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Accounting alert 2009/02 - March AASB meeting highlights

The big ticket item coming out of the March 2009 meeting was the board's decisions around differential reporting, representing a potential softening in its stance on what financial statements are to be considered general purpose. A new Interpretation on customer contributions was also approved and progress made on a multitude of other projects.

Differential reporting

Overview of the AASB's discussion

The AASB discussed the revised differential reporting that would apply in light of the forthcoming IFRS for Non-Publicly Accountable Entities (IFRS for NPAEs, previously called the 'IFRS for SMEs' and 'IFRS for Private Entities').

The AASB has potentially softened its original stance that all financial statements required to be lodged on a public register should be considered 'general purpose financial statements' (GPFSs) and so prepared in accordance with all Accounting Standards including disclosures. Instead the focus is on statements that made available 'to the public at large' (either mandatorily or voluntarily) that are required by regulation to be GPFSs or be prepared in accordance with accounting standards.

These statements must then be prepared in accordance with all applicable accounting standards.

The AASB has also stated that it will consider whether there are one, two or more tiers of requirements to be applied in preparing GPFSs.

What do the decisions mean?

The main impacts of the decisions taken at this meeting include:

  • Financial statements of entities that are required to prepare and lodge financial statements under other legislation that does not require compliance with accounting standards will no longer be captured under the differential reporting regime. For example, this means that entities such as charities and associations that are required to prepare cash basis (or modified accrual accounting) financial statements will not be faced with a conflict between accounting standards and their reporting mandates under their governing acts
  • All financial statements lodged under the Corporations Act 2001 would be required to be prepared in accordance with all accounting standards, i.e. they must be GPFSs
  • It is likely to capture 'grandfathered entities' under the Corporations Act 2001 as these are required to be prepared in accordance with accounting standards
  • There may be more than one type of GPFS depending upon the nature of the entity, i.e. some standards may be applicable to some entities not others and the IFRS for NPAEs.
In effect, the AASB is taking the view that they should not be involved in determining the 'reporting mandate', but would determine what financial statements would look like under any reporting mandate that requires the use of accounting standards. Therefore, if the Corporations Act 2001 requires large proprietary companies to prepare financial statements in accordance with accounting standards, then those entities would be required to fully comply with all applicable accounting standards. Therefore, the AASB is effectively stating that requiring entities to comply with accounting standards is a policy decision for legislators, not the AASB.
What 'tiers' of requirements might apply?

The AASB's decisions around different possible types of GPFSs opens the door to the possibility of a differential reporting framework that produces results not dissimilar to the current system. However, it would appear that the disclosure requirements for entities current considered non-reporting entities are likely to increase.

It would appear clear that the reporting framework in Australia will encompass at least IFRS and IFRS for NPAEs, with the possibility of other 'tiers' that might cater for particular groups of entities. In the for-profit sector, it could be that a 'third tier' emerges that would:

  • Require entities to prepare financial statements in accordance with the recognition and measurement of accounting standards
  • Reduce the disclosure burden by requiring only a 'subset' of disclosures.

Financial statements prepared under this 'third tier' of requirements would not be able to state compliance with IFRSs, but may be a more palatable option for two particular groups of entities:

  • Financial statements of wholly-owned subsidiaries
  • A number of entities that are currently considered 'non-reporting entities'.
However, at this stage the AASB has not finally decided to introduce a 'third tier' and its requirements are not yet known. For instance, key decisions about whether the recognition and measurement requirements should be based on IFRS or IFRS for NPAEs (or both) will impact the usefulness of the third tier to wholly-owned subsidiaries of listed companies.

Furthermore, the interaction of these developments with the AASB's role in setting accounting standards for the not-for-profit and public sectors remains unclear. It may be increasingly likely that the AASB will move towards basing public sector requirements on the standards issued by the International Public Sector Accounting Standards Boards (IPSASB) and perhaps not-for-profit entities as well.
More information

Other matters

A high-level summary of the other matters discussed at the meeting is presented in the table below

Topic Overview Comments and more information

The Board made Interpretation 18 Transfers of Assets from Customers and AASB 1048 Interpretation and Application of Standards (March 2009).

The AASB also finalised its submission to the IASB on the proposals in IASB ED/2009/1 Post-Implementation Amendments to IFRIC 9 'Reassessment of Embedded Derivatives' and IFRIC 16 'Hedges of a Net Investment in a Foreign Operation'.

Interpretation 18 is largely consistent with Interpretation 1017 Developer and Customer Contributions for Connection to a Price-Regulated Network, which it supersedes. However, the scope of Interpretation 18 is wider than Interpretation 1017 and so may have wider application.

In relation to the proposals in IASB ED/2009/1, we agree with the proposal to amend IFRIC 9 and urge its adoption. At this time, however, we are not ready to support the proposal to amend IFRIC 16 as it is not clear to us what fact pattern the Board has in mind and whether the rationale applies to all situations where the hedging instrument is being held by the foreign operation being hedged. Additionally, we have some concern about the proposed effective date of the IFRIC 16 amendment ( Deloitte comment letter, PDF 177kb).

IAS Plus Update Newsletter - Guidance issued on accounting for transfers of assets from customers (IFRIC 18) (PDF 107kb)

Agenda Paper 12.3.1 Draft Proposed Interpretation 18 Transfers of Assets from Customers (PDF 371kb)

Agenda Paper 12.4.1 Draft Proposed AASB 1048 Interpretation and Application of Standards (March 2009) (PDF 354kb)

Consolidated financial statements The AASB considered its draft submission to the IASB on the consolidation proposals and expressed a number of concerns around the short comment period and concerns about whether the proposals achieve the objectives the IASB sought from this project Agenda Paper 6.3 Submissions on ED171 Consolidated Financial Statements (PDF 1.92MB)
Related party disclosures The AASB considered its submission to the IASB on its proposals to amend IAS 24 Related Party Disclosures in relation to relationships with the state.

The AASB noted that the proposals have greater significance since governments began acquiring interests in businesses such as banks as a result of the global financial crisis.

Agenda Paper 9.3 Submissions on ED 170 Relationships with the State (Proposed Amendments to AASB 124) (PDF 576kb)

Education sessions The board had education sessions on the IASB Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers and the IASB's extractive activities project (which the AASB is leading).

IAS Plus Update Newsletter - Discussion Paper Proposes New Basis for Revenue Recognition (PDF 115kb)

IAS Plus project page on extractive activities

Financial instruments The AASB noted that the proposals in ED 173 had effectively lapsed as a result of the IASB deciding not to proceed with its equivalent proposals. The proposed amendments to AASB 7/IFRS 7 would have required substantial new disclosures for investments in debt instruments. We did not support the proposals ( Deloitte comment letter, PDF 141kb)
Intangible assets

The AASB considered its draft submission to the National Standard Setters Group on the Discussion Paper Initial Accounting for Internally Generated Intangible Assets.

The AASB continues to support the need for a global project on intangible assets and is willing to provide additional research resources on this topic.

Given the IASB has resisted calls to add a project on intangible assets to its active agenda, it may be some time before this project reaches significant milestones. In any case, the Discussion Paper is focussed on the initial recognition of such intangible assets and is not at this stage focussed on the post-recognition treatment of intangibles, i.e. there is no consideration of whether intangible assets should be permitted to be revalued after initial recognition.
Income from non-exchange transactions The board continued its deliberations on an exposure draft as part of its short-term project with the NZ Financial Reporting Standards Board to develop a common standard based on IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers) An exposure draft is expected to be finalised at the April 2009 AASB meeting.
Modifying IFRSs for not-for-profit entities The board continued its consideration of a draft Invitation to Comment on the process for modifying IFRSs for not-for-profit entities and developed a number of suggested changes. As this is a joint project with the NZ FRSB, the Invitation to Comment is expected to be released for comment later in March after further consideration by the FRSB.
IPSASB Conceptual Framework The AASB finalised its submission on the IPSASB Consultation Paper Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities.

The AASB is largely in agreement with the proposals.

Agenda Paper 11.3 Submissions on IPSASB Consultation Paper - Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities (PDF 1.79MB)

AASB policies and procedures The AASB considered draft papers setting out key policies and procedures to replace the Policy Statements withdrawn by the AASB in November 2008. -
IASB liaison The AASB met with Warren McGregor and Stephen Cooper to discuss a number of matters on IASB due process and projects. It is understood that the IASB was receptive to AASB concerns around the retrospective application of some IASB amendments.
IASCF constitution The board considered its submission on the IASCF's review of its constitution, focussing on the IASB's independence and the need for transaction-neutral standards at the international level. The submission is expected to be made available on the AASB's web site shortly.
Roundtables Roundtables are planned on revenue recognition, presentation of financial statements and GAAP/GFS harmonisation. -

More information on the above topics can be obtained from the AASB Action Alert (PDF 54kb) for the meeting.

The next meeting of the AASB is scheduled for 22 April 2009 in Melbourne.


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