accounting standards update 18 february 2005

Accounting Standards Accounting Standards UpdateUpdate

18 February 200518 February 2005

Overview

Australian Equivalents to International Financial Reporting Standards (AEIFRS)

Implementation Plan

Accounting policies

Transitional Balance Sheet

Future Developments

AAS 29, GAAP-GFS

AEIFRS 40 New Standards:

Applicable from 1 January 2005

Most existing Standards will cease to apply

Some existing Standards will remain where no relevant IFRS currently exists

Public sector standards will continue, subject to revision

• AAS 27 Financial Reporting by Local Governments

• AAS 29 Financial Reporting by Government Departments

• AAS 31 Financial Reporting by Governments

Timetable

2003-04 2004-05 2005-06 2006-07

Current GAAP

GAAP/GFSand AAS 29?

AEIFRS Comparatives Full statements

Possible timing Likely timing

2004-05 Dual Reporting Frameworks

Implementation Plan

Implementation Plan

Principles

Clearly define roles

Consistent application of options

Agreed Plan milestones

Relevant, timely information

Implementation Plan

Agency responsibilities include:

Determine relevant standards

Assess implications

Change systems and reports to accommodate the AEIFRS requirements

Make necessary changes in accounting policies

Implementation Plan

Treasury responsibilities include:

Monitor implementation process

Issue revised Treasurer’s Instructions

Monitor developments and issue appropriate accounting policies

Keep all stakeholders informed

Implementation Plan

Tasmanian Audit Office responsibilities include:

Examine the note disclosures for 2004-05, including 1 July 2004 Balance Sheet

Examine the 2004-05 AEIFRS comparatives

Audit 2005-06 AEIFRS financial statements

Implementation Plan

Phase 1 Planning and Analysis

Phase 2 Budget and System Review

Phase 3 Training and Restate Comparatives

Phase 4 Consolidation Phase

Implementation Plan

Phase 1 Planning and Analysis

Consider the impact of AEIFRS on agencies

Treasury to issue summary of major impacts and Treasurer’s Instructions concerning the options available under AEIFRS

Agencies to review systems and analyse the impact of AEIFRS on Budget estimates

Implementation Plan

Phase 2 Budget and System Review

Treasury to review and identify any changes to BMFRS reports and chart to prepare 2005-06 Budget.

Agencies to consider current chart of accounts to ensure it meets AEIFRS requirements.

Agencies to revise Budget estimates for material impacts.

Implementation Plan

Phase 3 Training and Restate Comparatives

Treasury to issue 2005-06 Model Statements and amend all existing TI’s to comply with AEIFRS

Agencies to consider training options and ensure all appropriate staff are aware of the changes and able to undertake appropriate training

Implementation Plan

Phase 4 Consolidation Phase

Treasury to review systems and process for the 2006-07 Budget and 2005-06 outcomes that are fully compliant with AEIFRS

Agencies ensure remaining impacts of AEIFRS incorporated into 2006-06 Budget, and prepare fully compliant AEIFRS financial statements by 15 August 2006.

Keep Informed

Help Desk to track agency issues

• [email protected]

• or contact anyone in the Policy Unit of Treasury – Debbie Sadler, Doug Clow, David Tadd, Rachel Johnston, or Frances Hall.

www.aasb.com.au

AASB Action Alerts

Exposure Drafts

Pending AASB standards

Accounting Policies

Accounting Policies

Draft Treasurer’s Instruction 710 - Transition to AEIFRS

2004-05 Model Financial Statements

2005-06 Model Financial Statements

Updating all Treasurer’s Instructions

Draft TI 710 - Transition to AEIFRS

Designates all agencies as “not-for-profit” entities

Mandates a number of policy options available under AEIFRS

Major Standards

Major Standards

AASB 1 First time Adoption AASB 116 Property Plant and Equipment AASB 102 Inventories AASB 117 Leases AASB 119 Employee Benefits AASB 132/139 Financial Instruments AASB 136 Impairment AASB 138 Intangible Assets

AASB 1031 Materiality

AASB1031 Materiality

No Change to Standard

Should be applied in assessing the impact of AEIFRS

AASB 1 First Time Adoption Requires assets and liabilities to be

recognised

derecognised

remeasured

reclassified

per IASB/AASB standards.

Requires disclosures, including reconciliation from old to new GAAP

AASB 1 First Time Adoption

In implementing AASB 1, it will be necessary to understand the requirements of each AASB standard, and in particular where it changes current requirements

AASB standards shows the major differences between current GAAP and AEIFRS

AASB 116 Property Plant and Equipment

Initial recognition at cost – including dismantling, removal or restoration costs

TI 710 First time adoption - use of deemed cost not permitted

Gains/losses on disposal presented on a net basis


Entire class of asset must be measured on same basis.

Assets still transitioning to fair value must be on fair value as at 1 July 2004


Retrospective Valuation:

Obtain a valuation as at 1 July 2004

Obtain a valuation as at 30 June 2005, if material request the valuer to adjust back to 1 July 2004; or

Obtain a valuation as at 30 June 2005, add back the depreciation that would have applied.


Major items of plant and equipment should be recorded in a separate class

Long lived high value assets

This will allow fair value to be applied

Consideration could be given to increasing capitalisation threshold.

AASB 102 Inventories

New class of inventory – “held for distribution”

Measured at lower of cost and current replacement cost

AASB 117 Leases

Quantitative tests for a finance lease are not retained in the standard but will be included in the Treasurer’s Instructions

Qualitative tests

Substance over form

Transfer of substantially all risks and benefits

Reclassification of leases unlikely

AASB 119 Employee Benefits

New version of AASB 119 issued in December 2004.

Introduced three options to recognise actuarial gains/losses on superannuation liability

Draft TI 710 will be amended, and revised AASB 119 will NOT be early adopted.


Change in measurement and disclosure requirements for Superannuation Liabilities.

Short term employee benefits such as annual leave – requires present value discounting if leave does not fall due within 12 months.


Sick leave – currently deemed immaterial. This will not change for AEIFRS.

AASB 132/139 Financial Instruments

Allows fair value for financial instruments in some cases

Agencies to continue to use amortised cost

Agencies to apply the exemption to restate comparitives

AASB 136 Impairment

Applies to all assets

An assessment required each reporting date as to indications of impairment, including:

Decline in market value

Changes in technology, market, economic environment

Evidence that asset is obsolete or damaged

AASB 136 Impairment

Impairment loss recognised where carrying amount exceeds its recoverable amount.

Not-for-profit sector – depreciated replacement cost will be used as basis for “value in use”.

AASB 138 Intangible Assets

A single Standard to replace sections in various current standards.

Definition includes internally generated computer software.

Development costs may be capitalised, research costs are expensed.

Opening AEIFRS Balance Sheet

Worked Example

AASB1047 requires presentation of known information about impact of AEIFRS Transition

Worked Example

Opening Balance Sheet

As at transition to Australian Equivalents to International Financial Reporting Standards

Adjustment 1

AASB 102 Inventories

Requires not-for-profit entities to identify new class of inventory

“Inventory held for distribution”

Inventory to be distributed for no or nominal consideration

Adjustment 1

Water Quality Testing Kits

Currently recorded as “Supplies and Consumables” in the Balance Sheet

Originally cost $500 000, recorded at $50 000 (lower of cost and net realisable value)

Replacement value $100 000

Adjustment 1

Aus9.1 Inventories held for distribution are measured at the lower of cost and current replacement cost

Create new class of inventory in the Balance Sheet - “Inventory held for distribution”

Adjustment 1

Adjusting entries:

Dr Inventory held for Distribution 100 000

Cr Supplies and Consumables (BS) 50 000

Cr Retained Surplus 50 000

Adjustment 1

2004 Debit Credit AEIFRS

Adj Adj 2004

$'000 $'000

Inventories

Supplies and Consumables 296 50 246

WIP - Services 717 717

Land held for resale 428 428

Inventories held for distribution

- 100 100

Total 1 441 1 491

Equity

Retained Surplus 1 183 736 50 1 183 786

Adjustment 2

AASB 138 Intangible Assets

Definition includes internally generated computer software

Development costs may be capitalised, research and training costs cannot be capitalised

Adjustment 2 Internally generated software

Currently recorded as:

Cost 406 000

Accumulated Depn 121 000

Net 285 000

Capitalised cost includes research and training costs:

Research 40 000

Training 12 000

Adjustment 2 Accumulated depreciation related to research and training

calculated as:

$52 000 x 20 per cent x 1.5 years =

$15 000

Should be recorded as:

Cost 354 000

Accumulated Depn 106 000

Net 248 000

Adjustment 2

Adjusting entries:

Dr Accumulated Depn 15 000

Dr Accumulated Surplus 37 000

Cr Software Asset 52 000

Adjustment 3

AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards requires the agency to assess, at the date of transition, if any assets are impaired.

Adjustment 3

Land held by agency identified as impaired due to contamination

The agency is required to restore the land prior to disposal or within 10 years, whichever is sooner

Agency owns and occupies a building on site

Adjustment 3

Values attributed to the assets:

Land Building

Current CV 650 000 265 000

Recoverable Amt 385 000 215 000

Write-down 265 000 50 000

Adjustment 3

Land currently has Asset Revaluation Reserve balance

Impairment loss is recognised against Asset Revaluation Reserve

Building has no Asset Revaluation Reserve balance

Impairment loss is recognised against Accumulated Surplus

Adjustment 3 Adjusting entries:

Dr ARR – Land 265 000

Dr Accum Surplus 50 000

Cr Accum Impair – Land265 000

Cr Accum Impair – Building 50 000

Adjustment 3

Best estimate to restore land, in accordance with legal obligation, is

$10 000

Adjusting entries:

Dr Land Asset 10 000

Cr Provision for Land restoration 10 000

Adjustment 4

AASB 116 Property, Plant and Equipment requires a class of Property, Plant and Equipment to be measured at cost or fair value

Agencies must retrospectively determine the 1 July 2004 fair value, consistent with the requirement s of AEIFRS

Adjustment 4

Draft Treasurer’s Instruction 710 Transition to AEIFRS allows retrospective valuation by obtaining valuation at 30 June 2005, and adjusting for depreciation back to 1 July 2004 value

Adjustment 4

Agency acquired an asset 10 years ago at a cost of $100 000, depreciated over 20 years on straight-line basis (assume no residual vale)

Carrying value of asset is:

Cost 100 000

Accum Depn 50 000

Carrying Value 50 000

Adjustment 4

Asset fair value at 30 June 2005 is $200 000

Depreciation is calculated to be $10 000 for year ended 30 June 2005

Add depreciation to 30 June 2005 fair value to determine 1 July 2004 fair value

Adjustment 4 Retrospective valuation is $210 000

Calculated as fair value $200 000 plus depreciation $10 000

Adjusting entries:

Dr Accum Depn 50 000

Dr Asset 110 000

Cr Accum Surplus 50 000

Cr ARR 110 000

Adjustment 4

2004 Debit Credit AEIFRS

$'000 Adj Adj 2004

$'000

Plant and equipmentAt cost 346 400 110 346 510

Less Accumulated Depn (130 005) 50 (129 955)

Total 216 395 216 555

Equity

Retained Surplus 1 183 699 50 1 183 749

Asset Reval. Reserve

Plant and equipment 242 028 110 242 138

Opening Balance Sheet

Don’t forget working papers!

Required for any changes

Required to justify no change

Future DevelopmentsIt doesn’t end here!

Future Developments

Review of AAS 29

GAAP-GFS Harmonisation

AAS29 Financial Reporting by Government Departments

AASB is currently reviewing administered/controlled disclosures

Slimmed down sDandard – number of issues to be addressed in other standards

Some issues from ED125 Local Government will be translated

AAS29 Financial Reporting by Government Departments

AASB will be considering

UIG 1038 Contributions by Owners

Accounting for Restructures

Disclosure of appropriations

Disclosure of disaggregated information on outputs

It is expected that an Exposure Draft on the administered/controlled issues will be released for comment in March 2005.


A number of key decisions have now been made by the AASB.

The General Government Sector is a general purpose financial reporting entity

GFS Headline Measures will be presented on the face of the statements

The Operating Statement will present a comprehensive result, split according to “GFS transactions” and “Other Economic Flows”


The AASB will issue a separate standard for the preparation General Government Sector (GGS) general purpose financial reports.

Some issues outstanding regarding final presentation of harmonised statements.


Initial impact will be on General Government Sector

Next phase will be whole-of-government and General Government entities

An Exposure Draft was due in March 2005 but is likely to be delayed

Questions?

Have agencies prepared AEIFRS implementation plans?

Are there any specific implementation issues for your agency?

THE ENDTHE END

accounting standards update 18 february 2005

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