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
• 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
AASB 116 Property Plant and Equipment
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
AASB 116 Property Plant and Equipment
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.
AASB 116 Property Plant and Equipment
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.
AASB 119 Employee Benefits
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.
AASB 119 Employee Benefits
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.
GAAP-GFS Harmonisation
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”
GAAP-GFS Harmonisation
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.
GAAP-GFS Harmonisation
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
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