Archive for the ‘AASB’ Category

Special Purpose Financial Statements – Cash Flows

Thursday, March 13th, 2014

(From Carmen Ridley – www.afrs.com.au)

I have a client who does not want to include a statement of cash flows in their special purpose financial statements, is there any requirement for them to do so?

AASB 107 Statement of Cash Flows is applicable to the following entities:

  • each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
  • general purpose financial statements of each reporting entity; and
  • financial statements that are, or are held out to be, general purpose financial statements.

This is a different application to many of the other accounting standards, since it is mandatory for all entities preparing financial statements under the Corporations Act regardless of whether they are general or special purpose.

In summary:

Company preparing special purpose financial statements under Part 2M of the Corporations Act 2001
Statement of cash flows is a mandatory primary statement.

Non-corporate entity preparing special purpose financial statements in accordance with legislation
Generally legislation would require compliance with Australian Accounting Standards which would mean at least preparation of the four primary statements.

Entity preparing special purpose financial statements without any legislative requirements
No requirement for preparation of statement of cash flows unless requested by the users.

For further information about Special Purpose Financial Statements, or other interpretations of the accounting standards, contact Carmen Ridley (cridley@afrs.com.au).



Latest AASB Meeting Report Summary

Thursday, February 20th, 2014

Provided by Carmen Ridley (www.afrs.com.au), AASB Board Member

The February AASB meeting was a one-day meeting only as the first day was an induction day for the five new board members.

Some of the relevant matters discussed were:

  • IFRS 9 – update on the status of the standard including the information that the complete standard is expected to be issued in the second quarter of 2014.
  • IASB comment letters – the AASB views on a number of pronouncements issued by the IASB and IPSASB were finalised for inclusion in comment letters.
  • Leasing and revenue – an update on these project was provided. Note that the IASB standard on revenue is expected to be issued in March / April 2014.

For further detail or information on any of these matters, refer to the AASB action alert available on www.aasb.gov.au or contact Carmen Ridley on cridley@afrs.com.au.


Report on AASB Meeting 11 and 12 December

Tuesday, January 7th, 2014

The AASB held their last meeting for 2013 on December 11 & 12. Carmen Ridley, Board Member and principal of Australian Financial Reporting Services, has provided a summary of the key points discussed most relevant to you:

Withdrawal of AASB 1031 Materiality – it was determined that AASB 1031 would be amended at this standard rather than immediately withdrawn – it will be reissued to refer to AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors for guidance on materiality.  The references to AASB 1031 within the accounting standards will be progressively removed as each standard is amended for other consequential changes and once all standards have removed the AASB 1031 reference then this standard will be withdrawn. Note – the changes to AASB 1031 are not expected to change practice.

Hedge accounting – the IASB has released the hedge accounting chapter of IFRS 9 and at the AASB meeting, it was agreed that the Board members would vote on the Ballot Draft with the aim of releasing this on 20 December 2013 to be available for early adoption.  Many entities who have derivatives are considering early adoption since the onerous rules regarding hedge accounting in AASB 139 have been changed to remove the 80 – 125% effectiveness rules and to allow more risks to be hedge accounted.

Whilst the IASB has removed the mandatory effective date of IFRS 9, the AASB will include an effective date of 1 January 2017 within AASB 9 since without an effective date, a legislative instrument becomes immediately effective in the Australian legal system. This date is subject to review depending on the IASB effective date.  Note – the effective date needs to be updated in your standards issued not yet effective disclosures.

Superannuation entities – the long-awaited replacement standard for AAS 25 was approved for ballot draft which means that the Board members are required to vote on its release to the AASB website for a final fatal flaw review by interested stakeholders.  If you or your clients is a superannuation entity, i.e. An entity that constitutes one or more superannuation plan(s) or an approved deposit fund, then we strongly encourage you to review this which will should be available on the AASB website pre-Christmas.

Your voice The Board is looking to expand their database of stakeholders in a range of topics. If you are interested in being consulted / invited to roundtables on issues which are relevant to you, please contact Carmen on cridley@afrs.com.au. This may involve occasional phone calls / roundtable attendance to gain an appreciation of your practical experiences.


How do I find the relevant accounting standard for the reporting period I am working on?

Monday, September 16th, 2013

Contributed by Carmen Ridley, AASB Board Member and Director, Australian Financial Reporting Systems (www.afrs.com.au).

The AASB website (www.aasb.gov.au) contains all the Australian Accounting Standards, however, the table of standards includes the existing standards and standards issued not yet effective.

If you are looking for the accounting standards that are applicable for a particular reporting period, then the quickest and easiest way to find them is the ‘search by reporting period’ function.

You can locate this function through the quick links menu on the AASB homepage. This allows you to enter your reporting period, and all Accounting Standards which are effective for that period will be displayed.

If you have questions about relevant accounting standards, then please contact Carmen Ridley on cridley@afrs.com.au


AASB release the Investment Entities amendment to AASB 10

Wednesday, September 4th, 2013

The Australian Accounting Standards Board (AASB) has issued AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities.

These amendments  apply to investment entities, i.e. an entity that:

(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;

(b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

(c) measures and evaluates the performance of substantially all of its investments on a fair value basis.

Examples of entities which might qualify as investment entities would include Australian superannuation entities, listed investment companies, pooled investment trusts and Federal, State and Territory fund management authorities.

The amendments in AASB 2013-5:

  1. provide an exception to consolidation to investment entities and require them to measure unconsolidated subsidiaries at fair value through profit or loss
  2. also introduce new disclosure requirements for investment entities that have subsidiaries.

Under AASB 10 Consolidated Financial Statements, reporting entities are required to consolidate all investees that they control (i.e. all subsidiaries). Preparers and users of financial statements of investment entities in Australia have commented that consolidating the subsidiaries of investment entities does not result in useful information for investors. Rather, reporting all investments, including investments in subsidiaries, at fair value, provides the most useful and relevant information. AASB 2013-5 is issued in response to these comments.

The amendments are effective from 1 January 2014 with early adoption permitted. It is expected that some entities will choose to early adopt this amendment from 31 December 2013, since AASB 10 Consolidated Financial Statements becomes effective on that date which introduces a different definition of control and may result in consolidation of different entities. Therefore the adoption of AASB 2013-5 will mean that entities do not consolidate their investments, however they will need to obtain fair values for their investments.

Please contact Carmen Ridley on 0438 029 867 if you require further information on the impact of this amending standard or whether your entity is able to apply the standard.


AASB builds pressure for reform of disclosure and presentation requirements

Wednesday, August 28th, 2013

Publication of a series of ‘Essays’ commences (précis of AASB press release 14 August 2013)

The Australian Accounting Standards Board (AASB) Research Centre has published AASB Essay 2013-1Rethinking the Path from an Objective of Economic Decision Making to a Disclosure and Presentation Framework. Principally authored by AASB Chairman and CEO, Kevin M Stevenson, this essay is the first in a series designed to provide an avenue for a wide range of financial reporting issues to be discussed. Mr Stevenson also hopes that it will allow ideas to be raised to stimulate debate and provide thought leadership in accounting standard-setting.

Currently, there is considerable debate about the future of the conceptual framework used in setting accounting standards.  The International Accounting Standards Board (IASB) is in the process of revising its conceptual framework (IASB Discussion Paper A Review of the IASB’s Conceptual Framework for Financial Reporting is currently open for public comment), and the International Public Sector Accounting Standards Board (IPSASB) is developing its conceptual framework and it is in the context of these international works and projects that Mr Stevenson hopes his essay provokes commentary.

AASB Essay 2013-1 | Content Summary


  • There is a gap in the conceptual framework that, if filled, would improve our ability to provide accounting responses to users’ needs, including through the development of a better, purpose-driven disclosure and presentation framework
  • There are a limited number of generic types of information, termed “stocks” and “flows” that characterise all types of entities to one degree or another.
  • The gap in the framework falls between the objective level and the lower levels. Both the objective and the stocks and flows identified are part of entities’ environments. The selections of qualitative characteristics, elements, measurement bases and presentation/disclosure approaches are seen as accounting responses aimed at satisfying users’ needs for information for decision making (the “objective”).
  • Specification of the relevant stocks and flows could also bring meaning to “financial position” and “performance” and potentially provide a way to define financial reporting, bounding it by the generic stocks and flows identified.


Report from Carmen Ridley’s Financial Risk Disclosures Webinar

Tuesday, August 20th, 2013

The following is a very basic summary of the information provided by Carmen Ridley last Friday, 16 August in the one-hour webinar “Financial Risk Disclosures”. Carmen will be conducting more industry information webinars for CaseWare Australia & New Zealand in December and throughout 2014.  Click here for a list of the current webinar topics and dates scheduled.

AASB 7 Financial Instruments: Disclosures was effective at 31 December 2007 and it has been a standard that has been on the ASIC focus list every year since. Carmen focussed on non-financial entities for this webinar presentation, as the requirements under AASB 7 for financial entities (banks, financial co-ops) are much too complex to be covered in the time allotted.

AASB 7 – Non-Financial Entities
Scope – is fairly broad and the application of this standard to the financial instruments of the entity should be carefully considered. Entities that prepare general purpose financial statement will need to address AASB 7.  Entities that prepare general purpose RDR (Reduced Disclosure Regime) reports do NOT have to comply with most of the requirements of AASB 7.

Types of Risk
Qualitative Disclosures can be quite tricky. This component should be tackled “through the eyes of management” and to highlight the entity’s strategy for managing financial instrument risk.

Credit Risk Disclosures should be quite specific and address trading operations, including exposure to debt and funds held in financial institutions.  Local and international examples were provided and discussed.

Liquidity Risk components need to address debt payment ability, contain maturity analysis for contractual cash outflows (nb. Figures can be different in balance sheet, but should be explained). Again, examples were discussed and suggestions on improvements provided.  A maturity analysis table was also presented and examined.

Market Risk should examine each identified market risk and explain mitigation strategies (eg. Fixed vs floating borrowings, forward exchange contracts, interest rate swaps…)

Sensitivity Analysis
Carmen suggests that this should be a fairly ‘weighty’ disclosure and should also take into account Australian market conditions. For example, interest rate swings of + or – 1% are not likely to apply in Australia in the short term future, so more likely ranges should be applied and “reasonably possible” movement effects described and/or mitigation strategies outlined in this disclosure.

Common Errors
The sorts of errors that are usually evident in AASB 7 disclosures and which should be avoided include:

  • ‘Boiler plate’ narrative disclosures
  • Keeping reasonable possible movements at the same rate as previous years, even though market conditions have obviously moved on
  • Missing disclosures
  • Analysis of immaterial risks

Much more detailed information was provided during the webinar and all attendees received a copy of the slide presentation.  Be sure to catch Carmen’s other webinars on industry topics of interest which can be located here.



Opinion: IAASB Proposed Changes to Audit Reports

Monday, August 5th, 2013

Authored by Kimberley Tiong KTT Consulting (www.kttconsulting.com.au)

IAASB proposed changes to audit reports

There have been significant proposed changes to audit reports put forth by the International Auditing and Assurance Standards Board (IAASB) in its exposure draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs).

The changes are aimed at improving reporting to users of the financial report, including investors and analysts. The IAASB believes that the changes will enhance the perceived value of financial report audits, as well as other improvements including enhancing communication with management and those charged with governance, and an indirect improvement to professional scepticism.

The proposed changes follow consultation papers published in May 2011 and June 2012, developed after earlier research on user perceptions of the standard of auditor reports. It also responds to feedback following the global financial crisis and European Commission (EC) proposals on audit reform.

The proposed changes include:

Proposed change Description
Key audit matters
Relevant to audit reports of listed entity financial statements. A “key audit matters” section would be added, being “those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period”. Matters would be selected from those communicated to those charged with governance.
The audit report would include an explicit statement that the auditor   is independent of the entity and has fulfilled any other relevant ethical requirements, and disclose the sources of those requirements.
Engagement partner
Audit reports of financial statements of listed entities would be required to explicitly state the name of the engagement partner.
Prominence of
The auditor’s opinion would be placed at the beginning of the audit report.
The proposal outlines a preferred ordering of the elements of the audit report, although this is not mandated.
Going concern
The audit report would include a going concern section, including a conclusion on the appropriateness of management’s use of the going concern basis and a statement whether any material uncertainty about going concern has been identified.
Auditor responsibilities
Proposed changes to how the responsibilities of the auditor are described and the key features of the audit. Certain elements of the description of responsibilities and key aspects of the audit would be permitted to be reported in an appendix to the audit report, or referenced from a website of an appropriate authority.

I personally think that those calling for these changes want auditors to be more of an “investment advisor”, giving an opinion as to whether an entity is a sound investment or not. This is a fundamental difference to the role of the auditor giving an independent opinion on whether the financial statements give a true and fair view. I don’t think an auditor is in a position to give investment advice and hence I don’t think the proposed changes will satisfy those calling for change. It is unlikely that auditors will be too happy either.

However for the sake of the profession going forward, I believe there is a need to increase the perceived value of financial statement audits and the role of auditors in general. With an auditor’s strong understanding of an individual entity’s business and risks and, in some cases, their industry expertise, auditors are in a position to add value. However auditors have the challenge of trying to communicate this value without overstepping independence requirements. There is continuing pressure on the role of the auditor to change to that of an advisor and it will be interesting to see what the future holds.

The ED is open for comment until 22 November 2013.



May AASB Board Meeting Report : IFRS10, Superannuation Entities AAS 25, Q3 IFRS 9 update expected

Thursday, June 6th, 2013

Carmen Ridley provided the following report of the highlights of the May AASB Board Meeting:

Entities Amendment Exposure Draft – IFRS 10

The AASB considered the submissions on the Investment Entities Amendment Exposure Draft which proposed to issue the IASB amendment to IFRS 10 requiring investment entities to account for their investments at fair value, rather than consolidate them regardless of whether they control the investment. The exposure draft also required some additional disclosures, since the AASB believe that showing the investments at fair value rather than as consolidated entities would lead to a loss of useful information.

The submissions overwhelming supported issue of the IASB amendment without additional disclosures.

The AASB require 9 votes to issue the standard, 8 votes were cast at the meeting in favour of issuing the standard unamended and there were 2 absent members. AASB staff are preparing a pre-ballot draft of the standard and it will then be determined whether the requisite 9 votes will be received.

Superannuation entities

Further discussion on sweep issues arising on the preparation of the replacement standard for AAS 25 were held. It was agreed that a fatal flaw draft of this replacement standard would be made available to constituents prior to release of the final standard.

Financial Instruments

The Board received an update that the general hedging chapter of IFRS 9 is expected to be released in Quarter 3 2013. The AASB also considered the IASB exposure draft on Expected Credit Losses.

It was noted that this exposure draft applies to the receivables of both financial and non-financial institutions and seems to be a complex model that would require changes to an entity’s systems and current practices.

Whilst the AASB comment period has now closed, entities with significant receivables balances are encouraged to review the IASB exposure draft and respond to the IASB.


Report on the Going Concern Webinar – 31 May

Sunday, June 2nd, 2013

Report on the Going Concern Webinar – 31 May

The following key points were covered by Carmen Ridley in her webinar presentation of “Going Concern” on May 31.   If you and your staff attended, you would have been eligible to claim 1 x CPD hour each and more importantly, be advised of the ‘must do’ aspects of ASA570 as well as the disclosure requirements of AASB 101.

Planning – Going Concern

Carmen explained that Going Concern issues should be raised to the entire Audit team and become part of the planning documentation.  Dialogue between the client and the audit engagement team is critical early in the audit well before the audit team makes an onsite appearance.

Audit Procedures related to Going Concern

An explanation of some of the audit procedures and processes that could be necessary for some entities was provided.   TIP: Carmen recommends that this is an area where professional skepticism should be applied and that senior members of the Audit Team be responsible for conducting or at the very least, reviewing this part of the audit, simply because lack of experience from juniors may not elicit the detailed responses necessary.

Review, Evaluation & Report of “Going Concern”

Again, Carmen provided examples of some entity Going Concern disclosures which showed a level of detail that was better than most (ie. more than one paragraph), but perhaps not as adequate as it could be.  Furthermore, Carmen suggested using the ASA570 audit guidelines flowchart provided within the standards to guide your assessment of an entity’s Going Concern status.  TIP: As you move through the flowchart, link or highlight any documentation you have gathered to justify your audit opinion at each decision tree of the chart.


Even though final figures may not be available, the planning, procedures and potential narrative regarding Going Concern can be well underway as soon as an audit is commenced for any entity.  TIP:  Remember ASIC requirements: “if not documented, its not done”.