Carmen Ridley (AASB Board member & Principal, Australian Financial Reporting Solutions www.afrs.com.au) writes for CaseWare Australia & New Zealand.
I have just finished my round of financial reporting updates for 30 June 2014 and have to admit, I have been disappointed and a little scared about the lack of awareness of the new AASB’s which are effective for the first time this reporting period.
I will take this opportunity to remind finance teams and their auditors of the ‘headlines’ relating to the new / revised standards so further research can be undertaken to ensure that financial statements are in compliance with Australian Accounting Standards at 30 June 2014.
AASB 119 Employee Benefits
- Significant changes to defined benefit plan accounting – removal of the corridor approach;
- Changes to the definition of short-term benefits may cause discounting of annual leave liabilities.
Consolidation suite of standards (AASB 10 – 12)
Entities need to start with a ‘blank piece of paper’ and determine the classification of each investment held under the new control model.
Note: Not-for-profit entities are not required to apply the requirements of AASB 10 – 12 until annual reporting periods beginning on or after 1 January 2014 (i.e. 30 June 2015 year ends).
AASB 10 Consolidated Financial Statements
- Revised definition of control focussing more on the substance of the relationship and power rather than ownership percentage;
- An entity controls another if:
“it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
- Many entities previously classified as associates may now be subsidiaries and therefore consolidated;
- Consider where you:
- Are the largest shareholder (even though you own less than 50.1%)
- Have delegated power (e.g. property trust)
- Have arrangements in place where power does not reflect the ownership interest.
AASB 11 Joint Arrangements
- Joint arrangements exist where two or more parties have joint control (granted through an agreement);
- Joint arrangements are then classified as:
|Type of arrangement
||Parties have rights to certain assets and obligations for certain liabilities
||Each party to the arrangement accounts for its share of assets and liabilities.
||Parties have rights to the net assets of the arrangement.
AASB 12 Disclosure of Interests in Other Entities
Disclosure requirements for interests in any of the following:
- Joint arrangements
- Unconsolidated structured entities
Disclosure requirements are extensive and include both qualitative and quantitative information.
AASB 13 Fair Value Measurement
- New definition of fair value
“The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
- Robust methodology for determining fair value
- New concepts to consider:
- Market participants
- Orderly transaction
- Principal / most advantageous market
- Highest and best use.
- Significant number of additional disclosures required.
- Prospective application, therefore no need to adjust comparatives.
Remember retrospective application
I started this article by talking about these standards being effective for the first time at 30 June 2014, however this does not take into account retrospective application.
Each of the standards discussed above, (with the exception of AASB 13) is accounted for as a mandatory change in accounting policy and applied as if it has always been in place. This means that comparatives need to be changed and an opening balance sheet (statement of financial position) prepared.
This means significant information is needed to reflect the numbers under the new standards and if they are materially different from those previously presented, an audit of them will need to be required.
Further information / advice on any of these standards can be obtained from Carmen Ridley at firstname.lastname@example.org.