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Welcome to Task Technology’s Weblog – meth·od·ol·o·gy

Posted May 18th, 2008

Welcome to the Task Technology blog. Through the use of this weblog, we will be raising issues relative to our products and services, and topics relevant to those providing Audit and Financial Reporting professional services.

The Legal Bit: The articles on Task Technology’s Weblog are the individual opinions of Task staff members and associated industry partners and alliances, reprinted with permission.  The information contained in the Weblog is not intended to substitute for accounting, audit, tax, investment, legal or other professional advice or services.  If accounting, audit, tax, investment, legal advice or other expert assistance is required, the services of a competent professional person must be sought.

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AASB 7 – What to include as Financial Liabilities?

Posted May 8th, 2012

For the purposes of the financial instruments risk management note, what should be included as a liability?

The financial risk management note is required by AASB 7 and covers all financial liabilities.

This means that the following liabilities are included:

- Trade and other payables

- Borrowings

- Lease liabilities

The following liabilities from the statement of financial position do not satisfy the definition above and therefore are excluded from the financial risk management note:

- Employee benefits

- Accruals

- Income in advance

- Provisions

The definition of a financial liability per AASB 132 is

Any liability that is:

(a)  a contractual obligation:

(i)  to deliver cash or another financial asset to another entity; or

(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity;

or

(b) a contract that will or may be settled in the entity’s own equity instruments and is:

(i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or

(ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Also, for these purposes the entity’s own equity instruments do not include instruments that are themselves  contracts for the future receipt or delivery of the entity’s own equity instruments.

This entry provided by Carmen Ridley, AASB Board member, Principal – AFRS and content provider for Task’s Financial Reporting template.  Contact Carmen via 0438 029 867 or cridley@afrs.com.au.

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Posted in AASB, Financial Reporting, Liabilities
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AASB Update – NFP; Leases; Differential Reporting

Posted May 3rd, 2012

The AASB met in Melbourne on 18 and 19 April and Carmen Ridley (afrs.com.au & AASB Board Member) has provided an update on the key discussion points – NFP Income & Control, Leases, Differential Reporting.

Income of NFP entities This is the project to replace AASB 1004 Contributions which deals with grant accounting for not for profit (NFP) entities.  The AASB are reviewing the IASB revenue project and plan to release equivalent guidance for NFPs. A staff draft of the proposed exposure draft was prepared and discussed. The proposals would allow income to be recognised in line with performance obligations.

The NFP requirements are likely to be released at the same time as the IASB revenue standard (likely 2013) with an effective date of either 2015 or 2016. Early adoption is likely to be permitted.

Control in the NFP public and private sectors The exposure draft showing NFP guidance in respect of assessing control is to be released which will make it easier for NFPs to apply and interpret AASB 10 Consolidated Financial Statements.

Differential reporting research A confidential draft of the research performed to date was provided to AASB Board members.  The researchers have interrogated financial statements lodged with ASIC to analyse:

  • Factors used to determine reporting entity status.
  • Compliance with Accounting Standards ranging from full recognition and measurement compliance, through to compliance with mandatory standards, through to not able to determine which standards are complied with.
  • The proportion of special purpose financials prepared varies with the type of entity, with more large proprietary companies lodging special purpose financial statements than companies limited by guarantee.

Additional research need was identified by the Board and further results are expected in the next few months.

Leases (IASB project) Due to concerns about the diminishing expense profile proposed in the first exposure draft, the IASB have presented a number of revised options for the expense profile of leases in the statement of comprehensive income of lessees.  A number of outreach sessions have been arranged to obtain stakeholder views on the options to help the IASB formulate the revised exposure draft.

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Posted in Financial Reporting, Industry News
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AASB 5 – Do You Have Any Assets Held for Sale?

Posted April 20th, 2012

Carmen Ridley (AASB Board Member, Principal of AFRS and Financials template Content Provider) offers the following tips & hints for AASB 5 treatment.  Contact Carmen directly (cridley@afrs.com.au) to discuss your particular situation.

AASB 5 Non-current Assets Held for Sale and Discontinued Operations is a standard that I believe is either not well understood or slips under most accountants’ financial reporting radar.

Why do I say this?  I review a number of financial statements, both listed and unlisted and it is not very often that I see a line item on the statement of financial position (or balance sheet, for those of us who like the old-fashioned terminology) called ‘Non-current assets held for sale’, yet I often see losses on sale recognised in the statement of comprehensive income.

The idea of AASB 5 is that the user of the financial statements should be aware of any assets (or disposal groups) which the entity is planning on selling and therefore will no longer be used in the business.  The measurement requirements of AASB 5 show the expected net inflow of economic benefits to be received from the sale.

AASB 5 states that when an asset satisfies the conditions to be classified as an ‘asset held for sale’, then the asset should be valued at the lower of its carrying amount and fair value, less costs to sell.  An asset is classified as held for sale when all of the following conditions have been met:

  • Management, having the authority to approve the action, commits itself to a plan to sell.
  • The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
  • An active program to locate a buyer and other actions required to complete the plan to sell the asset are initiated.
  • The sale is highly probable and is likely to occur within one year of being classified as held for sale.
  • The asset is marketed at a price that is reasonable to its current fair value.
  • Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Common assets which may be held for sale:

  • Surplus buildings
  • Outdated / obsolete plant and machinery
  • Obsolete IT equipment
  • Motor vehicles

What should entities do?
Consider whether there are any assets which you have agreed to sell / dispose of which would satisfy the AASB 5 criteria documented above, if so;

  • Transfer them from the property, plant and equipment account to the ‘non-current assets held for sale’ account.
  • Cease depreciation from the date of transfer.
  • Ensure the transferred assets are held at the lower of current carrying amount and fair value less costs to sale.
  • Any write-down to fair value less costs to sell should be recorded in the statement of comprehensive income (unless the asset has a revaluation reserve relating to it).
  • Continue to monitor the carrying amount of the asset to confirm if it is appropriate.
  • Apply the appropriate disclosures from AASB 5 in the year end financial statements.
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Posted in Financial Reporting
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AASB 108 – Disclosure of Impact for Standards Issued, not Effective Yet

Posted April 16th, 2012

How do I find information on standards that have been issued which are not yet effective?

The disclosure of the impact of standards issued, but not yet effective is required by paragraph 30 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

It is a mandatory disclosure for:

  • General purpose Tier 1 financial statements
  • Special purpose financial statements prepared in accordance with the Corporations Act 2001
  • Any other financials which claim compliance with AASB 108.

Note: preparers of Tier 2 general purpose financial statements (i.e. RDR financial statements) do not need to include this disclosure.

It is not necessarily an easy task to find the most up to date list of standards issued for consideration in this disclosure. Task Knowledge, using their content provider, Carmen Ridley, will commit to preparing a monthly document showing  the standards issued not yet effective which provides an overview of all the Australian standards to be considered for this note.

The first version of this document will be uploaded to the FAQ section of the Task website at the beginning of May.  You may wish to bookmark this link for future reference.  We will be making further announcements when this facility is available.

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Posted in Financial Reporting, RDR
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Board vs Finance Dept – RDR best for Users, but not Corp Governance?

Posted April 2nd, 2012

My Board do not want to prepare Reduced Disclosure Regime (RDR) financial statements since they do not believe they are the best for corporate governance purposes, but the finance team believe RDR accounts would be the best for our users.  Your advice?

The Reduced Disclosure Regime were introduced by the AASB to provide alternative general purpose financials for non-publicly accountable entities.  These financial statements use the recognition and measurement criteria from the Australian Accounting Standards, but permit significantly reduced disclosures.  The extent of the adoption of the RDR can vary, from deleting each disclosure no longer required or just removing some of the ‘big ticket disclosure items’.

This means that the financial statements are shorter, less complex and more meaningful to many users since a number of notes are removed, for example:

  • Financial instruments risk management
  • Impact of standards issued not yet effective
  • Third statement of financial position
  • Capital management note

The Reduced Disclosure Regime financial statements are still general purpose financial statements and therefore continue to be recognised as the highest quality financial statements.   In fact, the lower level of disclosures may mean that the financial statements become more applicable and relevant to the users.  The time taken to prepare RDR financial statement is lower, which will reduce the time spent on the year end financial reporting processes.

For further information on the Reduced Disclosure Regime, refer to AASB 1053 Application of Tiers of Australian Accounting Standards,  contact Carmen Ridley on cridley@afrs.com.au, or join our Task Knowledge industry Webinar on April 30 (details here).

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Posted in Financial Reporting, General
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Early Adoption of AASB10 for Not-For-Profit – Permitted, or Not?

Posted March 26th, 2012

I work at a not-for-profit entity and we are considering early adopting AASB 10 Consolidated Financial Statements. Is this permitted?

AASB 10 is not currently available for early adoption by not-for-profit and public sector entities.  AASB 10 (and its international equivalent IFRS 10) was written principally for profit-seeking entities and therefore, many of the terms in the standards may be difficult for not-for-profit entities to interpret, given their different objectives.

The AASB are looking at potential implementation issues for not-for-profit entities and providing additional guidance to assist in adopting AASB 10 in the not-for-profit context.  An exposure draft showing the results of this project will be issued shortly by the AASB.  Once comments on the exposure draft have been received and analysed, a revised AASB 10 will be issued which will be able to be adopted by all entities.

For queries on the revised requirements of AASB 10, please contact Carmen Ridley at cridley@afrs.com.au

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AASB 13 Fair Value Measurement: Accounting Policy – Buildings at ‘fair value’ vs ‘at cost’?

Posted March 18th, 2012

(Authored by Carmen Ridley, Principal – Australian Financial Reporting Solutions afrs.com.au & Associate – Task Knowledge.  Content provider for the Financial template.  The following is an example of a technical financial reporting query, submitted to Carmen recently.)

The entity I work for is holding its buildings at fair value, however, given the additional disclosures required under AASB 13 Fair Value Measurement, is it possible to change our accounting policy to show them at cost?

The accounting standards permit choices in accounting policies in a number of areas, including measuring property, plant and equipment at either cost or fair value.

AASB 116 Property, plant and equipment allows an entity to move from cost to fair value at any time however, entities are not permitted to revert back to cost once an entity has moved to fair value.  Therefore, the properties in question have to remain at fair value.

AASB 13 is effective for annual reporting periods commencing on or after 1 January 2013 (i.e. 31 December 2013 year end).  Entities should start looking at the requirements of AASB 13 to ensure they have the systems and controls in place to capture the relevant information.

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Posted in Asset, Financial Reporting
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CaseWare International Wins 2 Prestigious Awards

Posted March 13th, 2012

The Accounting Today publication awarded CaseWare International as the 2012 Top New Products for Audit International under the auditing category. Accounting Today’s reviewer, Seth Fineberg writes: “Auditing Audit International CaseWare The audit may be one of the marquee services of the profession, but the tools available to auditors are often restricted to what they can come up with themselves. That’s changing, and for all levels of audits, as proven by our Top New Product in this category, CaseWare’s Audit International. With forms based on an auditing guide from the International Federation of Accountants, and a host of workflow, risk management and tracking features, it aims to make it as easy to audit a far-flung global business as a local mom-and-pop.”

To read the Accounting Today’s article, click here.

International Accounting Bulletin also announced their awards recently. CaseWare International were judged: IT Vendor of the Year.

IAB as quoted:  ” In 2011, Caseware International released its Audit International product, which helped firms across the world conduct audits in a more efficient and intuitive manner. CaseWare International also launched Collaborate which allows teams to access all engagement data in real-time from a secure cloud-based repository.”

To read about all the IAB awards, click here.

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Posted in CaseWare
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Income Statement vs Statement of Comprehensive Income

Posted March 2nd, 2012

Why do some entities include an income statement and statement of comprehensive income and others only have a statement of comprehensive income?

AASB 101 Presentation of Financial Statements prescribes the content of primary statements. It provides a choice with respect to the primary statements which provide information about income, expenses and movements in equity.

AASB 101 permits either of the following:

Presentation 1: Single statement

Statement of comprehensive income showing:

Income
.
.
.
Expenses
.
.
.
Net profit

Other comprehensive income
.
.
.
Total comprehensive income

 

Presentation 2: Two statements

An income statement showing:

Income
.
.
.
Expenses
.
.
.
Net profit

And a statement of comprehensive income showing:

Other comprehensive income
.
.
.
Total comprehensive income

Note: in presentation 2, the statement of comprehensive income must be included on the page following the income statement.

CaseWare allows users to choose the statements they want included in accounts via the ‘areas required’ section of the financial statement options document.

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Posted in CaseWare, Financial Reporting, Industry News
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