Adoption of the International Accounting Standards in Australia
Text of a joint letter sent on 20 October 2003 by Mr Jeffrey Lucy, Deputy Chairman of ASIC, and Mr Charles Macek, Chairman of the Financial Reporting Council to the Chair of the Boards of all publicly listed companies and 200 of the larger private companies.
The letter calls on them to take an active interest in preparing early for the adoption for application in Australia of the standards of the International Accounting Standards Board.
'As you will be aware, the Australian Accounting Standards Board (AASB) is implementing a policy of adopting the standards of the International Accounting Standards Board (IASB) for application in Australia. This change follows a broad strategic direction issued to the AASB in July 2002 by the Financial Reporting Council (FRC) which is the oversight body for the independent standard setter.
'Australian accounting standards, which are legally binding under the Corporations Act, will therefore be equivalent to International Financial Reporting Standards (IFRSs). As proposed, all companies that are required to report under the Act will be required to prepare their financial report in accordance with the AASB equivalents to the IASB standards for financial reporting periods beginning on or after 1 January 2005. The Australian Securities and Investments Commission (ASIC) will be responsible for enforcing compliance with the new standards.
'In the interests of maintaining high quality financial reporting by Australian companies during this transition period, and to promote investor protection and market confidence, both the FRC and ASIC encourage company boards and management to prepare early for the change. The adoption of international standards is a strategic management issue and not simply a technical accounting issue.
'In many cases, companies will need to imbed changeover strategies that will include the alignment of internal reporting systems with the new external reporting environment and the development of strategies to prepare analysts and other stakeholders for potentially significant changes to financial reporting outcomes.
'While many of the existing AASB accounting standards have been harmonised with international standards and any changes will be minimal, other changes will be more complex and introduce substantial new requirements for some companies. In addition, the implementation of this initiative requires that the comparative financial information be restated to comply with the converged AASB standards. For companies with December year-ends, this will require application of those standards, with some limited exceptions, in preparing a balance sheet as at 1 January 2004 that will be needed to determine that comparative information. For June year-ends this will need to be done as at 1 July 2004.
'We are aware of recent surveys undertaken in Australia about the level of awareness of the forthcoming changes. While encouraged by the high level of awareness by chief financial officers, financial controllers and accountants, the surveys indicate varying degrees of preparedness in terms of detailed knowledge of the requirements, resourcing, systems process and information gathering implications and analysis of the financial impact.
'It is acknowledged that dealing with some aspects of preparing a starting statement of financial position, for example at 1 January 2004, may be delayed by the fact that not all of the proposed converged accounting standards have been approved and may not be until April 2004. Nevertheless, this does not prevent the development and implementation of business strategies to manage what is in effect a business and regulatory risk. Up until this time, the AASB will issue "proposed standards" so that the text of the standard is available to interested parties. The extent of company preparedness is critical to a smooth transition and represents the key risk in 2005 adoption.
'As the standards will be law, failure to plan for the transition and implement an effective business strategy to meet the 2005 deadline may result in your company being at risk of breaching the financial reporting requirements of the Act.
'A proactive approach to the implementation of the standards and analysing their impact will also facilitate the process of keeping investors and users fully informed of the outcomes. It is important that companies disclose to shareholders any material difference from current Australian accounting standards that may arise from applying the new standards. In this context consideration should also be given to if and when any impact on the reported financial position of the company is of such significance that a continuous disclosure obligation may arise.
'Information of this nature will be important in demonstrating to shareholders and the market that the company has considered the impact and is committed to quality financial reporting and disclosure.
'It is important therefore that boards and audit committees take an active interest. We trust that your company is well advanced in developing and implementing a strategy to deal with this important initiative.'
Signed
Charles Macek, Chairman, Financial Reporting Council
Jeffrey Lucy, Deputy Chairman, ASIC