Australian Accounting Standards Board
Chairman’s report
The activities of the AASB in 2003-04 were dominated by the implementation of the FRC’s directive that Australia should adopt International Accounting Standards and Interpretations for periods commencing on or after 1 January 2005. By 30 June 2004 all of the pending Australian versions of the International Accounting Standards had been placed on the AASB website, and the entire suite of some 40 new standards were formally made into Australian delegated legislation on 15 July 2004. At the same time the AASB approved 12 new Interpretations of International Accounting Standards and a revised Conceptual Framework document. This represents by far the most significant change to financial reporting ever experienced in Australia, and could well be described as an historic achievement in Australian standard-setting and financial reporting.
Significant progress was also made in identifying the issues and the way forward in relation to the FRC’s second policy directive, that of harmonisation of Generally Accepted Accounting Principles (GAAP) with Government Finance Statistics (GFS) in public sector financial reporting.
The completion of the Year 2005 project by the promised date turned out to be a Herculean effort on the part of the AASB, the UIG and the AASB staff, particularly in view of delays on the part of the IASB in issuing in final form all of the new and revised standards coming into effect in 2005. In addition, the responses from Australian constituents to the proposals presented a wide range of differing viewpoints. This meant that each issue needed to be debated at length by the Board and with the consequence that many decisions inevitably caused concern with some constituents.
With the completion of the 2005 project it is now appropriate for the AASB to review its future role and relationships as a standard setter and standards interpreter.
The 2005 project
During the year, the AASB sought clarification from the FRC as to whether the original directive to adopt international standards in 2005 contemplated any exceptions or exemptions in the private sector and, in view of uncertainties surrounding the EU adhering to its 2005 programme, whether a deferral in Australia was warranted. The FRC indicated that no exceptions or exemptions were contemplated, and that the Australian programme should not be deferred provided the IASB had completed its ‘stable platform’ of 2005 standards by 31 March 2004 and the AASB could complete its Australianisation of the standards by 30 June 2004.
Further to these FRC decisions, the AASB, as part of its obligations under the terms of Part 12 of the ASIC Act, was still required to assess whether those standards satisfy criteria for evaluation such as relevance, reliability, facilitating comparability, facilitating the Australian economy, maintaining investor confidence and being easily understood.
Using these criteria, the AASB at times found it necessary not to adopt some choices of alternative accounting treatments found in some international standards, and to provide additional application guidance. In addition, the AASB amended the original wording of the international standards in order to make them Australian legislative instruments and to make them sector neutral (that is, equally applicable to the private, public and not-for-profit sectors). Whenever such changes were made the AASB went to considerable effort to ensure that compliance with the Australian standard would still ensure compliance with the original international standard in respect of for-profit entities.
In the course of preparing Australian versions of the International Accounting Standards the AASB identified a number of problems and inconsistencies in the original International Accounting Standards. The IASB was progressively informed of these findings, many of which were rectified by IASB before its ‘stable platform’ of 2005 standards was finalised.
In addition because of the significant effect upon certain Australian companies of adopting the International Accounting Standard IAS 38 Intangible Assets, the AASB made special representations to the IASB on behalf of those companies. This included the AASB Chair appearing before the IASB (by video) at its December 2003 public meeting to explain the extent of the problem and to suggest ways of alleviating its effect.
The making of the international standards into Australian delegated legislation means that Australia now has a suite of largely principles-based accounting standards, covering areas not previously dealt with adequately in Australia, such as intangible assets, share-based payments, defined benefit superannuation obligations, asset impairment and recognition and measurement of financial instruments. These, together with the numerous more subtle changes in other standards, mean that the overall credibility of Australian financial reporting will be substantially improved, thus lowering the cost of capital in the long term. It is the view of the AASB that these overall benefits outweigh any difficulties that the new requirements might cause to some individual entities.
Australian entities and Australian accountants and auditors must now learn to work with principles-based financial reporting requirements. A principles-based approach does not give a specific solution to every problem or event, but rather indicates how a solution might appropriately be arrived at. Such requirements entail a higher degree of judgment than do the previous standards, with a greater potential for diversity of viewpoint. This change will present new challenges for directors, accountants, auditors and regulators, and in the transitional period will lead to more calls for guidance and interpretation of the requirements.
Copyright
During the year the AASB negotiated a waiver agreement with the IASCF so that no royalty is payable upon our use of the International Accounting Standards. We can therefore make the new standards available on our website free of charge in accordance with government policy.
Unfortunately, the waiver does not automatically extend to the international Implementation Guidance and Bases for Conclusions of those standards. This additional information is therefore only available through a secure section of our website upon payment of an annual fee. The waiver does allow for a situation, where the AASB considers that text in the Implementation Guidance or Bases for Conclusions is an essential feature of a standard to which it relates, to also be subject to the waiver. The AASB has decided that some Guidance falls into this category.
We are in the process of establishing a complex series of links to the websites of the Australian Accounting Bodies and to the IASB, so that once a registered user has been granted access to copyright material, all of the original IASB material and the amended Australian versions of that material becomes available under the royalty arrangement.
Urgent Issues Group
During the year the UIG produced two new Abstracts and issued one revised Abstract. Perhaps more importantly the UIG reviewed its previously issued Abstracts for their appropriateness under the AASB equivalents to International Accounting Standards, and worked to include 12 UIG equivalents to IASB Interpretations into the body of Australian literature to complement our new standards.
As International Interpretations are defined to be part of International Accounting Standards, the AASB took steps to raise the status of UIG Abstracts by incorporating them into an omnibus Accounting Standard AASB 1048 Interpretation and Application of Standards. This also caused the AASB to amend the UIG Charter so that the AASB’s right to veto an UIG Abstract is replaced with a requirement for a positive AASB vote to approve the UIG Interpretations.
The UIG (other than the Chair) comprises part-time members who act on a voluntary basis. These people make a significant contribution to the standard-setting process.
As indicated earlier, the application of principles-based standards increases the potential for diversity of viewpoint. This in turn increases the need for authoritative interpretations so as to limit unacceptable diversity. The relative roles of the UIG and IFRIC (the interpretation arm of IASB) have yet to be determined, but I would anticipate that there will be an ongoing requirement for a standards interpretation facility in Australia. Whether the existing UIG structure is best to provide this service is a matter to be addressed in the forthcoming year.
The GAAP/GFS convergence project
During 2003-04 the AASB continued to implement its strategy for achieving the FRC’s GAAP/GFS harmonisation strategic directive.
This included certain AASB members and staff participating in the Heads of Treasuries Accounting and Reporting Advisory Committee (HOTARAC) GFS/GAAP Convergence Working Group. That Group prepared comprehensive papers that were ultimately endorsed by HOTARAC and the Heads of Treasuries and submitted to the AASB. The AASB used these papers as the basis for developing Consultation Papers that were sent to a Project Advisory Panel for comment. The Consultation Papers identify particular issues related to GAAP/GFS convergence and express an AASB preliminary view on each issue.
The AASB commenced its review of the comments received from Project Advisory Panel members and others, first addressing the more conceptual issues. In particular, the AASB addressed issues relating to the status of general government sector financial reporting.
Other conceptual issues soon to be addressed by the AASB include the format for financial performance reporting and the presentation and measurement of GFS analytical balances in public sector financial reports. The AASB will consider convergence issues in relation to the general government sector and subsequently whole of government, and will consider at a later date the extent to which conclusions drawn in that phase of the project should flow through to other public sector entities including government departments, government business enterprises, universities and local governments.
Before finalising its decisions for inclusion in an exposure draft for public comment, the AASB plans to meet with a range of interested parties. In July 2004 it met with Heads of Treasuries, and later in 2004 plans to meet with a broad range of interested constituents drawn from the Project Advisory Panel and the AASB’s Consultative Group.
At an international level, during 2003-04 the AASB continued to monitor and contribute to the work initiated by the IFAC PSC and the International Monetary Fund and now being undertaken by two working groups of the Taskforce on the Harmonisation of Public Sector Accounting. An AASB member and a staff member are members of the Taskforce. The work of the Taskforce will provide a valuable resource to the AASB as it introduces an Australian convergence solution and monitors the implementation of that solution in the longer term.
IFAC Public Sector Committee
The AASB is a strong supporter of the IFAC PSC and its standard setting activities for public sector entities. We respond to all IFAC PSC Exposure Drafts, and send a senior AASB technical manager to each IFAC PSC meeting to act as the technical advisor to the Australian representative who is currently an AASB member.
The AASB has taken steps to make the Australian versions of International Accounting Standards sector neutral by including the requirements of IFAC PSC into our standards where appropriate. However the IFAC PSC does not have the same level of resources as the IASB with the consequence that there are significant timing lags between when the IASB and the IFAC PSC deal with topics.
Work programme
The status of the 2003-04 AASB work programme is reported in Appendix E. The AASB’s standard setting priorities for the year ended 30 June 2005 have been approved by the FRC and are set out in Appendix F.
Board changes
Mr Bryce Denison was appointed to the Board during the year, and I was appointed full-time Chairman in November 2003. Mr Wayne Cameron’s term of appointment expired in June 2004 and he was re-appointed for a further one year. Mr Garth Campbell-Cowan’s appointment to the Board was approved by the FRC in June 2003 and took effect from July 2003.
AASB in the future
In the foreseeable future, there remains an important role for the AASB.
The AASB remains the Statutory Authority entrusted with the making of Accounting Standards under section 334 of the Corporations Act, which are in the form of delegated legislation. The AASB remains responsible for considering new and amended International Standards under the terms of Part 12 of the ASIC Act as well as continuing to respond to domestic standard-setting needs.
In addition the AASB must continue to actively influence international outcomes by retaining a strong standard-setting ability, by attending IASB meetings and by providing suitably qualified Australians to participate in various international committees and forums. In order that the Australian influence remains strong the AASB must communicate with its constituents and provide a focus for Australian views on various contentious technical matters.
The IASB is relying on capable national standard setters like the AASB to undertake research projects on its behalf. At the present time the AASB is leading IASB research projects on Joint Ventures, Intangible Assets and Extractive Industry Accounting, all of which are key projects for Australian entities. This is a substantial vote of confidence in the ability of the AASB to provide technical and project-management leadership at the international level.
As indicated previously, the nature of the new International Standards will increase the need for authoritative interpretations.
As well as all of the above needs, the leading-edge role that the AASB has taken in public sector and not-for-profit financial reporting will continue to require considerable resources. Accordingly for the foreseeable future, the resource requirements of the AASB will need to remain at current levels in order to meet the ongoing demand.
Commonwealth Fraud Control Guidelines
The AASB has in place a Fraud Control Plan and fraud control mechanisms which are appropriate to the needs of the AASB. The AASB complies with the requirements of the Commonwealth Fraud Control Guidelines for the year ended 30 June 2004.
Appreciation
I would first like to acknowledge the outstanding contribution of Ms Ruth Picker, the Deputy Chair of AASB, who acted as Chair between the retirement of Mr Keith Alfredson in May 2003 and my appointment in November 2003. This was a critical time for the AASB and Ruth’s considerable effort has been a key factor in the AASB achieving its Year 2005 objectives.
Secondly, during the past year members of the AASB and the UIG made considerable contributions to achieving the objective of having Australian versions of the International Accounting Standards and Interpretations in place by 30 June 2004. These members are all busy professionals who generously gave their time to this cause.
Thirdly, the AASB technical staff, headed by Angus Thomson, Technical Director, and the AASB administrative staff, headed by Leone Mansell, Administration Director, put in an incredible effort to achieve the 2005 objective by 30 June 2004. They should be especially proud of their achievement.
Finally, thanks go to the AASB constituents who responded to the huge volume of Exposure Drafts and Invitations to Comment and participated in various Advisory Panels and field tests that all formed part of such a dramatic change to our reporting standards. It is vital under the new international regime that Australian constituents continue to make their views known to the AASB on future topics.
SIGNED
David Boymal
Chairman, AASB
20 September 2004
AASB Directors’ report of operations
Technical activities of AASB during 2003-04
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 MP. 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 five years and retiring members are eligible for reappointment.
The members of the AASB during 2003-04 are listed in Appendix B. The Board held 13 meetings for a total of 23 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
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AASB 1046 |
Director and Executive Disclosures by Disclosing Entities (January 2004). |
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AASB 1047 |
Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards (April 2004). |
Exposure drafts
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ED 115 |
Request for Comment on IAS 19 Employee Benefits (June 2003). |
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ED 116 |
Request for Comment on IAS 2 and IPSAS 12 Inventories (July 2003). |
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ED 117 |
Request for Comment on IASB ED 4 Disposal of Non-current Assets and Presentation of Discontinued Operations (July 2003). |
|
ED 118 |
Request for Comment on IAS 11 Construction Contracts (July 2003). |
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ED 119 |
Request for Comment on IAS 14 Segment Reporting (July 2003). |
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ED 120 |
Request for Comment on IAS 16 and IPSAS 17 Property, Plant and Equipment (July 2003). |
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ED 121 |
Request for Comment on IAS 31 Financial Reporting of Interests in Joint Ventures (August 2003). |
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ED 122 |
Request for Comment on IASB ED 5 Insurance Contracts (August 2003). |
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ED 122A |
Request for Comment on Amendments to AASB 1023 General Insurance Contracts (October 2003). |
|
ED 122B |
Request for Comment on Amendments to AASB 1038 Life Insurance Contracts (October 2003). |
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ED 123 |
Request for Comment on IASB ED of Proposed Amendments to IAS 39 Financial Instruments: Recognition and Measurement — Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk (September 2003). |
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ED 124 |
Request for Comment on: The Definition of Reporting Entity; IASB Framework for the Preparation and Presentation of Financial Statements; IAS 18 Revenue; and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance (October 2003). |
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ED 125 |
Financial Reporting by Local Governments (October 2003). |
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ED 126 |
Request for Comment on IAS 34 Interim Financial Reporting (October 2003). |
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ED 127 |
Request for Comment on IAS 37 Provisions, Contingent Liabilities and Contingent Assets (October 2003). |
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ED 128 |
Request for Comment on IAS 12 Income Taxes (October 2003). |
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ED 129 |
Disclosing the Impact of Adopting AASB Equivalents to IASB Standards (December 2003). |
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ED 130 |
Request for Comment on IASB ED 6 Exploration for and Evaluation of Mineral Resources (January 2004). |
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ED 131 |
Request for Comment on IASB ED Proposed Amendments to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures (April 2004). |
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ED 132 |
Request for Comment on IASB ED of Proposed Amendments to IAS 39 Financial Instruments: Recognition and Measurement — The Fair Value Option (May 2004). |
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ED 133 |
Request for Comment on IASB ED of Proposed Amendments to IFRS 3 Business Combinations — Combinations by Contract Alone or Involving Mutual Entities (June 2004). |
During the year the AASB posted proposed Australian equivalents to IASB Standards and Interpretations on its website as Pending Standards and Pending Interpretations so as to inform constituents of the requirements which will apply from 2005 and to facilitate their preparations for implementing these Standards and Interpretations. The suite of Pending Standards was posted on the website by 30 June 2004.
On 15 July 2004 the AASB made 40 Australian standards for application from 1 January 2005, comprising 35 Australian equivalents to International Financial Reporting Standards, four amended Australian Standards and a new Australian Standard dealing with the application and interpretation of standards. In addition, the AASB approved 14 UIG Interpretations, including 12 UIG equivalents of international interpretations, as part implementing the FRC’s Year 2005 directive.
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 favour of, and no more than three members vote against, the proposed treatment for the issue in question. Previously the AASB had a reserve power of veto over UIG consensus views and a UIG consensus view was published in an Abstract. A full list of UIG Abstracts and their issue dates is at Appendix G. The UIG Charter was revised in June 2004 with the effect that UIG Abstracts applying for reporting periods beginning on or after 1 January 2005 will required to be formally approved by the AASB and will now be called UIG Interpretations.
The following Abstracts were issued during the financial year:
New
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Abstract 54 |
Defined Benefit Superannuation Disclosures by Employers (August 2003). |
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Abstract 55 |
Accounting for Road Earthworks (May 2004). |
Revised
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Abstract 52 |
Income Tax Accounting under the Tax Consolidation System (revised December 2003). |
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 minutes of its meetings and 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 publishes 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 did not meet during the year. A meeting scheduled for June 2004 was deferred to October 2004 to allow the AASB more time to complete the Year 2005 Standards.
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 programme 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. During the year, as part of the process of implementing the FRC’s directive on adoption of IASB Standards and to keep its constituents informed, the AASB posted copies of Pending Australian equivalents to International Financial Reporting Standards and Interpretations on its website.
Seminars
Members of the AASB and its staff are available to present papers on matters relating to the AASB’s work programme at seminars, congresses and conferences held throughout Australia.
Accountability
The AASB Chairman appeared before the Senate Estimates Committee on 18-19 February 2004 and 2 June 2004 and appeared before the Parliamentary Joint Committee on Corporations and Financial Services in relation to their inquiry into the CLERP 9 (Audit Reform and Corporate Disclosure) Bill on 29 April 2004.
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 $26,680.
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 on page 32.
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, programme 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 |
Telephone: |
(03) 9617 7600 |
Facsimile: |
(03) 9617 7608 |
Document Exchange: |
DX 30897 |
E-mail: |