Australian Accounting Standards Board
Chairman’s report
Introduction
The AASB is a Commonwealth Government Statutory Authority under the ASIC Act 2001. Under that Act, the statutory functions of the AASB are: to develop a conceptual framework for the purpose of evaluating proposed standards; to make accounting standards under section 334 of the Corporations Act; to formulate accounting standards for other purposes; to participate in and contribute to the development of a single set of accounting standards for world-wide use; and to advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy.
Pursuant to a directive issued by the Financial Reporting Council in June 2002, the AASB issued an entirely new suite of accounting standards in July 2004 which were the Australian equivalents to the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB). These standards were to be first applied to periods of reporting commencing 1 January 2005.
At the time of this report most entities will have just completed their second year of reporting under the Australian equivalents of IFRS.
Objectives of the AASB
The vision of the AASB is to be recognised as a Global Centre of Excellence, delivering a truly distinctive contribution to the development of high-quality financial reporting standards.
The mission of the AASB is to:
(a) develop and maintain high-quality financial reporting standards for all sectors of the Australian economy; and
(b) contribute through leadership and talent to the development of global financial reporting standards and be recognised as facilitating the inclusion of the Australian community in the activity of global standard setting.
Many people thought that with the introduction of IFRS, the activities of the AASB would quickly wind down as a consequence. However, this has not proven to be the case. Whilst there has certainly been a shift in the nature of AASB activities, the AASB board and staff remain very busy.
The major objectives of the AASB for the 2006-07 year are described as follows:
1. Issue Australian versions of IASB documents
Notwithstanding the adoption of IFRS in Australia, the AASB remains the statutory authority with the delegated authority to make Accounting Standards into Australian law in accordance with a formal due process and following regulatory compliance procedures. Since the initial adoption of IFRS, it has been necessary to include the substantial number of changes made to its standards by the IASB, each requiring the appropriate statutory amendment. In view of the IASB’s current programme to achieve convergence with the equivalent United States standards by 2009, the pace of change will not slacken in the next few years. Each time the IASB issues an exposure draft, an invitation to comment, an interpretation, or amends a standard, the AASB is expected to issue an equivalent document in Australia on a timely basis.
In addition the AASB has recently gone to considerable effort to ensure that the Australian equivalents to IFRS are identical to the original IFRS in all respects, so that entities in the private for-profit sector can unambiguously claim IFRS compliance and their auditors can opine on IFRS compliance.
2. Produce standards that treat like transactions consistently
The AASB seeks to produce standards that are ‘transaction neutral’ in that like transactions and events should be dealt with in a like manner for all types of entities as between the for-profit sector, the not-for-profit private sector and the public sector, unless there is a sound reason to be different in particular circumstances.
Where there is a need for differential treatment, the AASB achieves this either by introducing Australian paragraphs into the Australian equivalents of IFRS especially for the not-for-profit and public sectors or by the issuance of special not-for-profit or public sector standards. Accordingly, each IFRS issued by the IASB must receive additional AASB consideration for its application to the sectors not originally covered by the IASB.
3. Significantly influence the development of International Financial Reporting Standards
The Australian Government and the constituency of the AASB expect Australia not to be simply a taker of international standards but also expect Australia to significantly influence the development of those standards. This expectation is in accordance with the enabling legislation of the AASB and it is therefore expected that the AASB will play a major role in this regard.
Private sector international standards are set by the IASB and public sector international standards are set by the International Public Sector Accounting Standards Board (IPSASB).
Accordingly, the AASB will continue to actively participate in the development of the standards of both of these international bodies and be a vigorous contributor to international debates.
To the extent that resources permit, the AASB:
- participates in IASB and IPSASB research projects in a manner that our in-kind contributions to the activities of the international standard setters are recognised. In 2006-07 the AASB has led IASB research projects on intangible assets and extractive activities, and participated in IPSASB research projects on a public sector conceptual framework and service concessions (public/private partnerships);
- provides staff to the IASB and IPSASB to work on selected project teams, and from time to time engage in staff secondments to these bodies. In 2006-07 AASB staff have participated in the IASB project on insurance accounting, the IASB/United States convergence project on revenue recognition, and the IPSASB conceptual framework project;
- responds to all significant exposure drafts and invitations to comment of the IASB and IPSASB in the name of the AASB or the AASB staff. There have been 15 such responses in 2006-07;
- provides technical support to Australian representatives at IASB and IPSASB meetings and project meetings. During 2006-07 AASB staff briefed the Australian members of the IASB International Financial Reporting Interpretations Committee, the IASB Standards Advisory Council, and on the IASB Insurance project, before each meeting. An AASB staff member also attends each IPSASB meeting as technical support to the Australian IPSASB board member and AASB staff brief that board member prior to each IPSASB meeting;
- closely monitors progress on selected IASB and IPSASB projects with the objective of alerting the Australian constituency to forthcoming significant issues, and to indicate to the IASB and IPSASB information about Australian views on such issues at the earliest possible time; and
- establishes and maintains a close working relationship with other standard setters in our region, in particular New Zealand, and maintains a working relationship with equivalent organisations of high standard in other parts of the world.
In this regard the AASB Chairman is a member of the New Zealand Financial Reporting Standards Board (FRSB) and the FRSB Chairman is a member of the AASB. The AASB and FRSB also have a joint board meeting once each year. During the year the AASB Chairman and/or senior AASB staff have attended meetings of World Standard Setters, National Standard Setters and Regional Standard Setters in London, Tokyo, Hong Kong and Istanbul.
In addition, Australia, New Zealand, the United Kingdom and Canada have jointly supported ongoing research into the potential implications of proposed IASB changes to the Conceptual Framework upon public sector and not‑for‑profit accounting.
4. Identify areas requiring fundamental review and introduce standards to cover those areas
(a) Differential reporting
In February 2007 the IASB issued an exposure draft of a proposed IFRS for Small and Medium Enterprises (SMEs). This exposure draft represented a briefer version of IFRS especially designed for smaller entities. The IASB indicated that IFRS for SMEs could not be available for publicly accountable entities (that is, listed entities or deposit takers) but otherwise, the entities to which the proposed standard would apply would be determined by individual jurisdictions.
In accordance with the normal AASB policy, this exposure draft was also issued in Australia, but its existence provided a catalyst for the AASB to reconsider the entire differential reporting regime in Australia which has been based upon the notion of a reporting entity.
In May 2007 the AASB issued an Invitation to Comment to accompany the IASB exposure draft which proposed the introduction of a differential reporting regime in Australia, based upon the notion of a general purpose financial report rather than a reporting entity and using IFRS and IFRS for SMEs as the differential standards.
These proposals potentially represent the most dramatic change in financial reporting in Australia since the decision to adopt IFRS in 2002.
(b) Not-for-profit entities
The AASB’s Charter extends to not-for-profit private sector entities and to public sector entities. With our transaction-neutral approach, consideration of these sectors will generally be found in the additional Australian paragraphs included in the Australian versions of IFRS. However, in special circumstances, standards explicitly for these sectors need to be written. In the 2006-07 year, the AASB successfully introduced AASB 1049 Financial Reporting of General Government Sectors by Governments, which harmonised reporting under Generally Accepted Accounting Principles and Government Finance Statistics for the General Government Sector. This project is a consequence of a directive from the Financial Reporting Council. Near the end of the year, AASB also issued an exposure draft similarly harmonising reporting under Generally Accepted Accounting Principles and the Government Finance Statistics for the Whole of Government. This entire project will be completed by the end of 2007.
In addition, a substantial review has been undertaken of Accounting Standards AAS 27 Financial Reporting by Local Governments, AAS 29 Financial Reporting by Government Departments and AAS 31 Financial Reporting by Governments. This review arose from the introduction of IFRS which had caused these three public sector standards to become dated. In June 2006 the AASB issued an exposure draft recommending the relocation of many updated requirements of these standards into the body of the new Australian equivalents to IFRS.
A review is also being made of the requirements for superannuation fund reporting in Australia. With the substantial money now invested in superannuation by the Australian community, there is a need for improved financial reporting of the performance and stewardship over these funds. A consultation paper is being considered for issuance before the end of 2007.
In some instances the Australian equivalents of IFRS have been found difficult to interpret by the not-for-profit private sector and the public sector. Comments have been received from constituents indicating the Australian paragraphs in these standards need further improvement. The AASB has been working through these comments to determine how the problems can be best addressed. In one instance, an immediate change was made to AASB 102 Inventories to address an issue of significance to not‑for‑profit entities.
5. Promote globally consistent application and interpretation of accounting standards
The AASB has arrangements in place so that all International Implementation Guidance, Bases for Conclusions and Authoritative Interpretations are freely available on its website to its Australian constituents.
When unacceptable diversity of accounting treatments arising from differences in interpretation comes to the attention of the AASB, it will, in the first instance, attempt to have the matter resolved at an international level. To date, the AASB has referred 11 issues to the IFRIC, the interpretative arm of IASB, for resolution.
Where an interpretation issue arises in local circumstances, in a local standard or in a sector not covered by IASB, the AASB has recently established an interpretation model which closely mirrors the international interpretation model. During the year three matters have been referred to interpretation advisory panels, which are at various stages of consideration. These cover two matters involving Australian taxation considerations and one involving public sector accounting for public/private partnerships.
6. Develop communication processes and policies
During the year, the AASB has sought to significantly improve communications with its constituents. The main medium of communication is the AASB website, which contains a wealth of information including the standards and interpretations themselves, compilations of the standards, exposure drafts, minutes of meetings, agenda papers, timely alerts, policy statements and media releases. Improvements will continue to be made to the contents of the website and its ease of navigation.
The AASB consults with a representative Consultative Group twice per annum, and regularly with project advisory panels on major projects. In addition, AASB board members and staff arrange or participate in roundtable discussions which enable soundings on constituent views to be ascertained. We are grateful to the accounting bodies which hosted some of these meetings. During the year roundtable discussions have been held on GAAP/GFS, the Conceptual Framework, Not-for-Profit Entities, SMEs, Provisions and Contingencies and Insurance Accounting.
In addition, the AASB Board itself seeks to meet with industry representatives or groups in conjunction with its board meetings. Such meetings have been held in 2006-07 with representatives of the private not‑for‑profit sector, local government, the superannuation industry, investment analysts, the public sector, the heads of treasuries and the insurance sector.
Wherever possible the AASB Chairman and senior staff make themselves available to present at conferences and discussions on relevant topics conducted by various organisation and industry groups. Over 2006-07 there have been at least 20 such presentations.
7. Develop personnel with experience in standard setting
A function of the AASB is to develop personnel with experience in standard setting in order that Australia can continue to play a major role in the setting of international standards. We have developed personnel strategies covering recruitment, internships, secondments, monitoring, training and retention in order to develop people with appropriate skills. The AASB seeks to identify opportunities for staff, past and present board members and others to participate in international forums and become recognised internationally for their technical and other capabilities.
Work programme and business plan
The status of the 2006-07 prior year work programme is reported in Appendix E as are the AASB priorities and programme for 2007-08.
The 2007-08 Business Plan is available on the AASB website in the section labelled Work Programme/Plans & Policies.
Board changes
During the year Mr Garth Campbell-Cowan and Professor Ken Leo completed the terms of their appointment and retired from the Board. Mr Brett Kaufmann, Ms Kris Peach and Ms Joanna Perry [upon completion of their terms] were each reappointed for a further period. New appointments during the year were:
- Mr Brett Rix, Manager Group Accounting — Policy and Governance, BHP Billiton Limited; and
- Ms Susan Highland, Director, Financial Management Branch, Queensland Treasury.
Appreciation
My thanks go to all of the present and retired members of the AASB for their significant contributions of expertise, time, debate and opinion to the standard setting function.
Thanks also go to the AASB technical staff headed by our Technical Director, Mr Angus Thomson, and to the AASB administrative staff headed by Ms Litsa Pillios, our Finance and Administration Director.
Finally thanks go to our constituents, who respond to exposure drafts, invitations to comment and discussion papers and who participate in advisory panels, roundtables and consultative groups. Australian constituents must continue to be heard at both the local and international level in order to maximise the Australian influence on the international scene.
SIGNED
David Boymal
Chairman, Australian Accounting Standards Board
15 October 2007
Australian Accounting Standards Board Directors’ report of operations
Technical activities of the Australian Accounting Standards Board during 2006-07
Membership and meetings of the Australian Accounting Standards Board
The Chairman and members of the AASB are appointed under section 236B of the ASIC Act. For the period covered by this report the responsible Minister was the Treasurer, the Hon Peter Costello MP. The Chairman is appointed by the Treasurer while other members are appointed by the FRC.
To be eligible for appointment, a person must have knowledge of, or experience in, business, accounting, law or government. The Chairman and members hold office on the terms and conditions that are determined by the Treasurer and FRC respectively. Appointments may be made for a period of up to five years and retiring members are eligible for reappointment.
The members of the AASB during 2006-07 are listed in Appendix B. The Board held 10 meetings for a total of 19 meeting days during the year. Attendance of members at these meetings is set out in Appendix D.
Standard setting
The AASB has responsibility for accounting standard setting. A full list of Accounting Standards, Interpretations, Statements of Accounting Concepts, and Policy Statements and their issue dates is at Appendix G.
During 2006-2007, the Board issued or reissued the following standards and other documents:
Standards | |
AASB 8 |
Operating Segments (February 2007) |
AASB 101 |
Presentation of Financial Statements (revised) (October 2006) |
AASB 1048 |
Interpretation and Application of Standards (revised) (December 2006) |
AASB 1048 |
Interpretation and Application of Standards (revised) (March 2007) |
AASB 1049 |
Financial Reporting of General Government Sectors by Governments (September 2006) |
AASB 2006-3 |
Amendments to Australian Accounting Standards [AASB 1045] (October 2006) |
AASB 2006-4 |
Amendments to Australian Accounting Standards [AASB 134] (December 2006) |
AASB 2007-1 |
Amendments to Australian Accounting Standards arising from AASB Interpretation 11 (February 2007) |
AASB 2007-2 |
Amendments to Australian Accounting Standards arising from AASB Interpretation 12 (February 2007) |
AASB 2007-3 |
Amendments to Australian Accounting Standards arising from AASB 8 (February 2007) |
AASB 2007-4 |
Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments [AASB 1, 2, 3, 4, 5, 6, 7, 102, 107, 108, 110, 112, 114, 116, 117, 118, 119, 120, 121, 127, 128, 129, 130, 131, 132, 133, 134, 136, 137, 138, 139, 141, AASB 1023 and AASB 1038] (April 2007) |
AASB 2007-5 |
Amendments to Australian Accounting Standards — Inventories Held for Distribution by Not-for-Profit Entities [AASB 102] (May 2007) |
AASB 2007-6 |
Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116, AASB 138, and Interpretations 1 and 12] (June 2007) |
AASB 2007-7 |
Amendments to Australian Accounting Standards [AASB 1, AASB 2, AASB 4, AASB 5, AASB 107 and AASB 128] (June 2007) |
Exposure drafts | |
ED 151 |
Australian Additions to, and Deletions from, IFRSs (November 2006) |
ED 152 |
Proposed Amendments to AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards — Cost of an Investment in a Subsidiary (November 2006) |
ED 153 |
Proposed Amendments to AASB 124 Related Party Disclosures — State‑controlled Entities and the Definition of a Related Party (March 2007) |
ED 154 |
Proposed Amendments to AASB 102 — Inventories Held for Distribution by Not-for-Profit Entities (March 2007) |
ED 155 |
Financial Reporting by Whole of Governments (May 2007) |
Supplement to ED 155 Financial Reporting by Whole of Governments — Illustrative Example (June 2007) | |
ED 156 |
Proposals Arising from the Short-term Review of the Requirements in AAS 27, AAS 29 and AAS 31 (June 2007) |
Invitations to comment | |
ITC 11 |
Request for Comment on IASB Discussion Paper ‘Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information’ (August 2006) |
ITC 12 |
Request for Comment on a Proposed Differential Reporting Regime for Australia and IASB Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities (May 2007) |
ITC 13 |
Request for Comment on IASB Discussion Paper Preliminary Views on Insurance Contracts (May 2007) |
Interpretations | |
4 |
Determining whether an Arrangement contains a Lease (revised) (February 2007) |
10 |
Interim Financial Reporting and Impairment (September 2006) |
11 |
AASB 2 — Group and Treasury Share Transactions (February 2007) |
12 |
Service Concession Arrangements (February 2007) |
129 |
Service Concession Arrangements: Disclosures (revised) (February 2007) |
Interpretations
The AASB introduced a new Interpretations Model with effect from 1 July 2006. Under the new model the AASB has direct responsibility for developing and approving interpretations. The AASB’s objective was to introduce a streamlined interpretations function that interacts with the IFRIC to provide guidance to Australian constituents in the context of the formal adoption of IFRS in Australia for private sector, public sector and not‑for‑profit entities, while maintaining a capacity to deal with issues relating to purely domestic standards. The interpretations function has a flexible structure so that it can be adapted in response to changing circumstances and the nature of the issues to be addressed.
Due process
The AASB adopts a comprehensive ‘due process’ (outlined in PS 1 The Development of Statements of Accounting Concepts and Accounting Standards) when developing its pronouncements, and encourages the preparers and users of financial reports to participate actively in the standard setting process by:
- communicating its views and policies to a broad range of interested parties via invitations to comment and exposure drafts;
- meeting with representatives of interested parties and organisations and holding roundtables on technical issues;
- inviting public comment on its policies, procedures, priorities and standards under consideration;
- issuing media releases relating to its activities; and
- maintaining a website, www.aasb.com.au.
In addition, the AASB publishes minutes of its meetings, a wide range of agenda papers and an AASB Action Alert to keep interested parties informed of the AASB’s deliberations at each of its meetings.
Consultative groups
The AASB Consultative Group brings together a wide cross-section of interest groups in the private, public and not-for-profit sectors. The purpose and operation of the Consultative Group are set out in Policy Statement PS 2 The AASB Consultative Group as revised and reissued in June 2001. The Consultative Group met twice during the year, in November 2006 and in May 2007. The AASB is enhancing its consultative arrangements through establishing smaller, more focused groups of constituents comprising industry and user groups for consultation on particular issues. A User Focus Group was established in 2005-06 and a Not-for-Profit Focus Group involving private sector not-for-profit constituents was established in 2006-07. The AASB proposes to establish other focus groups as appropriate. The AASB also has a number of Project Advisory Panels on specific topics including superannuation entities, insurance contracts and financial instruments.
Liaison with constituents
The AASB meets with a wide range of people to discuss matters of interest both generally and in relation to specific projects. During 2006-07 it met with private sector not-for-profit constituents, constituents involved with superannuation entities, constituents from the public sector and investment analysts. In addition, the AASB held consultations with constituents as part of its formal meetings in respect of its deliberations on public sector issues, related party disclosures and accounting for insurance contracts. The AASB also held roundtables seeking constituent input on the IASB’s conceptual framework project and the IASB’s project on accounting for insurance contracts, and hosted an IASB roundtable on provisions and contingencies.
Use of website
The AASB maintains a website, www.aasb.com.au. The website is used to provide information about the AASB, its activities and work programme, to its constituents and other interested parties. Authoritative pronouncements including compilations of Accounting Standards are published on the website and may be downloaded free of charge. The AASB also publishes meeting agendas and copies of key AASB Board papers on its website, prior to meetings. Minutes of meetings are also published on the website. The AASB publishes brief summaries of key projects on the Board’s website outlining the background to each project and recent progress and Board decisions. The AASB also uses the website to seek comments on exposure drafts and invitations to comment, in order to facilitate urgent action on projects.
Seminars
Members of the AASB and its staff are available to present papers on matters relating to the AASB’s work programme at seminars, congresses and conferences held throughout Australia.
Accountability
The AASB Chairman, Professor David Boymal, appeared before the Senate Economics Legislation Committee on 14 February 2007. Professor Boymal and Technical Director, Angus Thomson, appeared before the Senate Economics Legislation Committee on 31 May 2007.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AASB, including FRC Directors. The AASB has arranged professional indemnity insurance with COMCOVER, to a value of $100 million at a cost of $11,570 per annum.
Federal Register of Legislative Instruments
The FRLI regime, introduced by the Legislative Instruments Act 2003, commenced on 1 January 2005. Standards made in 2006-07 have been lodged and registered and the AASB prepares compiled versions of Accounting Standards to include subsequent amendments. In addition to lodging on the FRLI, compiled versions are also published on the AASB website.
Australian Accounting Standards Board publications
All authoritative pronouncements issued by the AASB, including statements of accounting concepts, policy statements, accounting standards (AASB and AAS series) and accounting interpretations, are available for purchase from the AASB and are published on its website. A full list of pronouncements currently on issue is at Appendix G.
During the year the AASB also published a range of other documents, including:
- an AASB Action Alert to keep interested parties informed of the AASB’s deliberations at each of its meetings;
- AASB media releases;
- exposure drafts of proposed new and revised accounting standards;
- invitations to comment; and
- consultative and discussion papers.
The AASB is considering publication of a newsletter in order to inform constituents about the broad range of its activities. The AASB provides subscription services in respect of most of these documents. In addition, individual copies are available for sale. Further information can be obtained from the AASB using the contact details below. Accounting standards and interpretations, exposure drafts, invitations to comment and policy statements are freely available on the website. The AASB also has arrangements under which the IASB’s Implementation Guidance and Basis for Conclusions on the IASB’s Standards are available to its constituents on the AASB’s website.
Freedom of information
The AASB maintains possession of the following documents:
- copies of accounting standards;
- copies of exposure drafts and invitations to comment;
- copies of media releases and action alerts;
- AASB meeting agenda papers;
- correspondence with constituents, including responses to exposure drafts and invitations to comment; and
- internal technical and administrative papers, including project proposals, key decisions questionnaires, issues papers, draft exposure drafts, draft accounting standards and draft interpretations.
Requests under the Freedom of Information Act 1982 for access to other documents in the possession of the AASB can be directed to the AASB Secretary using the contact details below.
No applications under the Freedom of Information Act 1982 were received by the AASB in 2006-07.
Commonwealth Fraud Control Guidelines
The AASB has in place a Fraud Control Plan and fraud control mechanisms which are appropriate to its needs. The AASB complied with the requirements of the Commonwealth Fraud Control Guidelines for the year ended 30 June 2007.
Commonwealth Disability Strategy
The AASB is committed to applying the Commonwealth Disability Strategy (CDS) and has instituted activities that contribute to meeting its requirements. The role of the AASB is specified elsewhere in this report. For the purposes of the CDS, the AASB performs Policy Adviser and Regulator roles.
Commonwealth Disability Strategy performance reporting
Requirement for role |
How met |
Provision of accessible policy, programme and regulatory information |
|
Internet format |
AASB: all news items, policy statements, accounting standards, exposure drafts and other formal accounting regulatory documents are available on a Government Standards-compliant website. |
Disk format |
Contact details for the AASB are available on its website. Users can call or write to request material on disk. |
Plain English communication |
Where possible, general information is written in plain English. However, some financial reporting matters are highly complex and require the accuracy of technical language. |
Consultation |
The AASB consults widely in its own right, with users, preparers and others interested in financial reporting. Because the nature of AASB activity is broad, and focuses on capital markets, specific consultation with people with disabilities is generally inappropriate. |
Complaint or grievance mechanisms |
Contact details for the AASB are available on its website. People can call or write to register any complaint. |
Contacting the Australian Accounting Standards Board
The AASB can be contacted as follows:
Post: |
The Secretary |
Telephone: |
03 9617 7600 |
Facsimile: |
03 9617 7608 |
Email: |
standard@aasb.com.au |