Part 3: Australian Accounting Standards Board
Chairman’s report
Introduction
Even though the first full year of reporting under the new international accounting standards regime has only just concluded for most entities, the AASB has already moved on. In fact, the activities of the AASB for the year ended 30 June 2006 are more indicative of the AASB’s ongoing standard-setting function now that Australia has adopted International Financial Reporting Standards (IFRS). Considerable resources have been devoted to monitoring the activities of the IASB, leading research projects on behalf of the IASB, issuing exposure drafts and standards simultaneously with the IASB and virtually completing the issuance of a standard for the convergence of Generally Accepted Accounting Principles (GAAP) with Government Finance Statistics (GFS) for the General Government Sector in accordance with the second Strategic Directive of the FRC.
The initial move to International Financial Reporting Standards
The early part of the 2005-06 year saw many changes to the ‘stable platform’ of international standards as the IASB dealt with practical problems being encountered by first-time users. In addition, the AASB began to revisit some of its earlier decisions on domestic guidance, additional Australian paragraphs, and exemptions and deletions, as constituents identified problems in applying the new standards for the first time.
Notwithstanding that some of the larger companies have spent considerable resources in planning for the change, the transition to IFRS has now been successfully accomplished.
Ongoing compliance with International Financial Reporting Standards
The benefits to the Australian economy from the adoption of IFRS will only be fully achieved if companies can continue to claim IFRS compliance into the future. Accordingly, it is necessary for the AASB to continue to closely monitor IASB plans and progress and to issue domestic exposure drafts and standards simultaneously with the IASB.
The IASB is now working towards convergence of its standards and conceptual framework with equivalent US standards and conceptual statements. To achieve this it has already issued a number of exposure drafts in some controversial areas and these have been replicated by the AASB. The IASB has recently announced that these changes will have a 2009 application date in order to provide a period of stability. The AASB welcomes this initiative of the IASB because it provides preparers with adequate time to plan and implement the changes.
Urgent Issues Group
At 30 June 2006 the UIG ceased to operate as a separate interpretative body. The AASB has replaced it with a new interpretations model which is expected to more efficiently deal with issues in the context of the internationalisation of accounting standards. Since the introduction of IFRS, authoritative interpretations have become part of the accounting standards themselves and therefore need to be dealt with through the AASB’s own processes and must be voted on by the AASB. My special thanks go to all past UIG members who have contributed their time and effort over many years to the standard-setting cause.
Relationship with International Accounting Standards Board and other national standard setters
Our relationship with IASB remains healthy, and the IASB is appreciative of our efforts and the amount of resource that we are devoting to their projects.
The AASB has been heading three research projects for the IASB, namely joint ventures, intangible assets and extractive activities. Our work on joint ventures has recently been used by IASB in its efforts to converge with US standards on this topic, and has now been suspended. Our work on the other two research projects continues. AASB staff are also on IASB project teams developing new international standards for insurance contracts and revenue recognition.
We have a close working relationship with the Financial Reporting Standards Board of New Zealand. Through a reciprocal arrangement, the chairs of the two boards are voting members of the other boards. During the year the two boards signed a protocol for cooperation, designed to eliminate differences between the standards of the two countries to the extent possible, and to share staff resources to avoid duplication of effort on international projects. In May 2006 the New Zealand and Australian boards successfully held their first joint meeting in Auckland, and henceforth it is proposed to hold joint meetings annually.
In October 2005 the Treasuries of Australia and New Zealand held a regional forum on IFRS in Sydney to which standard setters and regulators from the region were invited. Following the forum, which was highly successful, the AASB separately met with the visiting standard setters to discuss regional issues concerning the introduction of IFRS, to identify areas where cooperation is appropriate and to offer assistance where this was needed.
The AASB also works closely with its equivalents in the United Kingdom and Canada and retains a dialogue with the FASB in United States of America. Australia, New Zealand, United Kingdom and Canada currently are involved in a joint project to monitor the IASB/FASB progress in revising the Conceptual Framework, in order that we are alert to possible consequences of any changes upon public sector accounting. Unfortunately the IASB/FASB work itself is not currently focusing on public sector accounting consequences.
The Generally Accepted Accounting Principles/Government Finance Statistics project
During 2005-06, considerable progress has been made on meeting the FRC’s second directive to harmonise GAAP and GFS reporting.
In July 2005 an Exposure Draft was issued containing proposals to combine GAAP and GFS reporting in the financial reports of General Government Sectors. As some of the proposals were controversial, the Exposure Drafts elicited many responses, and considerable effort has been put into analysing the comments, liaising with interested constituents including the Heads of Treasuries of the various governments, and redrafting the proposed final standard. At the time of this report the final standard has been issued.
The International Public Sector Accounting Standards Board
The AASB remains a strong supporter of the International Public Sector Accounting Standards Board (IPSASB) and its standard setting activities for public sector entities. We respond to IPSASB exposure drafts, and a senior AASB technical manager attends each IPSASB meeting as the technical adviser to the Australian member of the IPSASB.
The IPSASB has recently confirmed that its broad approach is to continue to use IASB standards as a starting point, and amend them as necessary to accommodate the public sector. This is a similar approach to that adopted by the AASB. However, the ‘transaction neutral’ approach of the AASB considers the public sector consequences of IASB standards as soon as those standards are issued, whereas IPSASB has a considerable time lag arising from a difference in its priorities.
Recently the IPSASB has called for expressions of interest from national standard setters in a collaborative effort to develop a public sector conceptual framework and to develop a public sector accounting standard on service concessions (public-private partnerships). As the AASB’s constituents will be significantly affected by these projects the AASB has offered to assist in these projects.
Copyright
As constituents have expressed concern that some IASB Implementation Guidance and Bases for Conclusions are not freely available on the AASB website, a royalty arrangement has been negotiated with the IASB so that, from 1 July 2006, Australian constituents have free electronic access to this material in addition to the standards, interpretations and other material, that is already freely available.
Work programme and business plan
The status of the 2005-06 prior year work programme is reported in Appendix E and the AASB’s standard setting priorities for the current year, as approved by the FRC, are also set out in Appendix E.
The 2006-7 AASB Business Plan and a further document entitled Business Plan Initiatives 2006-7 are available on the AASB website in the section labelled ‘Plans and Policies’.
Board changes
During the year Messrs Glenn Appleyard, Bryce Denison, Brett Kaufmann and Steve McClintock and Ms Joanna Perry and Alice Williams completed the terms of their appointment. Mr Denison, Mr McClintock and Ms Williams retired from the Board. Mr Appleyard, Mr Kaufmann and Ms Perry were each reappointed for a further period. New appointees during the year were:
- Mrs Jan McCahey, Partner, PwC;
- Mr John O’Grady, Partner, Ernst & Young; and
- Mr Colin Parker, Principal, GAAP Consulting Services.
On 3 July 2006 Mr Garth Campbell-Cowan also retired from the Board. He was replaced by Mr Brett Rix, Manager, Group Accounting — Policy and Governance, BHP Billiton Limited.
Appreciation
My thanks go to all of the present and retired members of the AASB and UIG for their significant contributions. These people are all busy professionals who generously give their time to the standard setting function.
Thanks also go to the AASB technical team, headed by our Technical Director, Angus Thomson, and to the AASB administrative team headed by our Administration Director, Leone Mansell.
Finally, thanks go to our constituents who respond to exposure drafts, invitations to comment and discussion papers and who participate in advisory panels, round-tables and consultative groups. In this new era of international standards it is important that Australian constituents continue to be heard if we expect to have any influence on the international scene.
SIGNED
David Boymal
Chairman AASB
26 September 2006
Australian Accounting Standard Board Directors’ report of operations
Technical activities of Australian Accounting Standard Board during 2005-06
Membership and meetings of Australian Accounting Standard Board
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 2005-06 are listed in Appendix B. The Board held 10 meetings for a total of 20 meeting days, including a one-day strategy meeting, during the year. 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 2005-2006, the Board issued or reissued the following standards and other documents:
Standards |
|
AASB 7 |
Financial Instruments: Disclosures (August 2005) |
AASB 124 |
Related Party Disclosures (December 2005) |
AASB 1048 |
Interpretation and Application of Standards (revised) (September 2005) |
AASB 1048 |
Interpretation and Application of Standards (revised) (December 2005) |
AASB 1048 |
Interpretation and Application of Standards (revised) (April 2006) |
AASB 2005-9 |
Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 132 and AASB 139] (September 2005) |
AASB 2005-10 |
Amendments to Australian Accounting Standards [AASB 1, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1023 and AASB 1038] (September 2005) |
AASB 2005-11 |
Amendments to Australian Accounting Standards [AASB 101, AASB 112, AASB 132, AASB 133, AASB 139 and AASB 141] (September 2005) |
AASB 2005-12 |
Amendments to Australian Accounting Standards [AASB 1023 and AASB 1038] (December 2005) |
AASB 2005-13 |
Amendments to Australian Accounting Standards [AAS 25] (December 2005) |
AASB 2006-1 |
Amendments to Australian Accounting Standards [AASB 121] (January 2006) |
AASB 2006-2 |
Amendments to Australian Accounting Standards [AASB 1] (March 2006) |
Exposure drafts | |
ED 139 |
Proposed Amendments to AASB 3 Business Combinations (July 2005) |
ED 140 |
Proposed Amendments to AASB 137 Provisions, Contingent Liabilities and Contingent Assets and AASB 119 Employee Benefits (July 2005) |
ED 141 |
Proposed Amendments to AASB 127 Consolidated and Separate Financial Statements (July 2005) |
ED 142 |
Financial Reporting of General Government Sectors by Governments (July 2005) |
ED 143 |
Director and Executive Disclosures by Disclosing Entities: Removal of AASB 1046 and Addition to AASB 124 (September 2005) |
ED 144 |
Proposed Australian Guidance to accompany AASB 1004 Contributions (October 2005) |
ED 145 |
Operating Segments (January 2006) |
ED 146 |
Proposed Amendments to AASB 2 Share-based Payment – Vesting Conditions and Cancellations (February 2006) |
ED 147 |
Revenue from Non-Exchange Transactions (February 2006) |
ED 148 |
Proposed Amendments to AASB 101 Presentation of Financial Statements: A Revised Presentation (March 2006) |
ED 149 |
Proposed Amendments to AASB 123 Borrowing Costs (April 2006) |
ED 150 |
Proposed Amendments to AASB 132 Financial Instruments: Disclosure and Presentation and AASB 101 Presentation of Financial Statements: Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation (June 2006) |
Invitations to Comment | |
ITC 7 |
Proposed Interpretations Model for Australian Accounting Standards (November 2005) |
ITC 8 |
‘Policyholder Equity’ of Friendly Societies and AASB 1038 Life Insurance Contracts (November 2005) |
ITC 9 |
Superannuation Plans — Financial Liabilities (November 2005) |
ITC 10 |
Proposed Amendment to AASB 1 (February 2006) |
Other |
Glossary of Defined Terms June 2005 (February 2006) |
Urgent Issues Group
The UIG ceased to operate on 30 June 2006 as the AASB has replaced it with a new interpretations model to apply from 1 July 2006. Prior to its dissolution the UIG’s purpose was to review on a timely basis, in the context of existing Accounting Standards and Statements of Accounting Concepts, accounting issues that were 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 comprised 15 members drawn from a wide range of constituent groups. A consensus of the UIG required 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. A full list of UIG Abstracts and Interpretations and their issue dates is at Appendix G.
The following Interpretations were issued during 2005-2006:
Interpretations |
|
6 |
Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment (October 2005) |
7 |
Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies (February 2006) |
8 |
Scope of AASB 2 (March 2006) |
9 |
Reassessment of Embedded Derivatives (April 2006) |
1001 |
Consolidated Financial Reports in relation to Pre-Date-of-Transition Dual Listed Company Arrangements (July 2005) |
1002 |
Post-Date-of-Transition Stapling Arrangements (December 2005) |
Interpretations Model
The AASB introduced a new Interpretations Model with effect from 1 July 2006. Under the new model the AASB will have direct responsibility for developing and approving Interpretations. The AASB’s objective was to introduce a streamlined interpretations function that interacts with the IFRIC to provide guidance to Australian constituents in the context of the formal adoption of IFRS in Australia for private sector, public sector and not-for-profit entities, while maintaining a capacity to deal with issues relating to purely domestic Standards. The interpretations function has a flexible structure so that it can be adapted in response to changing circumstances and the nature of the issues to be addressed. The new model has the following principal features:
- an Interpretations Agenda Committee (IASC) comprising the Chairman and two other AASB members, with the role of considering issue proposals, IFRIC Draft Interpretations and IFRIC Interpretations and recommending a course of action to the AASB. On the basis that it is the primary regulator in respect of the Corporations Act, the ASIC has been invited to accept observer status on the IAC;
- forming Advisory Panels, constituted as a committee of the AASB, as required on a topic-by-topic basis. The role of panels will be limited to preparing alternative views and, where appropriate, recommendations for consideration by the AASB. Each panel will normally comprise 4-8 members, including the Chairman and at least one AASB member. Members will be appointed on the basis of their professional competence and practical experience in the topic area. The AASB agrees that it is important that panels have a balanced composition to ensure that both a depth of knowledge and breadth of perspective are achieved. The AASB will seek to ensure that the perspectives represented include those of preparers, users, auditors and regulators;
- a public Register of Potential Advisory Panel Members on the AASB website. It is expected that members of panels will be drawn from the register. However, depending on the issue to be addressed, the AASB may decide to draw panel members from other sources to achieve an appropriate balance of expertise and experience. Inclusion on the register does not necessarily mean that a person will be appointed to an advisory panel;
- issues relating to interpreting Australian equivalents to IASB requirements that the AASB considers warrant further guidance will, in the first instance, be forwarded to the IFRIC for consideration for inclusion on the IFRIC work program. The AASB considers that a unique domestic interpretation of Australian equivalents to IASB requirements will be required only in rare and exceptional circumstances. In addition, the AASB will deal directly with the adoption of IFRIC Interpretations in Australia; and
- the due process will include publishing the recommendations of a panel on the AASB’s website for an appropriate period, depending on the nature of the issue, before an AASB meeting. Where the AASB proposes to issue an Interpretation, the Proposed Interpretation will be further exposed by publication on the website for an appropriate period, depending on the nature of the issue, before the AASB considers it for formal adoption. Due process will also include documentation, on public record, of the composition of each panel and the background and experience of each panel member.
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 adopted a more limited ‘due process’ under which minutes of its meetings, issue proposals, issue summaries and draft Interpretations were freely available on the website. The UIG published 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 met once during the year, in November 2005. The AASB is in the process of enhancing its consultative arrangements through establishing smaller more focused groups of constituents comprising industry and user groups for consultation on particular issues. During 2005-06 a User Focus Group comprising investment and credit analysts was formed, and work on establishing a focus group involving private sector not-for-profit constituents is well advanced.
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, the UIG and its activities and the new process relating to interpretations. Authoritative pronouncements including compilations of Accounting Standards 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 programme at seminars, congresses and conferences held throughout Australia.
Accountability
The AASB Chairman, Professor David Boymal, and Technical Director, Angus Thomson, appeared before the Senate Economics Legislation Committee on 1 June 2006 during hearings on the Budget estimates.
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 $17,065.
Federal Register of Legislative Instruments
The FRLI regime, introduced by the Legislative Instruments Act 2003, commenced on 1 January 2005 replacing the gazettal process previously required for those Accounting Standards made by the AASB that are disallowable instruments. The AASB has completed the backcapture process for Accounting Standards made before 1 January 2005. Standards made in 2005-06 have been lodged and registered and the AASB has prepared compiled versions of Accounting Standards to include subsequent amendments. In addition to lodging on the FRLI, compiled versions are also published on the AASB website.
Australian Accounting Standards Board 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 and interpretations, 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.
During the year the AASB also published 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; and
- consultative and discussion papers.
The AASB is considering publication of a newsletter in order to inform constituents about the broad range of its activities. 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 and interpretations, 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, draft accounting standards and draft interpretations.
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.
No applications under the Freedom of Information Act 1982 were received by the AASB in 2005-06.
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 2006.
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 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 |
|
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: |
standard@aasb.com.au |