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Monthly roundup - July 2010

Staying on top of developments

Author: Frank Betkowski and Debbie Hankey, Accounting Technical Group

Issued Monday 2 August 2010

In this edition:

Monthly highlight: Are we in danger of reform fatigue? 

Well, what a busy month July has been. In addition to the finalisation of the Federal Government and AASB financial reporting reforms early in the month, ASIC released its focus areas for 30 June reporting and tidied up legal issues around the Corporations Act 2001 reforms.

ASIC’s focus areas for 30 June 2010 include all the usual suspects – impairment, segment reporting, business combinations, fair value, going concern and the like – and a new increased focus on ‘non-statutory profit’. As our research has shown, the use of ‘underlying profit’ measures has increased since the global financial crisis confirmed the volatility IFRS brings to financial reporting.

However, the fact that ASIC had to rush through a Class Order to allow companies to continue to present parent entity financial statements in their financial reports is they so choose, alludes to a bigger issue: rushed changes and reform fatigue.

The ink had barely set on the AASB’s ‘Reduced Disclosure Regime’ when the next step – trans-Tasman convergence, was announced. Again, apparently fast-tracked to be able to be early adopted by next June and the first step in more wide-ranging reforms in time.

But, by next June, the global accounting landscape itself will have undergone remarkable change. The IASB and FASB push ahead with their agreed program, and notwithstanding the recent deferral of some important projects, the political pressure will see major projects finalised in areas such as revenue recognition, leases, financial statements, financial instruments, consolidation and insurance. And that’s just some of them, with the IASB and FASB grappling with how to implement it all in the best way – likely starting from 2013. A bit of a loaded gun if you like.

Could we have foreseen this barrage of change when we adopted IFRS all those years ago? How is your average board, audit committee or executive meant to understand the radical changes proposed and the impacts on their companies? The need to be on top is getting greater in an increasingly globalised world. What about smaller companies, not-for-profit entities and the like – have they been given enough relief?

But, it’s not all bad. And, the benefits of IFRS are undoubtable, even if the pace can seem a little quick. The bringing of the United States into the IFRS fold, along with others such as Japan and India, will be a great achievement in global accounting, albeit with the potential for a little heartburn. The future promises change, that’s for sure.

So, there’s a lot to consider for 30 June 2010 financial reports, with many pieces of the puzzle being put in place at the last minute. But the bigger worry can be staying on top of what’s yet to come and building a flexible system platform for the even bigger reforms coming. Enjoy the ride!

More information:

New pronouncements

(A listing of new accounting standards, interpretations, exposure drafts, discussion papers and similar documents issued during the month by the AASB and IASB/IFRIC, along with other IFRS-related documents by other bodies that may be of interest and related links to Deloitte publications and alerts. See also our What’s new in the June 2010 financial reporting cycle summary)

Australian Accounting Standards Board (AASB)
Pronouncement Key dates More information

AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements

These Standards together implement ‘stage 1’ of the AASB’s revised differential reporting regime.

AASB 1053 establishes a differential financial reporting framework consisting of two tiers of reporting requirements for general purpose financial statements:

  • Tier 1: Australian Accounting Standards
  • Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements (‘RDR’).

AASB 2010-2 makes amendments to each Standard and Interpretation indicating the disclosures not required to be made by ‘Tier 2’ entities. In some cases, additional ‘RDR” paragraphs are inserted requiring simplified disclosures.

The following entities apply either the RDR or ‘full’ Australian Accounting Standards in preparing general purpose financial statements:

  • For-profit private sector entities that do not have public accountability
  • All not-for-profit private sector entities
  • Public sector entities other than Federal, State, Territory and Local Governments.

Regulators may have the power to require the application of ‘full’ Australian Accounting Standards by the entities they regulate.

Applies to annual reporting periods beginning on or after 1 July 2013 but may be early adopted for annual reporting period beginning on or after 1 July 2009

AASB 1053 (PDF 209kb)

AASB 2010-2 (PDF 268kb)

Accounting alert 2010/08

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

Amends a number of pronouncements as a result of the IASB's 2008-2010 cycle of annual improvements to provide clarification of certain matters.

The key clarifications include:

  • The measurement of non-controlling interests in a business combination
  • Transition requirements for contingent consideration from a business combination that occurred before the effective date of the revised AASB 3 Business Combinations (2008)
  • Transition requirements for amendments arising as a result of AASB 127 Consolidated and Separate Financial Statements.
Applies to annual reporting periods beginning on or after 1 July 2010

AASB 2010-3 (PDF 122kb)

IAS Plus Update Newsletter (PDF 77kb)

AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

Amends a number of pronouncements as a result of the IASB's 2008-2010 cycle of annual improvements.

Key amendments include:

  • Financial statement disclosures - clarification of content of statement of changes in equity (AASB 101), financial instrument disclosures (AASB 7) and significant events and transactions in interim reports (AASB 134)
  • Interpretation 13 - fair value of award credits
  • AASB 1 - accounting policy changes in year of adoption and amendments to deemed cost for assets measured on revaluation basis and regulatory assets ( may be relevant under the RDR).
Applies to annual reporting periods beginning on or after 1 January 2011

AASB 2010-4 (PDF 161kb)

IAS Plus Update Newsletter (PDF 77kb)

AASB 1048 Interpretation of Standards (June 2010)

Updated version of this 'service standard' to provide a mandatory requirement to comply with Interpretations in the Australian context. This version removes references to versions of Interpretations that do not apply to any of the reporting periods to which the Standard mandatorily applies, adds Interpretation 19, and includes amended versions of Interpretations since March 2009.

AASB 1048 applies to annual reporting periods ending on or after 30 June 2010 but contains specific application dates for each Interpretation AASB 1048 (PDF 200kb)

ED 198 Revenue from Contracts with Customers*

Australian issue of the joint IASB and FASB proposals for a new revenue recognition standard implementing a common, comprehensive principle-based revenue standard that can be applied consistently to complex transactions across a wide range of industries.

The ED proposes a model based on the contract with a customer, with revenue being recognised when the customer obtains control of the goods or services.

The proposals may result in a change in the timing of revenue recognition for many entities. Deferral of revenue recognition might be expected for warranties and some items currently accounted for on a percentage of completion basis.

New guidance on licensing arrangements, multiple element arrangements, contract costs and onerous performance obligations may also impact many entities.

The proposed disclosures are also extensive.

Comments are due to the AASB by 24 September 2010 and to the IASB by 22 October 2010

ED 198 (PDF 990kb)

IFRS in Focus newsletter (PDF 97kb)

US Heads Up newsletter

ED 199 Measurement Uncertainty Analysis Disclosure for Fair Value Measurements (Limited re-exposure of proposed disclosure)

Proposes relatively minor amendments to the proposals in the IASB’s May 2009 ED on fair value measurement. Under the originally proposed hierarchy, Level 3 inputs are 'unobservable inputs' used for the fair value measurement of assets or liabilities for which market data is not available. Required disclosures would include a 'measurement uncertainty analysis' (sometimes called a 'sensitivity analysis').

The newly proposed amendments would enhance the original proposal by requiring the measurement uncertainty analysis disclosure to reflect the interdependencies between unobservable inputs used to measure fair value in Level 3.

Comments are due to the AASB by 16 August 2010 and to the IASB by 7 September 2010

ED 199 (PDF 235kb)

IFRS in Focus newsletter (PDF 60kb)

US Heads Up Newsletter

ED 200A Proposals to Harmonise Australian and New Zealand Standards in Relation to Entities Applying IFRSs as Adopted in Australia and New Zealand and ED 200B Proposed Separate Disclosure Standards

These joint AASB and New Zealand Financial Reporting Standards Board (FRSB) proposals would streamline Accounting Standards, eliminate some disclosures and introduce new options in accounting between Australia and New Zealand.

Under the proposals, Australian and New Zealand Standards will be more closely aligned, but not identical – the initial phase is focussed on for-profit entities and will not address all differences.

Early adoption may be attractive, particularly to eliminate superfluous or sensitive disclosures, to achieve convergence in accounting policies between Australian and New Zealand entities in a consolidated group, and for non-reporting entities reporting under the Corporations Act 2001.

Comments to the AASB and FRSB close on 8 October 2010

ED 200A (PDF 566kb)

ED 200B (PDF 227kb)

Accounting alert 2010/09

Corporations Act 2001 developments
Pronouncement Key dates More information

ASIC Class Order [CO 10/654] Inclusion of parent entity financial statements in financial reports

Overcomes some unintended consequences resulting from the Corporations Amendment (Corporate Reporting Reform) Act 2010 by allowing companies, registered schemes and disclosing entities that present consolidated financial statements to include parent entity financial statements as part of their financial report under Chapter 2M of the Corporations Act 2001.

Entities taking advantage of the relief are not required to present the summary parent entity information otherwise required by regulation 2M.3.01 of the Corporations Regulations 2001 but must otherwise comply with the requirements of Part 2M.3 of the Act in the preparation of parent entity information.

Effective 29 July 2010 (date of registration)

ASIC Class Order (PDF 19kb)

ASIC press release

Accounting alert 2010/08

ASIC Class Order [CO 10/655] Variation of Class Orders [CO 01/1455], [CO 04/672] and [CO 05/642]

Varies a number of other class orders, as a consequence of making of Class Order [CO 10/654] Inclusion of parent entity financial statements in financial reports. The variations made to Class Order [CO 05/642] allow stapled entities that together prepare a single financial report under that class order to avail themselves of the changes resulting from the Corporations Amendment (Corporate Reporting Reform) Act 2010 and Class Order [CO 10/654]. The variations made to Class Orders [CO 01/1455] and [CO 04/672] reflect ASIC's view that Class Order [CO 10/654] is a technical class order and reliance on it by an entity should not prevent the entity from taking advantage of the transaction specific disclosure rules and the "cleansing notice" on-sale exemptions in the Corporations Act 2001.

Effective 29 July 2010 (date of registration)

Accounting alert 2010/08

ASIC Class Order (PDF 23kb)

ASIC press release

International Accounting Standards Board (IASB)
Pronouncement Key dates More information

ED/2010/8 Insurance Contracts*

Proposes fundamental changes to the financial reporting of insurance companies applying IFRS, with a goal of making it more consistent and transparent than it has been so far.

The ED proposes a single IFRS that all insurers, in all jurisdictions, could apply to all contract types on a consistent basis. The proposed IFRS would apply to writers of both insurance and reinsurance contracts.

Measurement of the insurance contract would be based on a 'building block approach' that portrays a current assessment of the contract. The building blocks would be used to measure the combination of rights and obligations arising from an insurance contract rather than to measure the rights separately from the obligations. The combination of rights and obligations would be presented on a net basis.

Note: How these proposals might impact entities already reporting under the ‘domestic’ general and life insurance standards (AASB 1023 and AASB 1038) is yet to be determined.

Comments to the IASB close on 30 November 2010

Access to the exposure draft

IAS Plus summary article

Deloitte press release

* Equivalent pronouncement not yet issued by AASB

Standard setter meetings

(A listing of meetings of various standard setters during the month or where documents were issued during the month in respect of the previous month’s meetings, with links to our analysis, agenda papers and so on)

Meeting Highlights More information
IFRS Interpretations Committee meeting 8-9 July 2010 The Committee discussed the final draft of the proposed Interpretation on accounting for stripping costs in the production phase. Other topics discussed included share-based payment vesting conditions, puts over non-controlling interests, recycling of foreign currency translation reserves and annual improvements.

IAS Plus Update 10-15

Deloitte IFRIC Review (PDF 84kb)

Deloitte observer notes

IASB meeting 19-23 July 2010

(included joint meetings with the FASB)

Highlights include:

  • The leases project continued debate on various issues including the appropriate model for lessor accounting
  • The consolidation project saw approval for final drafting of new standards
  • The hedge accounting project commenced in-depth deliberations
  • The Board decided on an additional exception for income taxes arising in relation to revalued non-depreciable assets

Australian meeting summary

Deloitte observer notes

AASB meeting 29-30 July 2010 The outcomes of this meeting will be released in a separate Accounting alert to be issued later this week. AASB Board meeting page

New Deloitte publications

(Key IFRS-related and other publications issued by Deloitte during the month, not covered elsewhere. You can find full details and back issues of our various publications by following these links: Accounting alerts, IAS Plus publications and IFRS in Focus Newsletters)

IFRS publications
  • Accounting in the Telecommunications industry: A new view of revenue emerges (PDF 260kb) - highlights many of the key proposals in the recently issued Exposure Draft from the IASB and FASB on revenue recognition and considers key areas which may result in changing accounting practice within the telecommunications industry
  • Issue 16 of the Insurance Accounting Newsletter (PDF 125kb) - focuses on the discussions of the three special meetings and the normal Board monthly meeting in June 2010 during which the Boards resolved a number of major longstanding disagreements
  • IFRS Alert (PDF 67kb) - provides an update on potential accounting implications as a result of recent actions taken by the Venezuelan government regarding foreign currency exchange controls
  • Deloitte (United Kingdom) has developed iGAAP 2010 Financial Instruments: IAS 32, IAS 39, IFRS 7 and IFRS 9 Explained (Sixth Edition). This publication is the authoritative guide for financial instruments accounting under IFRSs. The 2010 edition continues to include many practical examples, comparisons with US GAAP, an IFRS 7 disclosure checklist and model disclosures (the publication can be purchased through www.lexisnexis.co.uk/deloitte)
Other publications of interest
  • Accounting Roundup: Second Quarter in Review–2010 (PDF 1,582kb) – provides brief descriptions of pronouncements affecting accounting, financial reporting, and corporate governance issued during 2Q-2010 by standard setters and regulators including FASB, EITF, AICPA, SEC, FASAB, PCAOB, GASB, IASB, IFRIC, and IAASB
  • Heads Up Newsletter PCAOB Issues Proposed Standard on Audit Confirmations (PDF 128kb)
  • Heads Up Newsletter FASB Goes "ALLL"-In, Requires Entities to Show Their Cards - Board Enhances Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses (PDF 132kb)
  • Heads Up Newsletter Raising the Volume on the Remote - FASB Proposes Guidance on Expanded Disclosures for Certain Loss Contingencies (PDF 156kb)
  • Heads Up Newsletter About Face - FASB Proposes Sweeping Changes to Financial Statement Presentation (PDF 106kb)
Deloitte comment letters

Other developments

(A brief listing of other financial reporting developments during the month. A full summary of all IFRS-related developments can be found in our July historical summary on IAS Plus. You can also subscribe to our Deloitte IAS Plus RSS feed to be kept informed of developments as they happen)

Australian-specific matters
  • The AASB is facilitating an IASB Discussion Forum in Melbourne on Thursday 26th August 2010, discussing the IASB’s work plan, focussing on revenue, leases and consolidation (details)
  • ASIC has released regulatory guidance to assist directors to understand and comply with their duty under the Corporations Act 2001 (Corporations Act) to prevent insolvent trading (ASIC press release)
  • ASIC has assumed supervisory responsibility for Australia's domestic licensed financial markets with effect from 1 August 2010 (Minister’s press release)
International Accounting Standards Board
Other global news
  • The International Valuation Professional Board (IVPB) of the International Valuation Standards Council (IVSC) has released two documents for consultation: Proposed Code of Ethics for Professional Valuers (511kb) and Definition of a Professional Valuer (545kb)
  • The 18th World Congress of Accountants is being held in Kuala Lumpur, Malaysia, on 8-11 November 2010 (IAS Plus story)
  • The Committee of European Securities Regulators (CESR) has published its eighth batch of extracts from its confidential database of enforcement decisions taken by EU national enforcers of financial information (IAS Plus story)

Related links

  • Monthly roundup - July 2013
    Financial reporting developments during July 2013. Monthly highlights discuss the ASIC areas of focus for July 2013 reporting period.
  • Monthly roundup - June 2013
    Financial reporting developments during June 2013. Monthly highlights discuss the ASIC areas of focus for June 2013 reporting period.
  • Monthly roundup - October 2012
    Financial reporting developments during October 2012. Monthly highlights discuss the recently issued investment entity consolidation amendments by the IASB; and the developments in the IASB lease project
  • Monthly roundup - March 2011
    Financial reporting developments during March 2011. Monthly highlight discusses the updated IASB work plan, ASIC's proposed guidance on additional financial information and a joint UK/NZ project to reduce disclosures under IFRS.
  • Monthly roundup - March 2009
  • Monthly roundup - August 2010
    Summary of developments in financial reporting during August 2010. Monthly highlight discusses the possible impact of changes in the IASB and FASB chairs on global standard setting.

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