Accounting alert 2010/10 - July AASB meeting
A work in progress
The AASB’s June meeting was held on 29-30 July 2010.
This two day meeting included a joint meeting with the New Zealand Financial Reporting Standards Board (FRSB) on day one – part of the increased frequency in joint meetings as the push for close Trans-Tasman convergence continues.
Exemption from consolidated financial statements
Discussions at the meeting
The AASB continued debate on when the exemption from preparing consolidated financial statements in AASB 127 Consolidated and Separate Financial Statements should be applied in the Australian context in light of the introduction of the AASB’s revised differential reporting regime. More information about the regime can be found in Accounting alert 2010/08.
The critical issue is when entities reporting under ‘Tier 1’ (full Australian Accounting Standard) and ‘Tier 2’ (‘Reduced Disclosure Regime’) should be permitted to avail themselves of the relief, in relation to for-profit, not-for-profit and public sector entities (or combinations thereof).
The AASB developed a principle that the exemption should apply if ultimate parent prepares consolidated financial statements incorporating information that otherwise would have been presented in the intermediate consolidated financial statements.
In applying this principle, the following outcomes are expected:
- Subsidiaries applying the same Tier as their parent (Tier 1 or Tier 2) will be eligible for relief
- Other subsidiaries applying ‘Tier 2’ will be eligible for relief if the parent applies ‘Tier 1’ or ‘Tier 2’
- Subsidiaries applying “Tier 1’ will only be eligible for relief if the parent also applies ‘Tier 1’ but not if it applies ‘Tier 2’.
The AASB expects to issue an Exposure Draft later this year.
Without resolution by the AASB this issue is potentially a significant barrier to certain entities early adopting Tier 2 (RDR) requirements as the wording is AASB 127 currently refers to a parent producing “consolidated financial statements available for public use that comply with International Financial Reporting Standards”. Because consolidated financial statements prepared in accordance with ‘Tier 2’ (RDR) are not IFRS compliant, the exemption would not be available to subsidiaries of such entities. Similar issues arise for not-for-profit and public sector entities as IFRS is modified for these entities and so they cannot be IFRS compliant.
Although this issue only currently applies to reporting entities, it is important the AASB deals with this matter promptly and we encourage the AASB to proceed quickly with its introduction. This matter will assume greater importance in the event the AASB decides, as part of the forthcoming Stage 2 of the differential reporting project, to remove the reporting entity concept and require non-reporting entities to apply ‘Tier 2’ (or similar requirements).
More information about the changes to the consolidated financial statements exemption, see the following:
- Accounting alert 2010/03 – initial discussions at the March 2010 meeting
- Accounting alert 2010/04 – further discussions
The following is a summary of the other matters discussed at the meeting:
AASB only meeting
- Superannuation – deliberations continued on ED 179 Superannuation Plans and Approved Deposit Funds. The AASB considered the appropriate measurement bases for various assets and liabilities by reference to other standards (AASB 119 Employee Benefits and AASB 1038 Life Insurance Contracts) and how the principles of AASB 7 Financial Instruments: Disclosures might be applied by superannuation plans. The AASB will need to carefully consider whether re-exposure of the final position is required before finalising any Standard
- GAAP/GFS harmonisation – consideration of a list of post-implementation issues relating to AASB 1049 Whole of Government and General Government Sector Financial Reporting (exposure draft to be issued) and application of AASB 1049 to non-for-profit entities within the general government sector (with a substantive discussion on the disclosure of controlled and administered items)
- Extractive activities – discussion on AASB submission to IASB on the IASB Discussion Paper DP/2010/1 Extractive Activities (Deloitte comment letter)
- Presentation of financial statements – update on joint IASB/FASB project (IASB staff draft)
- Other matters – July IFRIC meeting update (IAS Plus summary), public sector liaison, work program and IFRS Advisory Council update
Joint meeting with the NZ FSRB
- Emerging issues – income taxes (impact of July IASB meeting decisions), International Valuation Standards proposals, key management personnel (person or entity as KMP), Mineral Resource Rent Tax
- Discussion on IASB projects – education session and/or updates on the financial instruments and revenue projects, with some concerns raised
- Income from non-exchange transactions – agreed to explore an approach to liability recognition in which an enforceable performance obligation is of itself sufficient for a liability to exist
- IPSASB report – update on June/July meeting
- Future planning – possibility of greater integration between the two boards
The next meeting of the AASB is scheduled for 1-2 September 2010 in Melbourne.