Australian Accounting Standards Board
Chairman's report
Background
The activities and priorities of the AASB in 2002-2003 and for 2003-2004 are dominated by actions and plans to implement the FRC's strategies in respect of the adoption of IASB Standards by 2005 and the harmonisation of GAAP and GFS. A number of issues including those relating to regulatory risk, copyright and legislative drafting have been identified in implementing these strategies.
Regulatory risk
The recommendations of the HIH Royal Commission in its report released in April 2003 has highlighted the need for bodies, such as the AASB, to be vigilant in carrying out their responsibilities. In particular, the AASB needs to ensure it is meeting its responsibilities to advance and promote the main objects of Part 12 of the ASIC Act while also progressing the FRC's strategic directives.
In respect of the adoption of IASB standards, there are a number of areas in which the IASB's standards are less demanding than the AASB's existing standards, while in other areas IASB standards address gaps in the existing portfolio of Australian standards. The Board acknowledges that there is a need to compromise to achieve the policy of adoption of IASB standards in 2005. Nevertheless the Board is concerned that existing Australian guidance, which is more helpful and more fulsome than that included in the IASB equivalents, will be superseded on the adoption of IASB standards. This is particularly the case where the IASB standards being adopted are those issued by the former IASC. The AASB is mindful of not removing or weakening financial reporting requirements by allowing options where this may lower the quality of financial reporting in Australia and run the risk that users of general purpose financial reports will be deprived of useful information that they previously received. However, in most cases the AASB has little choice but to accept the IASB standards without amendment.
The AASB's overall approach to adoption of IASB standards is to adopt the content and wording of IASB standards to the extent possible and, subject to due process, permit only one of a number of options made available in IASB standards and require additional disclosures, particularly where these are already required under existing AASB standards. Removal of options and the inclusion of additional disclosure requirements will not impact on the capacity of an Australian reporting entity to achieve compliance with IASB standards.
The possibility that the AASB would not adopt an IASB standard cannot be completely discounted. In rare and exceptional circumstances, the AASB may decide that adoption of an IASB standard is not consistent with the main objects of Part 12 of the ASIC Act.
Copyright
In order to introduce the IASB standards into the Australian environment they need to be made into AASB Standards, which are delegated legislation. The Commonwealth holds copyright in Commonwealth legislation and delegated legislation (such as the AASB standards) which are made available online free of charge. The existing AASB Standards are made available on the AASB's website immediately after public release.
The IASB is keen to protect and enhance its revenue base through the sale of its Standards and related products and services. The IASB has agreed with the European Union (EU) that IASB Standards can be made available free of charge online, but not until 6 months after issue. It is also relevant to note that each of the IASB's Standards comprise three parts - the Standard itself, Implementation Guidance and a Basis for Conclusions. The agreement with the EU relates only to the Standard itself. Accordingly, a European wanting immediate access to an IASB Standard, or wanting access to the Implementation Guidance or the Basis for Conclusions, would need to buy access from the IASB.
Difficulties have arisen in relation to the release and distribution of the standards and accompanying guidance in Australia due to copyright issues. The AASB is currently involved in discussions with the IASB and the IASC Foundation and it is expected that the issue will be resolved in the near future based on a similar approach to that applying in respect of the EU.
IFAC Public Sector Committee
The International Federation of Accountants' Public Sector Committee (IFAC PSC) has become a standard setter. It does not yet have the status of the IASB, but can be likened to the IASB as it functioned 10 years ago - with a small secretariat and voluntary committee members.
The IASB became the organisation it is today through the efforts of national standard setters such as the AASB. For the IFAC PSC to succeed, the same national standards setters need to support its activities in the interests of creating a set of standards for application to public sector entities throughout the world. A prime example of the IFAC PSC's work that may be of great benefit to Australia is their project on GAAP/GFS convergence, involving high-level input from major stakeholders, such as the IMF.
In those few cases where the requirements in IASB standards are inappropriate for not-for-profit entities, the AASB is including additional requirements, the prime source of which is the International Public Sector Accounting Standards issued by the IFAC PSC. The addition of this text, which will be clearly identified, will not impact on the capacity of an Australian for-profit reporting entity to achieve compliance with IASB standards.
Strategies for IASB standards, GAAP and GFS reporting
In March 2003, the AASB issued a detailed paper on the AASB's plans for adopting IASB standards by 2005. This paper was made available on the AASB's website and has since been revised and will continue to be revised as events unfold. The paper includes a timetable relating to the issue/development of AASB equivalents to IASB standards that are planned to be applicable at 1 January 2005.
In April 2003, the AASB issued a detailed paper on the AASB's plans for harmonising GAAP and GFS reporting. This paper appears on the AASB's website and will be revised as events unfold. The paper includes a timetable relating to the expected progress of the project.
An integral part of the above strategies is for the AASB to have continuing close relationships with:
- the IASB as an IASB liaison standard setter, including the review of selected IASB papers, conduct of selected projects on behalf of the IASB, and the attendance at national liaison standard setters meetings; and
- the IFAC PSC, including providing technical advice on PSC meeting papers to the Australian representative on the PSC, attendance at PSC meetings of an AASB technical adviser to that representative, and providing an AASB staff member as a member of the PSC and IMF working group seeking international convergence between GFS and GAAP (and SNA and ESA95).
2002-03 Work Program
The status of the 2002-03 program is reported in Appendix E.
2003-04 Work Program
The AASB's standard setting priorities for the year to 30 June 2004 have been approved by the FRC. These priorities are set out in Appendix F.
Board changes
Ms Sue Lloyd resigned from the Board on 2 September 2002 and Dr Neil Conn resigned from the Board on 11 September 2002. Mr George Carter, Mrs Brigid Curran and Mr Greg Ward retired from the Board on 14 February 2003, on the completion of their three year terms. Their contributions to the Board were significant.
Mr Glenn Appleyard, Economic Consultant, and Ms Alice Williams, Director, Strategic Analytics Pty Ltd were appointed to the Board on 18 December 2002. Mr Brett Kaufmann, (Branch Manager, Accounting Policy Branch, Department of Finance and Administration) and Mr Steve McClintock, (Chief Financial Officer, Southcorp Limited) were appointed to the Board on 15 February 2003.
Urgent Issues Group
The Urgent Issues Group (UIG) again provided a most valuable service through its interpretations of accounting standards in particular circumstances. During the year to 30 June 2003, the UIG issued six new abstracts and issued three revisions to Abstracts. The part-time members who all act on a voluntary basis are to be commended for their contribution.
AASB in the long term
One scenario is that the AASB and the UIG will wind down their standard setting and interpretative activities, perhaps once the bulk of the Australian pronouncements are aligned with those of the IASB and IFRIC, and GAAP and GFS reporting are substantially converged. A second scenario is that whilst the AASB's and the UIG's roles will change substantially, they will continue to be influential both domestically and internationally. The view that prevails will be the result of decisions taken now and in the near future.
For the following reasons the second scenario, under which influential roles are retained by the AASB and by the UIG, is considered to be the one that should be pursued.
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Reputation - the AASB has established an excellent reputation internationally in the field of standard setting, and the UIG is well regarded as an active interpretative body. This enhances Australia's reputation generally in financial markets - the type of stature that accumulates by persistently demonstrating innovative thinking and leadership. It is necessary to maintain a strong AASB and UIG in order to maintain this important aspect of our international financial credibility.
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Influence - there are Australians on the IASC Foundation, the IASB itself, the International Financial Reporting Interpretations Committee (IFRIC) and the IASB Standards Advisory Council (SAC), and the AASB is a national liaison standard setter because the AASB has been at the forefront in standard setting. However, other than for the SAC, they are not representative positions. Australia has no automatic right to continue as a national liaison standard setter and there is no guarantee that Australians will participate in the IASB's many processes.
There are Australians on the IFAC PSC and two of the three IFAC PSC Steering Committees and on the IFAC PSC's GAAP/GFS working group. Australia has no automatic right to continue to have people in these roles.
Without a continuing commitment to standard setting in all its facets, Australia would lose its influence in the standard setting process in both the for-profit and not-for-profit sectors.
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Constituent communication - the IASB and the PSC have world-wide constituencies, which are so broad as to be difficult to manage. The most effective communication is through national standard setters (such as the AASB) that can connect with Australian constituents by providing a two-way communication channel - disseminating information in an Australian context and giving a focus to Australian constituents' views on particular issues. The UIG serves this purpose also, in ensuring that Australian views on IFRIC issues are put effectively to the Australian IFRIC member and to IFRIC staff.
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Policy leadership - the AASB can provide leadership through, for example, its policy of sector-neutral standards. The Chairmen of both the IASB and the IFAC PSC and IFAC's Chief Executive Officer are all on record as acknowledging that, in the long term, there is a need for one set of global accounting standards for both the private and public sectors.
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Project leadership - the IASB is relying on national standard setters, such as the AASB, to undertake projects on behalf of the IASB and other liaison standard setters. For example, the AASB is leading a project on accounting for the extractive industries. There is also scope for the UIG to undertake interpretation projects on behalf of IFRIC.
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Interpretation and application - the IASB and IFAC PSC standards are designed for a world-wide constituency and the IASB and IFAC PSC cannot hope to take into account the many different legislative and economic environments that exist. There will inevitably be issues arising from IASB and IFAC PSC standards that need to be dealt with, either by explaining their application in the Australian environment or seeking relevant legislative change where there are impediments to change.
The AASB and the UIG have a sound track record of early identification of issues of world-wide significance. Accordingly, the AASB and the UIG are well-placed to be effective conduits for raising issues for consideration by the IASB or IFRIC.
Appreciation
First, on behalf of the Board and the UIG, I would like to acknowledge the outstanding work and contribution of Keith Alfredson, who retired as Chairman on 7 May 2003, to the AASB. During his term Keith Alfredson was a vigorous supporter of the Board's international convergence and harmonisation program and was instrumental in driving the Board's agenda to achieve this objective and in representing the Board in international forums.
Second, during the past year members of the Board and the UIG continued to make considerable contributions to furthering the work of the AASB. These members are all busy working professionals whose time devoted to the AASB and UIG is greatly appreciated.
Third, the AASB technical and administrative staff have shown professionalism and dedication in performing their duties and in servicing the needs of the Board and the UIG. In particular, Angus Thomson, Technical Director has provided leadership to his staff and great support to me as Acting Chairman, taking on an additional workload in the absence of a full-time Chair.
Fourth, those AASB constituents taking the time to respond to the Board's Exposure Drafts and Invitations to Comment and participating in various Project Advisory Panels established by the Board and in field testing proposals are also greatly appreciated. It is vital that Australian constituents continue to contribute to the standard-setting process by making their views known to the Board.
SIGNED
Ruth Picker
Acting Chairman of AASB
12 September 2003
AASB Directors' report of operations
Technical activities of AASB during 2002-03
Membership and meetings of AASB
The Chairman and members of the AASB are appointed under section 236B of the ASIC Act. For the period covered by this report the responsible Minister was the Treasurer, the Hon Peter Costello. The Chairman is appointed by the Treasurer while other members are appointed by the FRC.
To be eligible for appointment, a person must have knowledge of, or experience in, business, accounting, law or government. The Chairman and members hold office on the terms and conditions that are determined by the Treasurer and FRC respectively. Appointments may be made for a period of up to 5 years and retiring members are eligible for reappointment.
The members of the AASB during 2002-03 are listed in Appendix B. The Board held 9 meetings for a total of 16 meeting days during the year, and attendance of members at these meetings is set out in Appendix D.
Standard setting
The AASB has responsibility for accounting standard setting. A full list of Accounting Standards, Accounting Interpretations, Statements of Accounting Concepts and Policy Statements and their issue dates is at Appendix G.
During the year, the Board issued or reissued the following standards and other documents:
New standards
AASB 1020B Amendments to Accounting Standards AASB 1020 and Australian Accounting Standard AAS 3 (November 2002).
AASB 1045 Land Under Roads: Amendments to AAS 27A, AAS 29A and AAS 31A (October 2002).
Accounting interpretation
AI 2 Transition to AASB Equivalents of IASB Standards and Applying the Hierarchy of Pronouncements in AASB 1001 and AAS 6 (May 2003).
Exposure drafts
ED 107 Request for Comment on IASB ED 1 First-time Application of International Financial Reporting Standards (August 2002).
ED 108 Request for Comment on IASB ED 2 Share-based Payment (November 2002).
ED 109 Request for Comment on: IASB ED 3 Business Combinations; IASB ED of Proposed Amendments to IAS 36 Impairment of Assets and IAS 38 Intangible Assets; and AASB added material (December 2002).
ED 110 Request for Comment on IAS 7 Cash Flow Statements (May 2003).
ED 111 Request for Comment on IAS 23 Borrowing Costs (May 2003).
ED 112 Request for Comment on IAS 29 Financial Reporting in Hyperinflationary Economies (May 2003).
ED 113 Request for Comment on IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions (May 2003).
ED 114 Request for Comment on IAS 41 Agriculture (May 2003).
Urgent Issues Group
The UIG's purpose is to review on a timely basis, in the context of existing Accounting Standards and Statements of Accounting Concepts, accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching a consensus as to the appropriate accounting treatment. The UIG comprises 15 members drawn from a wide range of constituent groups. A consensus of the UIG requires that 11 or more members vote in favor of, and no more than 3 members vote against, the proposed treatment for the issue in question. The AASB has a reserve power of veto over UIG consensus views. A UIG consensus view is published in an Abstract. A full list of UIG Abstracts and their issue dates is at Appendix G.
The following abstracts were issued during the financial year:
New
Abstract 48 Status of Tax Consolidation Legislation (July 2002).
Abstract 49 Revenue - Barter Transactions involving Advertising Services (August 2002).
Abstract 50 Evaluating the Substance of Transactions involving the Legal Form of a Lease (September 2002).
Abstract 51 Recovery of Unfunded Superannuation of Universities (December 2002).
Abstract 52 Income Tax Accounting under the Tax Consolidation System (December 2002, revised May 2003).
Abstract 53 Pre-Completion Contracts for the Sale of Residential Development Properties (April 2003).
Revised
Abstract 39 Effect of Proposed Tax Consolidation Legislation on Deferred Tax Balances (revised September 2002 and December 2002).
Due process
The AASB adopts a comprehensive `due process' (outlined in PS 1 The Development of Statements of Accounting Concepts and Accounting Standards) when developing its pronouncements, and encourages the preparers and users of financial reports to participate actively in the standard-setting process by:
- communicating its views and policies to a broad range of interested parties via invitations to comment and exposure drafts;
- meeting with representatives of interested parties and organisations;
- inviting public comment on its policies, procedures, priorities and standards under consideration;
- issuing media releases related to its activities; and
- maintaining a website (www.aasb.com.au).
In addition, the AASB publishes an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings.
The UIG adopts a more limited `due process' under which minutes of its meetings, issue proposals, issue summaries and draft Abstracts are freely available on the website. The UIG issues an UIG Action Alert after each of its meetings.
Consultative group
The AASB Consultative Group brings together a wide cross-section of interest groups in the private, public and not-for-profit sectors. The purpose and operation of the Consultative Group is set out in Policy Statement PS 2 The AASB Consultative Group as revised and reissued in June 2001.
The Consultative Group held one meeting during the year in March 2003.
Liaison with constituents
The AASB meets with a wide range of people to discuss matters of interest both generally and in relation to specific projects.
Use of website
The AASB maintains a website (www.aasb.com.au). The website is used to provide information about the AASB, its activities and work program to its constituents and other interested parties and the UIG and its activities. Authoritative pronouncements are published on the website and may be downloaded free of charge. The AASB also publishes meeting agendas and copies of key AASB Board papers on its website, prior to meetings. Minutes of meetings are also published on the website. The AASB publishes brief summaries of key projects on the Board's website outlining the background to each project and recent progress and Board decisions. The AASB also uses the website to seek comments on exposure drafts and invitations to comment in order to facilitate urgent action on projects.
Seminars
Members of the AASB and its staff are available to present papers on matters relating to the AASB's work program at seminars, congresses and conferences held throughout Australia. This year the AASB conducted a number of seminars in conjunction with the Australian Stock Exchange on topics related to the adoption of IASB standards.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AASB, including FRC Directors. The AASB has arranged professional indemnity insurance with COMCOVER, to a value of $100 million at a cost of $19,057.
AASB publications
All authoritative pronouncements issued by the AASB and UIG, including statements of accounting concepts, policy statements, accounting standards (AASB and AAS series), accounting interpretations and UIG abstracts, are available for purchase from the AASB and are published on its website. A full list of pronouncements currently on issue is at Appendix G.
The AASB also publishes a range of other documents, including:
- an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings;
- an UIG Action Alert to keep interested parties informed of the UIG's deliberations at each of its meetings;
- AASB and UIG media releases;
- exposure drafts of proposed new and revised accounting standards;
- invitations to comment (often concerning exposure drafts issued by the International Accounting Standards Board);
- consultative and discussion papers; and
- Transparency, a periodical newsletter on the activities of the AASB.
The AASB provides subscription services in respect of most of these documents. In addition, individual copies are available for sale. Further information can be obtained from the AASB using the contact details set out below. Accounting standards, UIG abstracts, exposure drafts, invitations to comment and policy statements are freely available on the website.
Freedom of information
The AASB maintains possession of the following documents:
- copies of Accounting standards;
- copies of exposure drafts and invitations to comment;
- copies of media releases and action alerts;
- AASB and UIG meeting agenda papers;
- correspondence with constituents, including responses to exposure drafts and invitations to comment; and
- internal technical and administrative papers, including project proposals, key decisions questionnaires, issues papers, draft exposure drafts and draft Accounting standards.
Requests under the Freedom of Information Act 1982 for access to other documents in the possession of the AASB can be directed to the AASB Secretary using the contact details set out below.
One application under the Freedom of Information Act 1982 was received by the AASB during the year.
Commonwealth disability strategy
The AASB is committed to applying the Commonwealth Disability Strategy (CDS) and has instituted activities that contribute to meeting its requirements. The role of the AASB is specified elsewhere in this report. For the purposes of the Disability Strategy CDS, the AASB performs Policy Adviser and Regulator roles.
Commonwealth Disability Strategy performance reporting
Requirement for role |
How met |
Provision of accessible policy, program and regulatory information |
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Internet format |
AASB: all news items, policy statements, accounting standards, exposure drafts and other formal accounting regulatory documents are available on a Government Standards compliant website. |
Disk format |
Contact details for the AASB are available on its website. Users can call or write to request material on disk. |
Plain English communication |
Where possible, general information is written in plain English. However, some financial reporting matters are highly complex and require the accuracy of technical language. |
Consultation |
The AASB consults widely in its own right, with users, preparers and others interested in financial reporting. Because the nature of AASB activity is broad, and focuses on capital markets, specific consultation with people with disabilities is generally inappropriate. |
Complaint or grievance mechanisms |
Contact details for the AASB are available on its website. People can call or write to register any complaint. |
Contacting the AASB
The AASB can be contacted as follows:
Post: The Secretary
Australian Accounting Standards Board
PO Box 204
Collins St West
MELBOURNE VIC 8007
Telephone: (03) 9617 7600
Facsimile: (03) 9617 7608
Document Exchange: DX 30897
E-mail: standard@aasb.com.au