meth.od.ol.o.gy

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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Standards for 31 Dec 2011 Financial Statements – What’s New?

Posted January 31st, 2012

There are no signficant new standards for consideration at 31 December 2011, since we are still in an IASB stable platform (ie. there are no major new standards introduced to allow other countries to join the IASB regime).

The changes can be summarised as:

Amendments from the improvements project:

Pronouncement:

AASB 2010-4 Further Amendments to Austrlian Accounting Standards arising from the Annual Improvements Project

AASB 2010-5 Amendments to Australian Accounting Standards

Amendments and clarifications to a range of standards as a response to diversity in practice and issues identified by the IASB, IFRIC and constiuents.  Pronouncements that are changed are:

  • AASB 101 (Clarifies that item by item disclosure of components of other comprehensive income may be either in the statement of changes in equity or in the notes)
  • AASB 1 First-time adoption – 3 amendments (unlikely to have significant impact in Australia)
  • AASB134 (information about significant events and transactions identified in the previous annual report should be updated in the following interim report.  Clarification of updating disclosures about fair values)
  • Interpretation 13 (clarification about fair value of award credits)

Related Party Disclosures:

Pronouncement:

AASB 124 Related Party Disclosures (2009)

AASB 2009-12 Amendments to Australain Accounting Standards

  • Government related entities (entities controlled, jointly controlled or significantly influenced by the government) are exempted from making related party disclosures for transactions iwht the government and government related entities);
  • Definition of related party is amended to be clearer and consistent in respect of control and significant influence – some more disclosures may be required from some entities.

(Authored by Carmen Ridley (www.afrs.com.au), content provider for the Financials template & AASB Board member.)

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Operating Lease Payments – inc or ex GST?

Posted January 23rd, 2012

Authored by Carmen Ridley (Principal, Australian Financial Reporting Solutions – afrs.com.au)

A client of Task, Angela, asked a question during the week which I thought was worth sharing:
“Should the payments for operating leases disclosed in the commitment note under AASB 117 be shown net of GST or including GST?”

Answer:
There is no guidance in the standards about this particular disclosure but if the GST is reclaimable back from the ATO (i.e. assuming the business is GST registered) then the commitment would generally be shown as net of GST.  If an entity chooses to show the commitment gross of GST, then the GST recoverable should be shown as a separate line item in the commitment note.

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Carmen Ridley – Australian Accounting Standards Board Appointment

Posted January 16th, 2012

Task Technology wish to congratulate Carmen Ridley, Principal of Australian Financial Reporting Solutions (afrs.com.au) on her appointment to the Australian Accounting Standards Board (see the AASB entry here).  Carmen is the content provider for our Financials Template, and regular contributor to this blog.  It is wonderful for such a knowledgeable person to achieve this level of recognition.

Carmen is keen to represent the interests and views of corporations and small and medium accounting firms within this forum, and is happy to hear directly from you.  Contact Carmen on 0438 029 867 or via cridley@afrs.com.au.

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Bank Confirmation Deficiencies – Olympus Fraud Hid $1.7 Billion loss for 13 Yrs

Posted January 10th, 2012

PRESS RELEASE – For Immediate Release

Olympus Fraud Reveals that Bank Confirmation Deficiencies Enabled Company to Hide $1.7 Billion in Losses for 13 Years, According to Confirmation.com
Brentwood, Tenn.– December 15, 2011 –

Confirmation.com, the creator and world’s leading provider of secure audit confirmation services, comments on the recent independent investigation report into Olympus Corporation’s accounting scandal that hid $1.7 billion in investment losses from investors over a 13-year period of time.

According to the independent panel’s report, the company’s former vice president Hisashi Mori and ex-internal auditor Hideo Yamada were the masterminds behind a complex scheme to hide losses on bad investments from the 1990s. The panel also stated that the scheme went undetected for more than a decade because the company’s external auditors KPMG Azsa, LLC did not follow up in obtaining the collateral related information on foreign bank accounts when questions on their bank account confirmation requests went unanswered. Furthermore, the report stated that Olympus executives arranged to have foreign banks only provide the balance amount to the auditor, which is purported to explain why audit confirmation requests for collateral obligations went unanswered by LGT Bank in Liechtenstein, and the Singapore branches of Commerzbank AG of Germany and Societe Generale SA of France.
Typically confirmation fraud involves collusion where the company being audited requests certain individuals within the bank to either provide false information in the audit confirmation response or to leave off information that would be material to the financial statement audit. Confirmation fraud collusion like this was also purported to have taken place during the audits of companies like Kmart, Refco and Royal Ahold as well as in multiple cases of reverse Chinese merger audits.

At the October 14, 2001 board meeting, the then newly appointed President and CEO Michael C. Woodford questioned certain acquisitions and accounting practices of Olympus and the board responded by dismissing him without investigation, the report said. Mr. Woodford met with investigators and became the whistleblower that finally exposed the 13-year Olympus scandal. Upon news of the fraud, Olympus stock dropped 75 percent causing investors to lose $4.5 billion in market value.

“At least one large-scale confirmation fraud takes place every year, putting investors and markets at risk,” said Brian Fox, CPA and Founder of Confirmation.com. “Nearly 95 percent of audit confirmations globally are still processed today using paper, which makes it easy for companies trying to hide financial fraud to circumvent an auditor’s confirmation procedures. When auditors use Confirmation.com, it increases the likelihood that earnings reports will be released on time and reduces the chance for financial fraud to go undetected as it did with Olympus.”

In October, the Public Company Accounting Oversight Board (PCAOB) issued Staff Audit Practice Alert No. 8 in response to possible improprieties in financial reporting by companies based in large emerging markets in Asia and reminded auditors of their responsibility to assess fraud risks, and to perform audit procedures that respond to those risks, regardless of the regulatory environment.

“Had a system like Confirmation.com been in place, it would have prevented the banks employees from intentionally not providing material information to the auditor,” said Chris Schellhorn, CEO of Confirmation.com. “If the three banks named in the Olympus fraud had maintained control over their responses to auditors, they wouldn’t be in the middle of a major financial fraud investigation. Luckily our systems can provide the tip of an iceberg because if audit confirmation fraud is taking place, it’s usually a sign that a greater fraud is taking place.”

Confirmation.com is used by more than 8,000 accounting firms and all of the Top 10 banks in the U.S. to manage their audit confirmation requests and to reduce the occurrence of bank confirmation fraud. In total, more than $1 trillion annually is confirmed by auditors through Confirmation.com, improving the quality of those audits and helping to regain investor and lender confidence in the financial statements.

About Confirmation.com

Confirmation.com is the creator and world’s leading provider of secure electronic audit confirmation services. It processes over $1 trillion in confirmation information annually for a majority of public companies, as well as private companies, non-profits and government agencies. In addition to its bank confirmation solution, the company provides solutions for more than 30 different types of audit confirmations including accounts receivable confirmations. Confirmation.com is the Preferred Provider of Electronic Confirmations for the AICPA Trusted Business Advisor™ Solutions Program and is endorsed by the American Bankers Association. Confirmation.com has also received numerous awards including being a multi-year alumnus on the Inc. 500 list for 2010 and 2011. Several hundred In-Network responding companies including all of the Top 10 banks in the U.S. and over 8,000 accounting firms in more than 100 countries trust Confirmation.com for their audit confirmation needs. For more information, visit Confirmation.com.

Task Technology – Distributor for Australia / NZ / Papua New Guinea

Task Technology, a leading provider of auditing and financial reporting software to the professional accounting and corporate market in Australia, New Zealand and Papua New Guinea has recently signed an authorised distributor agreement with Confirmation.com. Under this agreement, Task Technology is now an exclusive authorized distributor of the Confirmation.com solution throughout Australia, New Zealand and Papua New Guinea

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Statement of Cashflows Reminder

Posted December 19th, 2011

(Authored by Carmen Ridley, Principal, Australian Financial Reporting Solutions afrs.com.au)

Based on the results of a number of reviews of 30 June 2011 financial statements, entities should remember the recent changes to the statement of cash flows which were put through to AASB 107.

Cashflows which do not result in the recognition of an asset should not be shown within investing or financing activities - it must be shown as operating.

For example, cash spent on research activities is shown in operating activities since an asset can never result from expenditure on research.

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Department of Treasury – Proposed Changes to Dividends – Corporations Act

Posted December 5th, 2011

(Authored by Carmen Ridley, Principal – Australian Financial Reporting Solutions afrs.com.au)

The Department of Treasury has issued a discussion paper which proposes changes to the Corporations Act to try to fix some of the dividends problems that arose in June 2010.

These problems include:

  • Using accounting standards to calculate net assets for all entities – even though not traditionally required to prepare and lodge financial statements;
  • The solvency test in the Corporations Act does not take into account timing of cash flows and therefore does not necessarily have a lot of relevance to solvency;
  • The use of ‘declared’ in respect of the timing of the test rather than the term ‘determined’;
  • The inter-relationship between the capital maintenance provisions and payment of dividends from reserves and
  • The operation of the franking arrangements for such dividends and associated tax implications.

The options that are proposed in the paper are:

(1) retaining section 254T of the Act as currently drafted;

(2) adopting a solvency test;

(3) reinstating the former profits test; or

(4) adopting an arrangement under which a company would have a choice of two ways of determining whether it is able to pay a dividend.

In addition, the paper requests constituents to comment on whether legislative amendments are needed to clarify some of the other areas of concern listed above.

If you are interested in commenting on this paper, the closing date is 30 January 2012 and the paper can be obtained on the Department of Treasury website (click here to view comment requirements), or if you wish to discuss any aspects of this paper further, please contact Carmen Ridley on cridley@afrs.com.au.

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IASB (International Accounting Standards Board) Conference Report

Posted November 28th, 2011

Authored by Carmen Ridley, Principal – Australian Financial Reporting Solutions (afrs.com.au)

Last week, we had some members of the International Accounting Standards Board (IASB) staff and Board in Melbourne to host the IASB conference.  This conference provided an update on key projects of the IASB and the Asian-Oceanian Standard-Setters Group (AOSSG).  This week I thought I would share some observations from this conference which should be of interest to users of accounting standards.

International Accounting Standards
The international accounting standard are not required / permitted in greater than 100 countries – the Big 4 that do not require IFRS are USA, China, India and Japan.  The IASB are hopeful that these countries will move closer to the adoption of IFRS or harmonisation.

The IASB has recently invited comments on their workplan – they have reduced the size of their workplan to focus on major projects (revenue, leases, insurance contracts and financial instruments) and maintenance projects (annual improvements and interpretations) – they want to try to complete projects within a reasonable timeframe and therefore have requested information on projects which their stakeholders believe should be a priority.

There is a conflict between stakeholders wanting things fixed and people not wanting any changes in the standards.

The Board noted that the new standards issued include disclosure principles rather than a list of disclosures and it is incumbent on the entities to consider whether the disclosures satisfy the overall principles.

Financial instruments project
The FASB (US accounting board) and the IASB were pulled in different directions over this project and there are differences in the standards.  We are also going to see some changes in the issued IFRS 9 (AASB 9), although the IASB are going to try to minimise these changes.

The mandatory date for the adoption of IFRS 9 is 1 January 2015.

Leases
The new exposure draft for leases is due out in the 1st quarter of 2012 (or the 2nd quarter at the latest) – it proposes a right of use model for both the lessee and lessor.

The IASB have made a tentative decision that lessors of investment property would be able to apply operating lease accounting due to the multi-tenancy arrangements within properties.   This tentative decision has caused some of the IASB board members to question whether there should therefore be two lessee models – this is likely to be in respect of the income statement only.

Revenue
The new revenue exposure draft when issued as a standard will cause a re-assessment of all revenue transactions and may cause either an acceleration, or deferral of revenue, depending on the contracts in place.

It will require new estimates and judgements and potentially systems changes, to be able track the information required.  In addition, there are significant new disclosure requirements, some of which may be sensitive and this needs to be managed by the entity.

The industries which are likely to suffer the highest impact under this standard are telecommunications, software, managed funds and construction.

This requires retrospective application and therefore entities should consider contracts in place and any changes needed under this exposure draft.  Entities should provide comments if there are any specific concerns.

Some of the business impacts that entities need to consider are sales commission structures, income tax / GST impacts / forecasts and budgets and effects on loan covenants.

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Posted in Financial Reporting, IFRS Reporting, Industry News
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Release of second IFRS exposure draft on Revenue

Posted November 21st, 2011

(Authored by Carmen Ridley, Principal, Australian Financial Reporting Solutions www.afrs.com.au)

Last week, version two of the revenue Exposure Draft (ED) was released by the International Accounting Standards Board (IASB) and the US accounting standard board (FASB). This additional exposure draft followed a number of comments received from the first exposure draft and the number of changes put through by the boards since the release of that document.

The proposed five-step model for recognising revenue is consistent with the first ED (as shown below), as is the core principle to recognise revenue when ‘control’ of goods or services transfers to the customer.

The five step model:

  1. Identify the contract with a customer
  2. Identify the separate performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the separate performance obligations
  5. Recognise revenue when (or as) the entity satisfies a performance obligation.

Some of the significant changes from the exposure draft are:

  • Clarification of the proposal for identifying separate performance obligations
  • Modification of the definition of transaction price to refer to the amount to which the entity expects to be entitled rather than the expected amount to be received
  • Modifications made to how transaction price is determined
  • Clarification that it may be appropriate for an entity to estimate a selling price using a residual approach if the price of a good or service is highly variable or uncertain
  • Addition of risks and rewards of ownership as an indicator of when control is transferred at a point in time
  • Revision of the proposed requirements to require an entity to account for some warranties as a cost accrual, which is more consistent with current practice.
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AASB10 – Consolidated Financial Statements – Which Entities Do You Include?

Posted November 16th, 2011

(Authored by Carmen Ridley, Principal, Australian Financial Reporting Solutions www.afrs.com.au)

IFRS 10 (AASB 10) Consolidated Financial Statements has been released in Australia which makes some changes to which entities are included in a consolidated group.

Will entities who have a ‘simple’ group be impacted by the release of AASB 10?

AASB 10 introduces a new definition for whether one entity controls another which is reproduced below:

“An investor controls an investee if and only if the investor has all the following:
(a) power over the investee
(b) exposure, or rights, to variable returns from its involvement with the investee ; and
(c) the ability to use its power over the investee to affect the amount of the investor’s returns .”

Generally for simple groups this definition will not cause changes in the composition of the group, however AASB 10 will require more consideration of whether entities in which the investor has a less than 50% ownership should be consolidated.

For ‘simple’ groups, this will require consideration of other owners and is best illustrated through some examples:

D would consolidate since it would satisfy the relevant definitions – there would be no change in this example under AASB 10.

 

 

 

 

Entity A may have to consolidate under AASB 10 since A would hold the power as it would take a significant number of different owners to work together to form a consortium with greater power than Entity A.

Under existing standards, it is likely that Entity A would equity account for Entity B.

 

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