March meeting.
|It is disappointing that the AASB did not made Australian equivalents to the IASB standards at this meeting as until the Board does so, the Standards are not available for early adoption by Australian entities. However, for-profit entities claiming compliance with IFRS should consider making disclosures about these and other pronouncements that have been issued by the IASB or IFRIC but not yet issued by the AASB at the date of signing the financial report. For more information, see our analysis in our commonly asked questions around pronouncements on issue but not applied in the financial report.|
For more information on the revised business combination standards, see the following:
- Deloitte Australia Insights podcast 'How will the new business combination accounting requirements affect you?'
- Media release 'Companies must come to grips with new accounting standards on mergers and acquisitions'
- IAS Plus Newsletter 'IASB revises IFRS 3 and IAS 27' (PDF 122kb)
- IASB press release 'IASB completes the second phase of the business combinations project'
- IAS Plus project page on the IASB's business combinations phase II project
- IASB project page on the business combination project
- Draft revised AASB 3 Business Combinations (considered by the AASB at the meeting, PDF 270kb)
- Draft revised AASB 127 Consolidated and Separate Financial Statements (considered by the AASB at the meeting, PDF 159kb)
- Draft AASB 2008-X Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 (considered by the AASB at the meeting, PDF 898kb)
|Topic||Overview||Comments and more information|
|Cost of an investment in a subsidiary, jointly-controlled entity or associate||The AASB considered its submission to the IASB on these proposals, largely appearing to support the proposals. The AASB will finalise its submission after considering any further constituent comments received (comments on ED 160 close on 13 February 2008).||
ED 160 Exposure Draft of Proposed Amendments to AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards and AASB 127 Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (from the AASB web site, PDF 88kb)
The AASB has requested comments on draft IFRIC Interpretations D23 Distribution of Non-cash Assets to Owners and D24 Customer Contributions (by 7 April 2008 and 26 March 2008 respectively).
The AASB also confirmed its intention to withdraw Interpretation 1017 Developer and Customer Contributions for Connection to a Price-Regulated Network once it adopts any IFRIC Interpretations developed from IFRIC D24.
IAS Plus Newsletter 'IFRIC's D23 (Distributions of Non-cash Assets) and D24 (Assets Contributed by Customers)' (PDF 105kb)
The IASB is revising the Framework for the Preparation and Presentation of Financial Statements in a piecemeal manner and an ED in respect of the objective of financial reporting and the qualitative characteristics of financial information is expected shortly.
The AASB decided to follow the IASB's intended approach of adopting each 'drip fed' piece of the revised Framework as it is issued by the IASB in respect of for-profit entities, but retain the existing Framework for nor-for-profit entities.
|Puttable instruments||The IASB is expected to release its amendments to IAS 32 Financial Instruments: Presentation to allow certain residual puttable financial instruments and certain residual instruments with limited lives to be classified as equity.|
An on-going dilemma for the AASB
The developments from this meeting from a not-for-profit and public sector perspective reveal that the AASB's decision to use IFRS as the basis for all accounting pronouncements in all sectors (perhaps driven by the FRC's directive around IFRS) continues to cause it heartache.
As we noted in Accounting alert 2007/20, the time is quickly approaching when the AASB must decide which reporting framework to 'hitch its wagon' in relation to not-for-profit and public sector entities. Should accounting requirements in these sectors be based on the pronouncements issued by the International Accounting Standards Board, International Public Sector Accounting Standards Board, a hybrid approach, or some other approach? How will the special needs of not-for-profit sector entities be accommodated?
IFRS is being developed by the IASB with a strong focus on the financial reporting needs of entities listed on the world's most important exchanges. The IASB's SME project brings renewed impetus to reconsider standard setting in Australia. Perhaps a blind adherence to IFRS is no longer appropriate and 'multiple GAAPs' are more appropriate to accommodate the needs of the various sectors?
The AASB has signalled its intention to consider this issue at its April 2008 planning meeting and it will be interesting to see whether the influence of IFRS will be reduced?
Key decisions made
The key decisions made at this meeting include:
- The AASB agreed to issue an agenda rejection statement on public sector accounting for service concession arrangements
- Options for a short-term solution to the issue of accounting for non-exchange transactions were discussed - the Board decided to develop, for further consideration, a modified version of IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers) to replace AASB 1004 Contributions
- The Board approved an Invitation to Comment on forthcoming IPSASB pronouncements on social benefits
- The dates for the forthcoming roundtables on definition of 'not-for-profit entity' were noted as 11 March in Melbourne, 13 March in Sydney and 17 March in Canberra
- The Board considered criteria for departing from IFRS for not-for-profit entities and decided to consider the criteria in the wider context of its April 2008 planning meeting.
Superannuation plans and defined benefit obligations
The AASB tentatively agreed to:
- Use the approach in AASB 119 Employee Benefits as a basis for developing a proposed treatment of defined benefit obligations
- Propose that a superannuation plan be required to measure both the vested and accrued benefits of its defined benefit members on an annual basis and that such plans be permitted to employ estimates, averages and computational short-cuts in the same manner as permitted by AASB 119 in respect of long-term employee benefits
- Give further consideration to the practical difficulties that preparers might face if required to measure defined benefit entitlements in accordance with a current exit value model, and how they might overcome these difficulties
- Give further consideration to the discount rates employed and, in particular, justifications for using expected asset earning rates (as presently required by AAS 25 Financial Reporting by Superannuation Plans).
More information on above topics can be obtained from the AASB Action Alert (PDF 105kb) for the meeting.
The next meeting of the AASB is scheduled for 5-6 March 2008.