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New accounting standards

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New accounting standards

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    1. New accounting standards

    2. Applicable for June 2008 year-ends Fortunately there are very few changes for June 2008 accounts. In this session we will cover those standards that apply to 30 June 2008 year-ends and those standards available for early adoption. Ruth Picker will present on the IFRIC interpretations relevant for 30 June 2008. We will particularly focus on AASB 7 together with the new capital management disclosures under revised AASB 101, and the amendments arising from ED 151 (taking the A out of AIFRS). It will be necessary to consider the extent to which each Standard would be applicable. Fortunately there are very few changes for June 2008 accounts. In this session we will cover those standards that apply to 30 June 2008 year-ends and those standards available for early adoption. Ruth Picker will present on the IFRIC interpretations relevant for 30 June 2008. We will particularly focus on AASB 7 together with the new capital management disclosures under revised AASB 101, and the amendments arising from ED 151 (taking the A out of AIFRS). It will be necessary to consider the extent to which each Standard would be applicable.

    3. AASB 7 – Quick Reminder Effective 1 January 2007 Comparatives Combines AASB 130 and 132 financial instrument disclosures Applies to ALL reporting entities AASB 7 couldn’t have timed a better entrance into the world had it tried – Centro/Opis/MSF/Allco/ABC etc etc Disclosures are to be driven by how management reports internally so there is no one size fits all solution. Materiality does apply – BUT encourage you to think qualitatively as well as quantitatively. December year ends have now applied – showed some dis-organisation and mis-understanding as to the standards requirements. Policy committee decision pending for comparatives – assets and liabs no longer on balance sheet AND/OR classified as held for sale. If done 132 well AASB 7 will be less of a burden Not just consol accounts BUT each general purpose reporting entity within the structure. AASB 7 couldn’t have timed a better entrance into the world had it tried – Centro/Opis/MSF/Allco/ABC etc etc Disclosures are to be driven by how management reports internally so there is no one size fits all solution. Materiality does apply – BUT encourage you to think qualitatively as well as quantitatively. December year ends have now applied – showed some dis-organisation and mis-understanding as to the standards requirements. Policy committee decision pending for comparatives – assets and liabs no longer on balance sheet AND/OR classified as held for sale. If done 132 well AASB 7 will be less of a burden Not just consol accounts BUT each general purpose reporting entity within the structure.

    4. Application - Financial Instruments Financial assets Cash Accounts Receivable Loans receivable Other receivables Derivatives Investments (not equity accounted) Financial liabilities Trade payables Interest bearing loans and borrowings Derivatives Other financial liabilities Applies to all financial assets and liabilities recognised under AASB 139 – important when preparing disclosures i.e. credit risk/liquidity risk/sensitivity analysis that you need to consider all financial assets and liabilities – experience has shown that this isn’t happening i.e. liquidity and sensitivity only focuses on Int Bearing loans and Borrowings and excludes accounts payable/derivatives, or credit risk only focuses on accounts receivable and not derivates/AFS assets etc.Applies to all financial assets and liabilities recognised under AASB 139 – important when preparing disclosures i.e. credit risk/liquidity risk/sensitivity analysis that you need to consider all financial assets and liabilities – experience has shown that this isn’t happening i.e. liquidity and sensitivity only focuses on Int Bearing loans and Borrowings and excludes accounts payable/derivatives, or credit risk only focuses on accounts receivable and not derivates/AFS assets etc.

    5. Application – Financial Risks Credit risk – applies to financial assets Maximum exposure Collateral – description/possession taken Collateral – ability to sell or repledge Reconciliation of all impairment accounts Renegotiated amounts Analysis – past due (contractually) not considered impaired Credit quality of financial assets Description of how risk is managed Credit risk – risk that counterparties will not settle on your financial assets. Number 1 page 3 - (chose BP as good quality disclosures and we audit them – also provided RIO accounts – look for SP AusNet – March y/end ) also use Endeavour/Citic/Indophil/BP Aust as references. Disclose “maximum disclosure”to credit risk – 1A Description of collateral and details of any possessed – 1B (N.B. description not provided?? May have been deemed immaterial) If ability to sell or repledge debt – need to fully disclose (Opis clients may have appreciated this disclosure) – n/a Reconciliation of separate impairment accounts held within g/l that relate to ALL financial assets. – 1C Details of any renegotiations – 1D Analysis of past due not considered impaired accounts – 1E Details of how credit risk is managed and details of credit quality of financial assets. - 1 Credit risk – risk that counterparties will not settle on your financial assets. Number 1 page 3 - (chose BP as good quality disclosures and we audit them – also provided RIO accounts – look for SP AusNet – March y/end ) also use Endeavour/Citic/Indophil/BP Aust as references. Disclose “maximum disclosure”to credit risk – 1A Description of collateral and details of any possessed – 1B (N.B. description not provided?? May have been deemed immaterial) If ability to sell or repledge debt – need to fully disclose (Opis clients may have appreciated this disclosure) – n/a Reconciliation of separate impairment accounts held within g/l that relate to ALL financial assets. – 1C Details of any renegotiations – 1D Analysis of past due not considered impaired accounts – 1E Details of how credit risk is managed and details of credit quality of financial assets. - 1

    6. Application – Financial Risks Liquidity Risk Contractual maturity analysis Description of how risk is managed Financial assets pledged as security Defaults and breaches During period At Balance Date Number 2 page 5 Contractual Maturity – 2A Split up of financial liabilities is good and makes it quite clear? Time bands are at entities discretion – within reason Could consider disclosure of expected settlements of financial assets and liabilities – BP not done but a number of entities are. Description of risk and how managed – 2 Financial assets pledged as security – n/a??/cannot find disclosure Defaults and breaches – n/a Details of defaults during period and how remedied Amount in default at balance date Number 2 page 5 Contractual Maturity – 2A Split up of financial liabilities is good and makes it quite clear? Time bands are at entities discretion – within reason Could consider disclosure of expected settlements of financial assets and liabilities – BP not done but a number of entities are. Description of risk and how managed – 2 Financial assets pledged as security – n/a??/cannot find disclosure Defaults and breaches – n/a Details of defaults during period and how remedied Amount in default at balance date

    7. Application – Financial Risks Market Risk Interest rate Foreign Exchange Commodity Equity Sensitivity Analysis Net exposure to Variable amounts AT Balance Date Fair Value Valuations Income Statement/Equity effects Reasonably possible change VAR reporting Number 3A-page 2. Disclosure on nature of risks and how managed – very good All mkt risks are disclosed in BP accounts BUT they use VAR analysis instead of sensitivity don’t expect many Aust entities to use VAR – see other sets of accounts mentioned earlier for examples of disclosure on sensitivity analysis. Provide examples of sensitivity analysis: Int/Forex $us/Commodity – crude oil VAR Fixed N/A Valuation – p/l/equity Assets Cash at bank Accounts rec Loans Rec Derivatives AFS investments Liabilities Trade payables Int bearing loans and borrowings Derivatives Customer loans Reasonably possible movementsNumber 3A-page 2. Disclosure on nature of risks and how managed – very good All mkt risks are disclosed in BP accounts BUT they use VAR analysis instead of sensitivity don’t expect many Aust entities to use VAR – see other sets of accounts mentioned earlier for examples of disclosure on sensitivity analysis. Provide examples of sensitivity analysis: Int/Forex $us/Commodity – crude oil VAR Fixed N/A Valuation – p/l/equity Assets Cash at bank Accounts rec Loans Rec Derivatives AFS investments Liabilities Trade payables Int bearing loans and borrowings Derivatives Customer loans Reasonably possible movements

    8. Other Disclosures Hedge Accounting – reconciliation FV, CF and NI hedges Fair Value – extensive disclosure of valuation techniques where not marked to market Qualitative disclosure of risk exposure/policies/ measurement Capital Management FVTPL – BP has derivative financial instruments held for trading – Page 8 number 4 – disclosures are extensive and show all the net gains and losses relating to those derivatives held for trading. Reclassification – n/a Derecogition – n/a Hedge accounting – page 12 number 5 Fair value – page 1 number 6 (finance debt page 14)/valuation techniques within the accounting policies – derivatives – page 8/9/10 provides details of day 1 profits and FV valuation techniques – spend time discussing the additional disclosures required where observable mkt data has not been used in valuations. FVTPL – BP has derivative financial instruments held for trading – Page 8 number 4 – disclosures are extensive and show all the net gains and losses relating to those derivatives held for trading. Reclassification – n/a Derecogition – n/a Hedge accounting – page 12 number 5 Fair value – page 1 number 6 (finance debt page 14)/valuation techniques within the accounting policies – derivatives – page 8/9/10 provides details of day 1 profits and FV valuation techniques – spend time discussing the additional disclosures required where observable mkt data has not been used in valuations.

    9. Capital management Credit rating targets Capital ratio targets Maintenance of capital structure policies, such as: Dividend payments Return of capital Share issues Use of gearing ratios – level to be maintained

    10. Other Disclosures FVTPL Credit risk component of valuations and exposures Fee income and expense and gains and losses Reclassification Derecognition Impairment FVTPL – BP has derivative financial instruments held for trading – Page 8 number 4 – disclosures are extensive and show all the net gains and losses relating to those derivatives held for trading. Reclassification – n/a Derecognition – n/a Hedge accounting – page 12 number 5 Fair value – page 1 number 6 (finance debt page 14)/valuation techniques within the accounting policies – derivatives – page 8/9/10 provides details of day 1 profits and FV valuation techniques – spend time discussing the additional disclosures required where observable mkt data has not been used in valuations. FVTPL – BP has derivative financial instruments held for trading – Page 8 number 4 – disclosures are extensive and show all the net gains and losses relating to those derivatives held for trading. Reclassification – n/a Derecognition – n/a Hedge accounting – page 12 number 5 Fair value – page 1 number 6 (finance debt page 14)/valuation techniques within the accounting policies – derivatives – page 8/9/10 provides details of day 1 profits and FV valuation techniques – spend time discussing the additional disclosures required where observable mkt data has not been used in valuations.

    11. Not applicable to June 2008 year-ends but available for early adoption There are also a number of standards which have been issued which are not effective for this June year end, but which can be early adopted. AASB 8 - new segment reporting standard which will be effective for June 2010 (discuss briefly here) Replaces AASB 114 – but scope is limited to listed entities or entities in the process of listing. This means that unlisted for-profit entities will no longer be required to provide segment disclosures on adoption of this standard. While the standard is not operative until June 2010, such entities can choose to adopt the new standard early for June 2008 and therefore no longer provide segment disclosures. However for those that do early adopt with the view not to provide the segment disclosures, an entity will need to consider the impact of AASB 8 on its goodwill impairment process. AASB 136 requires that an entity allocate its goodwill to its cash-generating units. In making this allocation, AASB 136 requires that the level of allocation shall not be larger than an operating segment, as determined in accordance with AASB 8. This may have implications where an entity identifies a larger number of operating segments on adoption of AASB 8. AASB 3R and AASB 127R - not effective till June 2010 but consider if beneficial to early adopt for acquisitions before that date. Main changes include: Option to recognise goodwill fully or partially when acquiring less than a 100% interest Requirement to expense all acquisition costs Recognise deferred consideration at fair value at date of acquisition. All changes prospective.There are also a number of standards which have been issued which are not effective for this June year end, but which can be early adopted. AASB 8 - new segment reporting standard which will be effective for June 2010 (discuss briefly here) Replaces AASB 114 – but scope is limited to listed entities or entities in the process of listing. This means that unlisted for-profit entities will no longer be required to provide segment disclosures on adoption of this standard. While the standard is not operative until June 2010, such entities can choose to adopt the new standard early for June 2008 and therefore no longer provide segment disclosures. However for those that do early adopt with the view not to provide the segment disclosures, an entity will need to consider the impact of AASB 8 on its goodwill impairment process. AASB 136 requires that an entity allocate its goodwill to its cash-generating units. In making this allocation, AASB 136 requires that the level of allocation shall not be larger than an operating segment, as determined in accordance with AASB 8. This may have implications where an entity identifies a larger number of operating segments on adoption of AASB 8. AASB 3R and AASB 127R - not effective till June 2010 but consider if beneficial to early adopt for acquisitions before that date. Main changes include: Option to recognise goodwill fully or partially when acquiring less than a 100% interest Requirement to expense all acquisition costs Recognise deferred consideration at fair value at date of acquisition. All changes prospective.

    12. AASB 8 - Operating Segments The significance of this standard Consistent with the objective and basic principles of U.S. GAAP FAS 131 Segment disclosures are of great interest to the analysts No relief from commercially sensitive information Internal vs external reporting – convergence of another kind? Non-GAAP measures Likely more segments The national office in the US receives approximately one question a week on the application of FAS 131. This may indicate the number of interpretation and application of IFRS 8 that you may get The SEC has taken a hard line stance where they have found non-compliance, and have generally forced companies to restate disclosures, rather than let the errors pass and be corrected in a subsequent filing In addition, it is likely that the provisions of IAS 14 may not have always been applied correctly in the past, and the transition to IFRS 8 will bring these out. IFRS 8 in recent weeks has received considerable 'airplay' within the EU as it considers endorsement of this standard in light of a powerful lobby that has indicated that the new standard seriously jeopardises comparability. Segment information in the financial statements often receives a lot of attention from analysts, and will be important for an entity in explaining their results to the users of the financial statements. In developing IFRS 8, the Board considered comments from some respondents which suggested that the Standard should include a competitive harm exception. The Board concluded, as noted in paragraphs BC43 – BC 45 of the Basis of Conclusions, that this would be inappropriate, as it would allow broad non-compliance with the Standard. As such, consistent with its predecessor IAS 14, the Standard does not allow an exemption from disclosure where the information is considered competitively harmful. This does beg the question, how often is this IAS 14 exemption currently being used? The management approach adopted in IFRS 8 has resulted in a convergence of internal management reporting, and external financial reporting. Under IFRS 8, an entity will be required to disclose information as it is reported internally to management, effectively allowing investors and other users to 'see through the eyes of management'. The effect of adoption of the management approach is that the segment information may now include non-GAAP measures if an entity does not apply IFRS accounting policies for the purposes of management reporting. It may be that an entity excludes certain items from their management accounts such as share-based payment expenses, depreciation/amortisation, interest related revenue and costs etc). Where this is the case, the amount reported for a segment’s profit or loss will be different to that which would be included in the IFRS financial statements. This ability to report non-GAAP measures will result in diversity in the disclosures reported by entities within similar industries which is further exacerbated by the fact that IFRS 8 does not include definitions of 'segment profit or loss', 'segment assets' or 'segment liabilities'. The amounts disclosed will be entirely dependent on what an entity uses for its internal management reporting, and may be determined on any basis. Of course, the challenge as we will see, will be developing disclosures to recognise this new requirement.The national office in the US receives approximately one question a week on the application of FAS 131. This may indicate the number of interpretation and application of IFRS 8 that you may get The SEC has taken a hard line stance where they have found non-compliance, and have generally forced companies to restate disclosures, rather than let the errors pass and be corrected in a subsequent filing In addition, it is likely that the provisions of IAS 14 may not have always been applied correctly in the past, and the transition to IFRS 8 will bring these out. IFRS 8 in recent weeks has received considerable 'airplay' within the EU as it considers endorsement of this standard in light of a powerful lobby that has indicated that the new standard seriously jeopardises comparability. Segment information in the financial statements often receives a lot of attention from analysts, and will be important for an entity in explaining their results to the users of the financial statements. In developing IFRS 8, the Board considered comments from some respondents which suggested that the Standard should include a competitive harm exception. The Board concluded, as noted in paragraphs BC43 – BC 45 of the Basis of Conclusions, that this would be inappropriate, as it would allow broad non-compliance with the Standard. As such, consistent with its predecessor IAS 14, the Standard does not allow an exemption from disclosure where the information is considered competitively harmful. This does beg the question, how often is this IAS 14 exemption currently being used? The management approach adopted in IFRS 8 has resulted in a convergence of internal management reporting, and external financial reporting. Under IFRS 8, an entity will be required to disclose information as it is reported internally to management, effectively allowing investors and other users to 'see through the eyes of management'. The effect of adoption of the management approach is that the segment information may now include non-GAAP measures if an entity does not apply IFRS accounting policies for the purposes of management reporting. It may be that an entity excludes certain items from their management accounts such as share-based payment expenses, depreciation/amortisation, interest related revenue and costs etc). Where this is the case, the amount reported for a segment’s profit or loss will be different to that which would be included in the IFRS financial statements. This ability to report non-GAAP measures will result in diversity in the disclosures reported by entities within similar industries which is further exacerbated by the fact that IFRS 8 does not include definitions of 'segment profit or loss', 'segment assets' or 'segment liabilities'. The amounts disclosed will be entirely dependent on what an entity uses for its internal management reporting, and may be determined on any basis. Of course, the challenge as we will see, will be developing disclosures to recognise this new requirement.

    13. New things to look out for Vertical integration Absence of definition provided in the standard Reconciling segment information to the primary financial statements Interest revenue/interest expense Single reportable segment Vertical Integration In determining business segments, IAS 14 required that a business segment earn a majority of its revenues from external customers. IFRS 8 has no such requirement, and this results in more operating segments being identified where an entity has large vertically integrated operations. For example, consider an entity that produces books. If this entity also had a paper mill operation that produced the paper being used by the book publisher, then the paper mill would likely be a separate operating segment even though it earns little or no revenue from external customers. No definitions IFRS 8 does not include definitions of 'segment profit or loss', 'segment assets' or 'segment liabilities'. As such, the amounts reported for these items will be the same measures provided to the Chief Operating Decision Maker (CODM). How these amounts are measured by will differ between entities resulting in a lack of comparability of segment information between companies (as discussed on the previous slide). Reconciliations IFRS 8 does not require segment information disclosed to be in accordance with the entity’s IFRS accounting policies. For this reason, an entity is required to reconcile the amounts disclosed to the equivalent amounts reported in the consolidated financial statements. The entity must also provide an explanation of each reconciling item. Interest revenue / Interest expense Disclosure of interest revenue and interest expense by segment was not specifically required under IAS 14. This new disclosure must be provided for each operating segment where the amounts are either (a) included in the measure of segment profit or loss reviewed by the CODM or (b) otherwise provided to the CODM (even if not included in the measure of segment profit or loss). The key point to note here is the use of the words 'provided to'. This indicates that even if the CODM does not review the information, where it has been provided to them, it must be disclosed. Single reportable segment Where an entity assesses that it has only a single operating segment, the entity-wide disclosures contained in paragraphs 31 – 34 of IFRS 8 will still be required. This will require an entity to disclose: Revenues from external customers for each product or service, or each group of similar products or services. The amounts to be disclosed would be the amounts reported in the entity’s financial statements; Revenues from external customers attributed to the entity’s country of domicile and all other foreign countries in total. If revenues for an individual foreign country are material, those amounts shall be disclosed. The entity must also disclose the basis of allocation of revenue for each country. Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts located in the entity’s country of domicile and in all foreign countries. If assets located in an individual foreign country are material, those amounts shall be disclosed. An entity shall disclose where it obtains more than 10% of its revenue from a single customer, and the amount of that revenue. The entity is not required to identify the customer name, however, for the purposes of this disclosure, entities under common control are considered to be a single customer. Vertical Integration In determining business segments, IAS 14 required that a business segment earn a majority of its revenues from external customers. IFRS 8 has no such requirement, and this results in more operating segments being identified where an entity has large vertically integrated operations. For example, consider an entity that produces books. If this entity also had a paper mill operation that produced the paper being used by the book publisher, then the paper mill would likely be a separate operating segment even though it earns little or no revenue from external customers. No definitions IFRS 8 does not include definitions of 'segment profit or loss', 'segment assets' or 'segment liabilities'. As such, the amounts reported for these items will be the same measures provided to the Chief Operating Decision Maker (CODM). How these amounts are measured by will differ between entities resulting in a lack of comparability of segment information between companies (as discussed on the previous slide). Reconciliations IFRS 8 does not require segment information disclosed to be in accordance with the entity’s IFRS accounting policies. For this reason, an entity is required to reconcile the amounts disclosed to the equivalent amounts reported in the consolidated financial statements. The entity must also provide an explanation of each reconciling item. Interest revenue / Interest expense Disclosure of interest revenue and interest expense by segment was not specifically required under IAS 14. This new disclosure must be provided for each operating segment where the amounts are either (a) included in the measure of segment profit or loss reviewed by the CODM or (b) otherwise provided to the CODM (even if not included in the measure of segment profit or loss). The key point to note here is the use of the words 'provided to'. This indicates that even if the CODM does not review the information, where it has been provided to them, it must be disclosed. Single reportable segment Where an entity assesses that it has only a single operating segment, the entity-wide disclosures contained in paragraphs 31 – 34 of IFRS 8 will still be required. This will require an entity to disclose: Revenues from external customers for each product or service, or each group of similar products or services. The amounts to be disclosed would be the amounts reported in the entity’s financial statements; Revenues from external customers attributed to the entity’s country of domicile and all other foreign countries in total. If revenues for an individual foreign country are material, those amounts shall be disclosed. The entity must also disclose the basis of allocation of revenue for each country. Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts located in the entity’s country of domicile and in all foreign countries. If assets located in an individual foreign country are material, those amounts shall be disclosed. An entity shall disclose where it obtains more than 10% of its revenue from a single customer, and the amount of that revenue. The entity is not required to identify the customer name, however, for the purposes of this disclosure, entities under common control are considered to be a single customer.

    14. AASB 101R Presentation of Financial Statements Effective from 1 January 2009 Statement of Changes in Equity transactions with owners Statement of Comprehensive Income related tax effects Additional comparative information Reclassification adjustments Presentation of dividends FY 31 Dec 09; 30 June 2010 SOCE Will now include only details of transactions with ‘owners’ (defined as ‘holders of instruments classified as equity’) All non-owner changes in equity presented as single line (total comprehensive income SCI Presents all items of income and expense recognised in profit or loss together with all other items of recognised income and expense May present all items in a single statement or present two linked statements One presenting items of income and expense in profit or loss (income statement), and Other statement beginning with profit or loss and presenting all items included in ‘other comprehensive income’ (statement of comprehensive income) Separately disclose profit or loss and total comprehensive income attributable to owners of parent and MI COMPARATIVES Statement of financial position at beginning of earliest comparative period required when Apply accounting policy retrospectively, or Makes a retrospective restatement or reclassification Requirement also applies to interim financial statements where retrospective restatement or reclassification is made RECLASSIFICATION ADJS Amounts reclassified to profit or loss that were recognised in other comprehensive income to be separately disclosed (either in statement of comprehensive income or in the notes) DIVIDENDS Amounts recognised as distributions to equity holders (and related amounts per share) to be disclosed only in statement of changes in equity or in the notes Current option to present in income statement eliminated FY 31 Dec 09; 30 June 2010 SOCE Will now include only details of transactions with ‘owners’ (defined as ‘holders of instruments classified as equity’) All non-owner changes in equity presented as single line (total comprehensive income SCI Presents all items of income and expense recognised in profit or loss together with all other items of recognised income and expense May present all items in a single statement or present two linked statements One presenting items of income and expense in profit or loss (income statement), and Other statement beginning with profit or loss and presenting all items included in ‘other comprehensive income’ (statement of comprehensive income) Separately disclose profit or loss and total comprehensive income attributable to owners of parent and MI COMPARATIVES Statement of financial position at beginning of earliest comparative period required when Apply accounting policy retrospectively, or Makes a retrospective restatement or reclassification Requirement also applies to interim financial statements where retrospective restatement or reclassification is made RECLASSIFICATION ADJS Amounts reclassified to profit or loss that were recognised in other comprehensive income to be separately disclosed (either in statement of comprehensive income or in the notes) DIVIDENDS Amounts recognised as distributions to equity holders (and related amounts per share) to be disclosed only in statement of changes in equity or in the notes Current option to present in income statement eliminated

    15. AASB 123R: Borrowing Costs Effective on or after 1 January 2009 Capitalisation of all borrowing costs directly attributable to a qualifying asset Does not allow capitalisation of borrowing costs for: assets measured at fair value inventories produced in large quantities on a repetitive basis Transition to revised AASB 123 Transition The revised Standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. Can continue to expense for pre-existing qualifying assets. When determining how much interest to capitalise, need to separate which projects pre-transition and which post transition Transition The revised Standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. Can continue to expense for pre-existing qualifying assets. When determining how much interest to capitalise, need to separate which projects pre-transition and which post transition

    16. AASB 3R Business Combinations AASB 127R Consolidations Key changes Effective from 1 July 2009 Transaction costs Contingent consideration Measurement of non-controlling interests Recognition of contingent liabilities

    17. Key changes Re-assessment of classification and designation of assets and liabilities on acquisition dates Bright line tests for post-acquisition compensation cost Pre-existing relationships and indemnification assets AASB 127R changes

    18. Emerging issues and what’s on the horizon This session focuses on key current issues. With the major focus being on the so called Credit Crunch or Crisis. Refer to next slide and advise participants what areas you will be taking them through. If you are unfamiliar with the credit crisis issues you should read: Accounting for the Credit Crisis – A special Addition of Developments in I FRS for Financial Instruments – Nov 2007 Internal IFRS Alert – Audit Considerations for Originators and Investors in Subprime and other mortgage products – Sep 07 Global Public Policy Committee – Determining Fair Value of Financial Instruments under IFRS in Current Market Conditions – Dec 07This session focuses on key current issues. With the major focus being on the so called Credit Crunch or Crisis. Refer to next slide and advise participants what areas you will be taking them through. If you are unfamiliar with the credit crisis issues you should read: Accounting for the Credit Crisis – A special Addition of Developments in I FRS for Financial Instruments – Nov 2007 Internal IFRS Alert – Audit Considerations for Originators and Investors in Subprime and other mortgage products – Sep 07 Global Public Policy Committee – Determining Fair Value of Financial Instruments under IFRS in Current Market Conditions – Dec 07

    19. Current IASB Projects – Convergence with US GAAP IFRS SME’s Leasing Conceptual Framework/Financial Reporting Fair Value Measurement Financial Instruments Liabilities Emissions Trading Etc etc etc etc etc……………………………….!

    20. Proposes to remove the ‘Reporting Entity’ concept All accounts lodged on a public register or otherwise available to the public at large are GPFRs All public sector entities considered publicly accountable Size thresholds will exclude smaller not-for-profits and public sector entities from application of full AIFRS Consolidated revenues less than $25m Consolidated assets less than $12.5m IFRS for SME’s – Proposed differential reporting regime Differential Reporting/IFRS for SMEs AASB Action Alert: Number 103 – April 2007 – revised preface to the ED to be considered at the May meeting Reporting entity concept defunct - proposed focus should be on the applicability of accounting standards to general purpose financial reports, and not the reporting entity concept. All financial reports that are prepared and lodged with the ASIC under the Corporations Act 2001 would be regarded as general purpose financial reports on the basis of being available on a public register for access by users. Publicly accountable entity definition – two-tier approach requiring Australian equivalents to IFRSs for publicly accountable corporates and a SMEs Standard for corporates that are not publicly accountable but prepare general purpose financial reports. re for-profit corporates – will use the IASB’s definition of publicly accountable in combination with size thresholds(s). If publicly accountable, entity applies full AIFRS. If not publicly accountable, needs to meet a size threshold based on the Corporations Act 2001 – if above the threshold then apply Full AIFRS, if below the threshold then apply IFRS for SMEs. Remaining types of for-profit corporates will apply IFRS for SMEs NPFs = publicly accountable with size thresholds based on the UK Financial Reporting Standard for Smaller Entities all public sector entities = publicly accountable with size thresholds similar to that devised for NFPs Seeks constituents comments whether a third tier should be developed Differential Reporting/IFRS for SMEs AASB Action Alert: Number 103 – April 2007 – revised preface to the ED to be considered at the May meeting Reporting entity concept defunct - proposed focus should be on the applicability of accounting standards to general purpose financial reports, and not the reporting entity concept. All financial reports that are prepared and lodged with the ASIC under the Corporations Act 2001 would be regarded as general purpose financial reports on the basis of being available on a public register for access by users. Publicly accountable entity definition – two-tier approach requiring Australian equivalents to IFRSs for publicly accountable corporates and a SMEs Standard for corporates that are not publicly accountable but prepare general purpose financial reports. re for-profit corporates – will use the IASB’s definition of publicly accountable in combination with size thresholds(s). If publicly accountable, entity applies full AIFRS. If not publicly accountable, needs to meet a size threshold based on the Corporations Act 2001 – if above the threshold then apply Full AIFRS, if below the threshold then apply IFRS for SMEs. Remaining types of for-profit corporates will apply IFRS for SMEs NPFs = publicly accountable with size thresholds based on the UK Financial Reporting Standard for Smaller Entities all public sector entities = publicly accountable with size thresholds similar to that devised for NFPs Seeks constituents comments whether a third tier should be developed

    21. Proposed two-tier approach: for-profit corporates: not-for profit entities and public sector entities: Proposed differential reporting regime (continued) Differential Reporting/IFRS for SMEs AASB Action Alert: Number 103 – April 2007 – revised preface to the ED to be considered at the May meeting Reporting entity concept defunct - proposed focus should be on the applicability of accounting standards to general purpose financial reports, and not the reporting entity concept. All financial reports that are prepared and lodged with the ASIC under the Corporations Act 2001 would be regarded as general purpose financial reports on the basis of being available on a public register for access by users. Publicly accountable entity definition – two-tier approach requiring Australian equivalents to IFRSs for publicly accountable corporates and a SMEs Standard for corporates that are not publicly accountable but prepare general purpose financial reports. re for-profit corporates – will use the IASB’s definition of publicly accountable in combination with size thresholds(s). If publicly accountable, entity applies full AIFRS. If not publicly accountable, needs to meet a size threshold based on the Corporations Act 2001 – if above the threshold then apply Full AIFRS, if below the threshold then apply IFRS for SMEs. Remaining types of for-profit corporates will apply IFRS for SMEs NPFs = publicly accountable with size thresholds based on the UK Financial Reporting Standard for Smaller Entities all public sector entities = publicly accountable with size thresholds similar to that devised for NFPs Seeks constituents comments whether a third tier should be developed Differential Reporting/IFRS for SMEs AASB Action Alert: Number 103 – April 2007 – revised preface to the ED to be considered at the May meeting Reporting entity concept defunct - proposed focus should be on the applicability of accounting standards to general purpose financial reports, and not the reporting entity concept. All financial reports that are prepared and lodged with the ASIC under the Corporations Act 2001 would be regarded as general purpose financial reports on the basis of being available on a public register for access by users. Publicly accountable entity definition – two-tier approach requiring Australian equivalents to IFRSs for publicly accountable corporates and a SMEs Standard for corporates that are not publicly accountable but prepare general purpose financial reports. re for-profit corporates – will use the IASB’s definition of publicly accountable in combination with size thresholds(s). If publicly accountable, entity applies full AIFRS. If not publicly accountable, needs to meet a size threshold based on the Corporations Act 2001 – if above the threshold then apply Full AIFRS, if below the threshold then apply IFRS for SMEs. Remaining types of for-profit corporates will apply IFRS for SMEs NPFs = publicly accountable with size thresholds based on the UK Financial Reporting Standard for Smaller Entities all public sector entities = publicly accountable with size thresholds similar to that devised for NFPs Seeks constituents comments whether a third tier should be developed

    22. Differential Reporting requirements

    23. IFRS for SMEs – what does it look like One stand alone standard organised by 38 topical sections Includes illustrative financials, disclosure checklist and basis for conclusions Non mandatory fall back to full IFRS (although significant amount of cross references throughout the document) Guidance simplified or significantly reduced Aimed at entities with approx. 50 employees

    24. Key measurement differences Financial assets and financial liabilities – no AFS or HFS, 4 categories of derivatives that may achieve hedge accounting, more simplistic overall Investments in associates and JVs – cost and FVPL Government grants – choice of one recognition method Impairment – test goodwill using indicators, no VIU Employee benefits – actuarial gains and losses Borrowing costs & R&D – simpler expense option incl. Taxes – no initial recognition exemption except goodwill

    25. Key presentation differences Statement of income and retained earnings No need to present separately held for sale assets/liabilities on the face of the balance sheet

    26. Disclosure differences Overall a reduction 40 page checklist Includes related parties and KMP disclosures No sensitivity analysis disclosures Reduced business combination, associates, JVs and consolidation disclosures Reduced impairment disclosures re goodwill and indefinite lived intangibles

    27. What’s new – Public Sector

    28. Main Standards – Public Sector Specific For those of you with DBF, Int 14 interprets the limit applies under the standard as to the amount of surplus which can be recognised as an asset.For those of you with DBF, Int 14 interprets the limit applies under the standard as to the amount of surplus which can be recognised as an asset.

    29. Revised AASB 102: Inventories Effective on or after 1 July 2007 Amendment for not-for-profits only Previously measuring inventories held for distribution at the lower of cost and current replacement cost Principle-based requirement to use cost, adjusted for any ‘loss of service potential’ Practical to monitor Likely to provide more relevant information Revised AASB 102 Has no connection to IFRS compliance as it is an amendment to an existing Aus paragraph Difficulties of current replacement cost AASB 102 requires inventories held for distribution by not-for-profit entities to be measured at the lower of cost and current replacement cost (CRC), as compared with the lower of cost and net realisable value required by for-profit entities. This requirement has in practice imposed significant compliance burdens on the not-for-profit sector compared to the for-profit sector, with the main problems being: obtaining a readily available and reliable measure of the CRC of an item of inventory. Many not-for-profit entities hold items in inventory over the long term. For example, inventory can often be held in aid-agency warehouses for significant periods of time pending distribution as aid relief after a natural disaster. When such items are not regularly replenished or purchased, obtaining a readily available and reliable measure of CRC can be problematic. This contrasts with for-profit entities, who typically know quite readily what their costs and net realisable values are because they buy and sell inventories regularly. the need to maintain records of three separate prices for each item of inventory, namely (1) cost, (2) current carrying amount (which will differ from cost if the inventory has been written down to CRC in previous reporting periods), and (3) the up-to-date CRC of the item. As a consequence, many not-for profit entities face significant challenges in satisfying themselves that their inventory items are recorded at the lower of cost and CRC. Many not-for-profit entities are also questioning the conceptual appropriateness of the requirement. They are concerned that writing down inventory when CRC falls below cost may result in the recognition of impairments when, in fact, the service potential of the inventory remains unchanged. For example, a not-for-profit entity may acquire woollen blankets for $100 each and then store the blankets for distribution at some point in the future. If, after a number of years, those blankets remain on hand but production efficiencies mean that they could today be acquired for $60 each, they would need to be written down by $40 despite there being no diminution in the utility of that item to the agency in achieving its objectives. In other words, the service potential of the blanket to the not-for-profit entity comes from its ability to keep someone warm once it is distributed. Given that there has been no decline in that service potential, there should likewise be no need to recognise an impairment loss. Cost adjusted for loss of service potential Practical - NFP entities more likely to monitor the service potential of its inventories held for distribution than to monitor the current replacement costs of those inventories Likely to give rise to more relevant information to reflect the various accountabilities of NFP entities Revised AASB 102 Has no connection to IFRS compliance as it is an amendment to an existing Aus paragraph Difficulties of current replacement cost AASB 102 requires inventories held for distribution by not-for-profit entities to be measured at the lower of cost and current replacement cost (CRC), as compared with the lower of cost and net realisable value required by for-profit entities. This requirement has in practice imposed significant compliance burdens on the not-for-profit sector compared to the for-profit sector, with the main problems being: obtaining a readily available and reliable measure of the CRC of an item of inventory. Many not-for-profit entities hold items in inventory over the long term. For example, inventory can often be held in aid-agency warehouses for significant periods of time pending distribution as aid relief after a natural disaster. When such items are not regularly replenished or purchased, obtaining a readily available and reliable measure of CRC can be problematic. This contrasts with for-profit entities, who typically know quite readily what their costs and net realisable values are because they buy and sell inventories regularly. the need to maintain records of three separate prices for each item of inventory, namely (1) cost, (2) current carrying amount (which will differ from cost if the inventory has been written down to CRC in previous reporting periods), and (3) the up-to-date CRC of the item. As a consequence, many not-for profit entities face significant challenges in satisfying themselves that their inventory items are recorded at the lower of cost and CRC. Many not-for-profit entities are also questioning the conceptual appropriateness of the requirement. They are concerned that writing down inventory when CRC falls below cost may result in the recognition of impairments when, in fact, the service potential of the inventory remains unchanged. For example, a not-for-profit entity may acquire woollen blankets for $100 each and then store the blankets for distribution at some point in the future. If, after a number of years, those blankets remain on hand but production efficiencies mean that they could today be acquired for $60 each, they would need to be written down by $40 despite there being no diminution in the utility of that item to the agency in achieving its objectives. In other words, the service potential of the blanket to the not-for-profit entity comes from its ability to keep someone warm once it is distributed. Given that there has been no decline in that service potential, there should likewise be no need to recognise an impairment loss. Cost adjusted for loss of service potential Practical - NFP entities more likely to monitor the service potential of its inventories held for distribution than to monitor the current replacement costs of those inventories Likely to give rise to more relevant information to reflect the various accountabilities of NFP entities

    30. Revised AASB 102 (continued) Judgement in assessing factors that might indicate a loss of service potential Loss of operating capacity due to physical damage Current replacement cost that is lower than original acquisition cost or other subsequent carrying amount Obsolescence may occur without a fall in current replacement cost Transition of revised AASB 102 – Prospective application Indicators that might indicate a loss of service potential Loss of operating capacity due to physical damage Current replacement cost that is lower than original acquisition cost or other subsequent carrying amount Obsolescence may occur without a fall in current replacement cost Transition Application of revised AASB 102 is on a prospective basis, when the Standard is first applied. Adjustments are to be made against the opening balance of inventories (carried at the lower of cost and CRC) against opening retained earnings of the current period. Indicators that might indicate a loss of service potential Loss of operating capacity due to physical damage Current replacement cost that is lower than original acquisition cost or other subsequent carrying amount Obsolescence may occur without a fall in current replacement cost Transition Application of revised AASB 102 is on a prospective basis, when the Standard is first applied. Adjustments are to be made against the opening balance of inventories (carried at the lower of cost and CRC) against opening retained earnings of the current period.

    31. AASB 1049: Whole of Government and General Government Sector Financial Reporting Effective on or after 1 July 2008 Align GFS with GAAP Applicable to the GGS and WoG of each State, Territory and Federal Government Revised AASB 1049 to include Whole of Governments Specifies preparation of GGS/WoG financial report GGS adopts partial consolidation approach Requirements Effective on or after 1 July 2008, with early adoption permitted. Therefore applicable 30 June 2009 first time. Background For the purposes of financial reporting using Government Finance Statistics (GFS), a government is considered to comprise three sectors: the General Government Sector (GGS), the Public Non-Financial Corporation sector (PNFC) and the Public Financial Corporation (PFC) sector. The GGS is the vehicle by which government implements its fiscal policy. It is essentially the budget sector of Australian governments and reporting on budget outcomes is a major focus of governments. As such, it is important to distinguish the GGS from other market-oriented, government sectors. Although GFS apply accrual accounting principles for the GGS, some of the definition, recognition, measurement, classification and presentation requirements of GFS differ to Generally Accepted Accounting Principles (GAAP). In response to concerns about the potential confusion that arises from statisticians/economists and accountants both applying accrual principles but reporting different results for the same public sector entity, the Financial Reporting Council (FRC) issued a direction on 18 December 2002 for the AASB to pursue as an urgent priority the harmonisation of GFS and GAAP reporting. The objective of the project was to develop requirements for “a single set of Government financial reports that are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements” The AASB decided to implement the FRC’s direction in 2 phases. Phase 1: Financial reporting requirements for the Australian Government and State and Territory governments (GGS, PNFC and PFC sectors) Phase 2: Financial reporting requirements for entities within the GGS including government departments. The first part of Phase 1 involved developing a standard for the GGS, and resulted in the AASB issuing the first AASB 1049. This was superseded by ED 155 which incorporates WoG requirements. Requirements Requires each State, Territory and Federal government to prepare a financial report for its GGS and WoG in accordance with the requirements of the Standard The GGS financial report adopts a ‘partial-consolidation’ basis in that it only consolidates entities that are classified within the GGS, as defined in the Australian Bureau of Statistics (ABS) GFS Manual. Unlike the financial report of the WoG, it does not consolidate government controlled entities that are classified into the PFC or the PNFC sectors. As such, a government is required to prepare both a partially-consolidated (GGS) financial report as well as a fully-consolidated (WoG) financial report. AASB 1049 specifically prohibits the GGS report to be made available before the WoG report and requires the GGS report to contain a cross-reference to the WoG report Requirements Effective on or after 1 July 2008, with early adoption permitted. Therefore applicable 30 June 2009 first time. Background For the purposes of financial reporting using Government Finance Statistics (GFS), a government is considered to comprise three sectors: the General Government Sector (GGS), the Public Non-Financial Corporation sector (PNFC) and the Public Financial Corporation (PFC) sector. The GGS is the vehicle by which government implements its fiscal policy. It is essentially the budget sector of Australian governments and reporting on budget outcomes is a major focus of governments. As such, it is important to distinguish the GGS from other market-oriented, government sectors. Although GFS apply accrual accounting principles for the GGS, some of the definition, recognition, measurement, classification and presentation requirements of GFS differ to Generally Accepted Accounting Principles (GAAP). In response to concerns about the potential confusion that arises from statisticians/economists and accountants both applying accrual principles but reporting different results for the same public sector entity, the Financial Reporting Council (FRC) issued a direction on 18 December 2002 for the AASB to pursue as an urgent priority the harmonisation of GFS and GAAP reporting. The objective of the project was to develop requirements for “a single set of Government financial reports that are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements” The AASB decided to implement the FRC’s direction in 2 phases. Phase 1: Financial reporting requirements for the Australian Government and State and Territory governments (GGS, PNFC and PFC sectors) Phase 2: Financial reporting requirements for entities within the GGS including government departments. The first part of Phase 1 involved developing a standard for the GGS, and resulted in the AASB issuing the first AASB 1049. This was superseded by ED 155 which incorporates WoG requirements. Requirements Requires each State, Territory and Federal government to prepare a financial report for its GGS and WoG in accordance with the requirements of the Standard The GGS financial report adopts a ‘partial-consolidation’ basis in that it only consolidates entities that are classified within the GGS, as defined in the Australian Bureau of Statistics (ABS) GFS Manual. Unlike the financial report of the WoG, it does not consolidate government controlled entities that are classified into the PFC or the PNFC sectors. As such, a government is required to prepare both a partially-consolidated (GGS) financial report as well as a fully-consolidated (WoG) financial report. AASB 1049 specifically prohibits the GGS report to be made available before the WoG report and requires the GGS report to contain a cross-reference to the WoG report

    32. GAAP/GFS Main features of AASB 1049: Adopts definition, recognition, measurement and classification of AASBs with some exceptions Optional treatments adopted must align with GFS Investments in controlled entities held by PNFC or PFC carried at FV or proportional share of the net assets Two part operating statement Disclosure of key fiscal aggregates Budgeted financial statements including disclosure and explanation of variances to actual Transitional requirements Requirements Requires definition, recognition, measurement and classification requirements in Accounting Standards to be applied in the determination of GAAP amounts with some exceptions. Where an Australian Accounting Standard allows for optional treatments, only those aligned with the ABS GFS Manual are permitted to be applied. The GGS’s interests in the government’s controlled entities in other sectors to be accounted for by measuring the GGS asset ‘investments in other sector entities’ at: fair value (where fair value is reliably measurable) or the government’s proportional share of the net assets of the controlled entity (where fair value is not reliably measurable) The operating statement is required to present operating result as well as comprehensive result (ie all movements in equity – which is inconsistent with the requirements of the current AASB 101 but consistent with the revised AASB 101) with income and expenses classified between transactions and other economic flows The face of the financial statements to include disclosure of certain key fiscal aggregates (such as net lending/borrowing, total changes in net worth and cash surplus/deficit) which are relevant to an assessment of the macro-economic impact of a government’s GGS. Any GFS information provided at the discretion of the government is to be prepared in accordance with the principles and rules of the ABS GFS Manual. A description of each broad function of the GGS as specified in the ABS GFS Manual is to be disclosed together with the assets and expenses included in the operating result that are attributable to each function. The GGS financial report is required to include the original budgeted financial statements for the GGS, together with explanations of the major variances between the budgeted financial statements and actual amounts. Transitional requirements: Requires the first GGS financial report to be prepared in accordance with the requirements of AASB 1, using the transition date of the WoG report as the transition date for the first GGS report applying this Standard. Reconciliations of previous GAAP to the new GAAP as required by AASB 1 are however not required to be provided. Requires WoG to change the elections it previously made under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards only where necessary to comply with the ABS GFS Manual. Requirements Requires definition, recognition, measurement and classification requirements in Accounting Standards to be applied in the determination of GAAP amounts with some exceptions. Where an Australian Accounting Standard allows for optional treatments, only those aligned with the ABS GFS Manual are permitted to be applied. The GGS’s interests in the government’s controlled entities in other sectors to be accounted for by measuring the GGS asset ‘investments in other sector entities’ at: fair value (where fair value is reliably measurable) or the government’s proportional share of the net assets of the controlled entity (where fair value is not reliably measurable) The operating statement is required to present operating result as well as comprehensive result (ie all movements in equity – which is inconsistent with the requirements of the current AASB 101 but consistent with the revised AASB 101) with income and expenses classified between transactions and other economic flows The face of the financial statements to include disclosure of certain key fiscal aggregates (such as net lending/borrowing, total changes in net worth and cash surplus/deficit) which are relevant to an assessment of the macro-economic impact of a government’s GGS. Any GFS information provided at the discretion of the government is to be prepared in accordance with the principles and rules of the ABS GFS Manual. A description of each broad function of the GGS as specified in the ABS GFS Manual is to be disclosed together with the assets and expenses included in the operating result that are attributable to each function. The GGS financial report is required to include the original budgeted financial statements for the GGS, together with explanations of the major variances between the budgeted financial statements and actual amounts. Transitional requirements: Requires the first GGS financial report to be prepared in accordance with the requirements of AASB 1, using the transition date of the WoG report as the transition date for the first GGS report applying this Standard. Reconciliations of previous GAAP to the new GAAP as required by AASB 1 are however not required to be provided. Requires WoG to change the elections it previously made under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards only where necessary to comply with the ABS GFS Manual.

    33. GAAP/GFS (continued) Some main differences between GAAP/GFS: Recognition of doubtful debts, liabilities (constructive obligation) Measurement of inventories, investments in jointly controlled entities and associates Classification of prepaid expenses, provisions, consumption of capital of investment properties Recognition of Defence weapons platforms Implications for implementation Future application and developments Consider whether entities within GGS should apply GAAP/GFS Some difference to GFS Differences in definition, recognition and measurement requirements that gives rise to the need for disclosure of a reconciliation and an explanation of the difference: The ABS GFS Manual recognises bad debts written off but does not recognise write-downs of accounts receivable in relation to doubtful debts In the absence of a counter-party recognising a related financial asset, the ABS GFS Manual does not recognise a liability arising from a constructive obligation i.e. provisions recognised as liabilities Under the ABS GFS Manual, inventories are measured at current prices, whereas under AASB 102 inventories are measured at the lower of cost and current replacement cost (or cost adjusted for loss of service potential under the revised AASB 102) Investments in jointly controlled entities and associates – under the ABS GFS Manual those assets are measured at current prices where current prices exist whereas under AASB 127 the equity method of accounting applies Differences in classification requirements that gives rise to the need for explanations of the differences in the financial report: AASB 132 classifies certain prepaid expenses as a non-financial asset that the ABS GFS Manual classifies a financial asset AASB 132 may classify an amount within provisions that the ABS GFS Manual classifies as an accounts payable Consumption of capital of investment properties is classified separately from depreciation whereas the ABS GFS Manual classifies it as depreciation AASB 107 classifies cash used to purchase defence weapons platforms that are capitalised as cash flows from investing activities that the ABS GFS Manual classifies as cash flows from operating activities Unless the Board considers a potential difference and amends this or another Australian Accounting Standard to avoid the difference, a difference is included in the reconciliations and/or explanations of differences Implications Impact at WoG level – not relevant to ind depts and agencies – generally will be told by treasury what info required. Although no jurisdictions have yet gone live with AASB 1049, a number are considering implementation issues. As a result, a number of jurisdictions have brought to the AASB’s attention further issues which need to be clarified. Considered as part of budgets for 2008/09. Future Application The AASB will consider whether GAAP/GFS harmonisation should be applied to entities within the GGS (e.g. government departments, statutory authorities and other entities within the GGS), and if so, to what extent AASB 1049 be applied.Some difference to GFS Differences in definition, recognition and measurement requirements that gives rise to the need for disclosure of a reconciliation and an explanation of the difference: The ABS GFS Manual recognises bad debts written off but does not recognise write-downs of accounts receivable in relation to doubtful debts In the absence of a counter-party recognising a related financial asset, the ABS GFS Manual does not recognise a liability arising from a constructive obligation i.e. provisions recognised as liabilities Under the ABS GFS Manual, inventories are measured at current prices, whereas under AASB 102 inventories are measured at the lower of cost and current replacement cost (or cost adjusted for loss of service potential under the revised AASB 102) Investments in jointly controlled entities and associates – under the ABS GFS Manual those assets are measured at current prices where current prices exist whereas under AASB 127 the equity method of accounting applies Differences in classification requirements that gives rise to the need for explanations of the differences in the financial report: AASB 132 classifies certain prepaid expenses as a non-financial asset that the ABS GFS Manual classifies a financial asset AASB 132 may classify an amount within provisions that the ABS GFS Manual classifies as an accounts payable Consumption of capital of investment properties is classified separately from depreciation whereas the ABS GFS Manual classifies it as depreciation AASB 107 classifies cash used to purchase defence weapons platforms that are capitalised as cash flows from investing activities that the ABS GFS Manual classifies as cash flows from operating activities Unless the Board considers a potential difference and amends this or another Australian Accounting Standard to avoid the difference, a difference is included in the reconciliations and/or explanations of differences Implications Impact at WoG level – not relevant to ind depts and agencies – generally will be told by treasury what info required. Although no jurisdictions have yet gone live with AASB 1049, a number are considering implementation issues. As a result, a number of jurisdictions have brought to the AASB’s attention further issues which need to be clarified. Considered as part of budgets for 2008/09. Future Application The AASB will consider whether GAAP/GFS harmonisation should be applied to entities within the GGS (e.g. government departments, statutory authorities and other entities within the GGS), and if so, to what extent AASB 1049 be applied.

    34. New and revised standards arising from withdrawal of AAS 27, 29 and 31 Effective on or after 1 July 2008 Short term withdrawal of AAS 27, 29 and 31 Three new topic-based Standards Amendment to existing standards Project to withdraw AAS 27,29 and 31 By virtue of ED 156, AASB has removed AAS 27, 29 and 31 by placing requirements in existing standards where such standards exist and creating new standards where existing standards covering a topic do not exist. Requirements/guidance considered adequately addressed in other Standards removed altogether. This is part of the Board’s short term review of AAS 27, 29 and 31 to facilitate removal of these standards. In the longer term , the Board will look to undertake a more fundamental review of public sector issues and improving the requirements for each topic-based issue. Application date for reporting periods beginning on or after 1 July 2008 Project to withdraw AAS 27,29 and 31 By virtue of ED 156, AASB has removed AAS 27, 29 and 31 by placing requirements in existing standards where such standards exist and creating new standards where existing standards covering a topic do not exist. Requirements/guidance considered adequately addressed in other Standards removed altogether. This is part of the Board’s short term review of AAS 27, 29 and 31 to facilitate removal of these standards. In the longer term , the Board will look to undertake a more fundamental review of public sector issues and improving the requirements for each topic-based issue. Application date for reporting periods beginning on or after 1 July 2008

    35. Withdrawal of AAS 27, 29 and 31 Effect of ED 156: AASB 1050 Administered Items AASB 1051 Land under Roads AASB 1052 Disaggregated Disclosures Revised AASB 1004 Contributions Revised Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities AASB 2007-9 Amendments to Australian Accounting Standards arising from the Review of AAS 27, AAS 29 and AAS 31 These new or revised Standards, together with AASB 1049 will supersede AAS 27 AAS 29 and AAS 31These new or revised Standards, together with AASB 1049 will supersede AAS 27 AAS 29 and AAS 31

    36. Withdrawal of AAS 27, 29 and 31 (continued) New standards: AASB 1050 Administered Items substantially unamended requirements on administered items from AAS 29 applicable only to government departments AASB 1051 Land Under Roads transitional requirements for land under roads subsequent transition to AASB 116 when transitional relief lapses applicable to governments, government departments and local councils Summary of new topic-based Standards AASB 1050 Substantively unamended – topic-based Standard: Current requirements on administered items of government departments AASB 1051 Addresses transitional requirements for land under roads Subsequent transition to AASB 116 when the current transitional relief lapses At its December 2007 meeting, the AASB decided to make the following amendments to the standard prior to being issued: Clarify that the principles in other Standards apply to land under roads to the extent that AASB 1051 would permit; Clarify that a local government, government department or government can elect to recognise or not recognise land under roads acquired before the end of the first reporting period ending on or after 31 December 2007 (30 June 2008 for most entities); A final election is to be made no later than the first day of the next reporting period ending on or after 31 December 2007 (1 July 2008 for most entities); Allow land under roads to be recognised under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards at fair value (at the date of that election) or the revaluation to deemed cost approach; and Any adjustments that arise from the election must be made against opening balance of accumulated surplus of that next reporting period.Summary of new topic-based Standards AASB 1050 Substantively unamended – topic-based Standard: Current requirements on administered items of government departments AASB 1051 Addresses transitional requirements for land under roads Subsequent transition to AASB 116 when the current transitional relief lapses At its December 2007 meeting, the AASB decided to make the following amendments to the standard prior to being issued: Clarify that the principles in other Standards apply to land under roads to the extent that AASB 1051 would permit; Clarify that a local government, government department or government can elect to recognise or not recognise land under roads acquired before the end of the first reporting period ending on or after 31 December 2007 (30 June 2008 for most entities); A final election is to be made no later than the first day of the next reporting period ending on or after 31 December 2007 (1 July 2008 for most entities); Allow land under roads to be recognised under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards at fair value (at the date of that election) or the revaluation to deemed cost approach; and Any adjustments that arise from the election must be made against opening balance of accumulated surplus of that next reporting period.

    37. New Standards (continued): AASB 1052 Disaggregated Disclosures requirements from AAS 29 on reporting service costs and achievements by activity, applicable to government departments requirements from AAS 27 on classifications of assets, income and expenses according to function or activity, applicable only to local governments will not include requirements on reporting of disaggregated information applicable to governments, since covered by AASB 1049 GAAP/GFS Withdrawal of AAS 27, 29 and 31 (continued) AASB 1052 Substantively unamended – topic-based Standard: Current requirements from AAS 29 on reporting service costs and achievements by activity, applicable to government departments Current requirements from AAS 27 on classifications of assets, income and expenses according to function or activity, applicable to local governments Disaggregated information disclosures for governments are covered under AASB 1049 GAAP/GFS project AASB 1052 Substantively unamended – topic-based Standard: Current requirements from AAS 29 on reporting service costs and achievements by activity, applicable to government departments Current requirements from AAS 27 on classifications of assets, income and expenses according to function or activity, applicable to local governments Disaggregated information disclosures for governments are covered under AASB 1049 GAAP/GFS project

    38. Withdrawal of AAS 27, 29 and 31 (continued) Amendments to five existing Standards: AASB 3 Business Combinations Amend definition such that local governments, governments and most, if not all, government departments are reporting entities AASB 116 Property, Plant and Equipment New Aus paragraph relating to infrastructure, cultural, community and heritage assets Will apply to all NFP public sector entities not just govts Guidance addressing reliable measurement, revaluation and depreciation Summary of amendments to 5 existing Standards Some requirements can be appropriately relocated to 5 existing standards. AASB 3 Business Combinations Amendment definition to explicitly state that local governments, governments and most, if not all, government departments are reporting entities Definition will go as part of the changes to AASB 3 – remove the RE definition –AASB considering to put in AASB 101 AASB 116 Property, Plant and Equipment New Aus paragraph stating that PPE includes infrastructure, cultural, community and heritage assets Guidance addressing reliable measurement, revaluation and depreciation of such assets Only heritage assets which can be reliably measured are required to be recognised. Where the heritage assets are acquired at no cost, they are required to be initially recognised at fair value as at the date of acquisition. Depending on circumstances, it may not be possible to reliably measure the fair value as at the date of acquisition of a heritage or cultural asset. Of those heritage and cultural assets that satisfy the reliable measurement criterion for initial recognition purposes, AASB 116 permits, but does not require, revaluation. However, under AASB 1049 whole of governments are required to adopt a revaluation model consistent with GFS. In addition, guidance also accepts that some heritage assets may have unlimited useful lives especially where appropriate curatorial and preservation activities are undertaken and therefore would not be depreciated. Board decided that that the proposed guidance will not amend the current principles in AASB 116. However to the extent that it results in changes to current practice, it decided that: The recognition or derecognition of a heritage asset on application of the revised AASB 116 would constitute a correction of a prior period error as the definition and recognition requirements are consistent. While the decision to stop depreciating an asset can be treated as either a change in policy or change in estimate. When it difficult to distinguish between the two, AASB 108 states that the change should be treated as a change in estimate. Where an entity changes from the revaluation to the cost model on adoption of the revised AASB 116 or vice versa, this is considered a change in accounting policy.Summary of amendments to 5 existing Standards Some requirements can be appropriately relocated to 5 existing standards. AASB 3 Business Combinations Amendment definition to explicitly state that local governments, governments and most, if not all, government departments are reporting entities Definition will go as part of the changes to AASB 3 – remove the RE definition –AASB considering to put in AASB 101 AASB 116 Property, Plant and Equipment New Aus paragraph stating that PPE includes infrastructure, cultural, community and heritage assets Guidance addressing reliable measurement, revaluation and depreciation of such assets Only heritage assets which can be reliably measured are required to be recognised. Where the heritage assets are acquired at no cost, they are required to be initially recognised at fair value as at the date of acquisition. Depending on circumstances, it may not be possible to reliably measure the fair value as at the date of acquisition of a heritage or cultural asset. Of those heritage and cultural assets that satisfy the reliable measurement criterion for initial recognition purposes, AASB 116 permits, but does not require, revaluation. However, under AASB 1049 whole of governments are required to adopt a revaluation model consistent with GFS. In addition, guidance also accepts that some heritage assets may have unlimited useful lives especially where appropriate curatorial and preservation activities are undertaken and therefore would not be depreciated. Board decided that that the proposed guidance will not amend the current principles in AASB 116. However to the extent that it results in changes to current practice, it decided that: The recognition or derecognition of a heritage asset on application of the revised AASB 116 would constitute a correction of a prior period error as the definition and recognition requirements are consistent. While the decision to stop depreciating an asset can be treated as either a change in policy or change in estimate. When it difficult to distinguish between the two, AASB 108 states that the change should be treated as a change in estimate. Where an entity changes from the revaluation to the cost model on adoption of the revised AASB 116 or vice versa, this is considered a change in accounting policy.

    39. Withdrawal of AAS 27, 29 and 31 (continued) Amendments to existing Standards (continued): AASB 127 Consolidated and Separate Financial Statements retain section 9 “control of entities” of AAS 31 in AASB 127 (unamended for now) AASB 137 Provisions, Contingent Liabilities and Contingent Assets exclude from scope, obligations arising from local govt and govt existing policies, budget policies, election promises or statements of intent exclusion will apply to all NFP public sector entities Summary of amendments to existing Standards AASB 127 Consolidated and Separate Financial Statements To retain most of section 9 of AAS 31 in AASB 127 (unamended for now) AASB 137 Provisions, Contingent Liabilities and Contingent Assets Amendment to explicitly exclude obligations arising from local government and government budget policies, election promises or statements of intent from the scope of AASB 137 Standard would also be amended to include an Aus para that makes it clear that the scope exclusion should not result in a different outcome in respect of the recognition of liabilities than current practice followed by not-for-profit PS entities Exclusion will apply to all NFP public sector entities not just local gvts, gvt departments and gvts Summary of amendments to existing Standards AASB 127 Consolidated and Separate Financial Statements To retain most of section 9 of AAS 31 in AASB 127 (unamended for now) AASB 137 Provisions, Contingent Liabilities and Contingent Assets Amendment to explicitly exclude obligations arising from local government and government budget policies, election promises or statements of intent from the scope of AASB 137 Standard would also be amended to include an Aus para that makes it clear that the scope exclusion should not result in a different outcome in respect of the recognition of liabilities than current practice followed by not-for-profit PS entities Exclusion will apply to all NFP public sector entities not just local gvts, gvt departments and gvts

    40. Amendments to existing Standards (continued): AASB 1004 Contributions requirements from AAS 27, 29 and 31 in a separate section ‘contributions of services’ expanded to apply to local governments and governments – currently only apply to government departments includes new section on ‘restructure of administrative arrangements’ Withdrawal of AAS 27, 29 and 31 (continued) Summary of amendments to existing Standards AASB 1004 Contributions This Standard includes the requirements on contributions from AASs 27, 29 & 31 in a separate section within AASB 1004. the section on ‘contributions of services’ in AASB 1004has been expanded to also apply to local governments, the GGS and WoG. This is an extension of scope as the current requirements on contributions of services only apply to government departments; and Includes a definition of ‘restructure of administrative arrangements’ for not-for-profit public sector entities. Summary of amendments to existing Standards AASB 1004 Contributions This Standard includes the requirements on contributions from AASs 27, 29 & 31 in a separate section within AASB 1004. the section on ‘contributions of services’ in AASB 1004has been expanded to also apply to local governments, the GGS and WoG. This is an extension of scope as the current requirements on contributions of services only apply to government departments; and Includes a definition of ‘restructure of administrative arrangements’ for not-for-profit public sector entities.

    41. Amendments to existing Standards (continued): AASB 1004 Contributions Definition of ‘restructures of administrative arrangements’ Accounted for on a net basis as a distribution/contribution by owners Choice of accounting for the restructure as a revenue/expense will no longer be available Requirements expanded to apply to government controlled NFP public sector entities and for-profit govt departments Withdrawal of AAS 27, 29 and 31 (continued) Definition of “restructure of administrative arrangements” The Board decided to include a definition in the Appendix of AASB 1004: “The reallocation or reorganisation of a government’s assets, liabilities and activities and responsibilities amongst the entities that the government controls that occurs as a consequence of a rearrangement in the way in which a government’s activities and responsibilities as prescribed under legislation or other authority are allocated between the government’s controlled entities”. Net basis The Board concluded that a transfer of net assets arising as a consequence of a restructure of administrative arrangements would be best treated as a distribution to owners by the transferor and a contribution by owners by the transferee. This is the preferred approach by the Board than the current approach. Current approach requires transfers to be designated as contributions by owners at the time of the transfer to be treated as such. Otherwise it must be recognised at fair value This represents a significant change in the current AAS 29 requirements as treating a transfer as a revenue/expense item would no longer be available. Requirements expanded to apply to all government controlled NFP public sector entities to be consistent with the scope of Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities and not just gvt depts as is the current AAS 29 requirements. AASB Interpretation 1038 (revised) was amended as a consequence of the issue of revised AASB 1004. Definition of “restructure of administrative arrangements” The Board decided to include a definition in the Appendix of AASB 1004: “The reallocation or reorganisation of a government’s assets, liabilities and activities and responsibilities amongst the entities that the government controls that occurs as a consequence of a rearrangement in the way in which a government’s activities and responsibilities as prescribed under legislation or other authority are allocated between the government’s controlled entities”. Net basis The Board concluded that a transfer of net assets arising as a consequence of a restructure of administrative arrangements would be best treated as a distribution to owners by the transferor and a contribution by owners by the transferee. This is the preferred approach by the Board than the current approach. Current approach requires transfers to be designated as contributions by owners at the time of the transfer to be treated as such. Otherwise it must be recognised at fair value This represents a significant change in the current AAS 29 requirements as treating a transfer as a revenue/expense item would no longer be available. Requirements expanded to apply to all government controlled NFP public sector entities to be consistent with the scope of Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities and not just gvt depts as is the current AAS 29 requirements. AASB Interpretation 1038 (revised) was amended as a consequence of the issue of revised AASB 1004.

    42. Requirements removed - addressed in other standards: Agreements equally proportionately unperformed (AAS 29.9.1) Classification according to nature and type Comparative information Compliance with other standards Consolidated financial statements and control Criteria for recognition, measurement and impairment of assets Criteria for recognition of liabilities, revenues and expenses Capital expenditure commitments Materiality Restricted assets Withdrawal of AAS 27, 29 and 31 (continued) These have been removed as AASB considers adequately addressed in other standardsThese have been removed as AASB considers adequately addressed in other standards

    43. Requirements removed: Not otherwise addressed in other Standards Frequency, timeliness and availability of GPFRs – covered by relevant legislation in each jurisdiction Guidance on performance indicators – currently not mandatory – will be addressed in a separate project Withdrawal of AAS 27, 29 and 31 (continued) Issues/guidance to be removed and will not be addressed as not considered neccessaryIssues/guidance to be removed and will not be addressed as not considered neccessary

    44. Emerging issues and what’s on the horizon - Public Sector This session focuses on key current issues. With the major focus being on the so called Credit Crunch or Crisis. Refer to next slide and advise participants what areas you will be taking them through. If you are unfamiliar with the credit crisis issues you should read: Accounting for the Credit Crisis – A special Addition of Developments in I FRS for Financial Instruments – Nov 2007 Internal IFRS Alert – Audit Considerations for Originators and Investors in Subprime and other mortgage products – Sep 07 Global Public Policy Committee – Determining Fair Value of Financial Instruments under IFRS in Current Market Conditions – Dec 07This session focuses on key current issues. With the major focus being on the so called Credit Crunch or Crisis. Refer to next slide and advise participants what areas you will be taking them through. If you are unfamiliar with the credit crisis issues you should read: Accounting for the Credit Crisis – A special Addition of Developments in I FRS for Financial Instruments – Nov 2007 Internal IFRS Alert – Audit Considerations for Originators and Investors in Subprime and other mortgage products – Sep 07 Global Public Policy Committee – Determining Fair Value of Financial Instruments under IFRS in Current Market Conditions – Dec 07

    45. Update from IPSASB Recent IPSASs Non-exchange revenues – IPSAS 23 General government sector disclosure – IPSAS 22 Budget reporting (outcome vs budget) – IPSAS 24 External assistance (cash basis standard)

    46. Update from IPSASB Current and future projects Conceptual framework Social Benefits ED 34 Disclosure of cash transfers to individuals and households Consultation paper – issues in recognition and measurement Long Term Fiscal Sustainability Project Service concessions (PPPs) Heritage assets Cash Basis Review

    47. Regulatory update

    48. Overview – regulatory change ASX ASIC Remuneration report Future regulatory changes Change of focus away from pure changes in accounting standards and interpretations Look at regulatory changes over last 12 months impacting reporting Will cover: Updated ASX Corporate Governance Principles Potential areas of focus from ASIC Clarity around new emissions reporting requirements (not financial reporting, but something where responsibility may/ should reside with finance) Discuss remuneration reports every year, so will continue that trend Consider what else is likely to change Change of focus away from pure changes in accounting standards and interpretations Look at regulatory changes over last 12 months impacting reporting Will cover: Updated ASX Corporate Governance Principles Potential areas of focus from ASIC Clarity around new emissions reporting requirements (not financial reporting, but something where responsibility may/ should reside with finance) Discuss remuneration reports every year, so will continue that trend Consider what else is likely to change

    49. 1. ASX Corporate Governance Principles Outcomes from the update: Same underlying ‘principles’ approach No new recommendations 10 principles reduced to 8 28 recommendations reduced to 26 Principle 7 changes (most commented on Principle) What came out of the update? We got the model right/Confirmed principles approach Reflected in the limited number of changes Remove prescription where possible/ focus on principle 10 principles reduced to 8 28 recommendations reduced to 26 Principle 7 was one of the more controversial initially and received the most feedback in the update process As a result some changes were made which we will go through What came out of the update? We got the model right/Confirmed principles approach Reflected in the limited number of changes Remove prescription where possible/ focus on principle 10 principles reduced to 8 28 recommendations reduced to 26 Principle 7 was one of the more controversial initially and received the most feedback in the update process As a result some changes were made which we will go through

    50. 1. ASX Corporate Governance Principles Principle 7 changes: Establish and disclose risk management policies (ASX says in 2006, 30% companies did not disclose) Material business risks Management to report to Board whether these are effectively managed (form not prescribed) Board to disclose this has occurred No disclosure on individual risks or effectiveness Annual Board effectiveness review What are the changes to Principle 7? Recommendation 7.1: Establish and disclose risk management policies in relation to oversight and management of material business risks “Material business risk” new term: holistic risk concept “Material” is linked to accounting standards concepts Reconfirms the Board’s oversight role Recommendation 7.2: Management report to Board as to whether all material business risks have been managed effectively Board to disclose this reporting has occurred (should consider reporting on the outcome) No need to identify particular risks or what are effectively managed and what is not Board to annually review the effectiveness of the risk management/internal control process What are the changes to Principle 7? Recommendation 7.1: Establish and disclose risk management policies in relation to oversight and management of material business risks “Material business risk” new term: holistic risk concept “Material” is linked to accounting standards concepts Reconfirms the Board’s oversight role Recommendation 7.2: Management report to Board as to whether all material business risks have been managed effectively Board to disclose this reporting has occurred (should consider reporting on the outcome) No need to identify particular risks or what are effectively managed and what is not Board to annually review the effectiveness of the risk management/internal control process

    51. 1. ASX Corporate Governance Principles Principle 7 changes (continued): Principle 7 sign-off by CEO/CFO covers financial risks Supports the s.295A signoff Disclose whether Sec. 295A sign-off is: founded on a ‘sound’ system of risk management and internal control that the system is ‘operating effectively’ in all material respects Reflects practice of listed entities Recommendation 7.3 Supplements 7.2 by requiring the CEO and CFO to sign-off to the Board in relation to Financial Reporting risks (provides more clarity now) Supports the sign-off they have to give under s.295A of Corps Act Council believes this reflects the practice of listed entities and ensure they have a rigorous process to support the sign-offs But many companies are still looking at the support that sits behind the various declarationsRecommendation 7.3 Supplements 7.2 by requiring the CEO and CFO to sign-off to the Board in relation to Financial Reporting risks (provides more clarity now) Supports the sign-off they have to give under s.295A of Corps Act Council believes this reflects the practice of listed entities and ensure they have a rigorous process to support the sign-offs But many companies are still looking at the support that sits behind the various declarations

    52. 2. ASIC Accounts surveillance programme Now includes large unlisted companies IFRS positions Linkage to review of audit workpapers Cover to cover review Move on to ASIC ASIC appear to have been quiet on accounts surveillance Reviews have occurred - ASIC happy with the adoption process but did give time for things to settle down Just as we strive for global consistency, ASIC and its global counterparts do Regulators working on systems/databases to aid this – one of the reasons why ASIC appear to have been quiet Accounts surveillance programme continues this year Will cover large unlisted companies in some cases Linkage between ASIC’s accounts review process and the process to review audit workpapers Even when alerted to a particular issue in a company’s accounts, they will conduct a cover to cover reviewMove on to ASIC ASIC appear to have been quiet on accounts surveillance Reviews have occurred - ASIC happy with the adoption process but did give time for things to settle down Just as we strive for global consistency, ASIC and its global counterparts do Regulators working on systems/databases to aid this – one of the reasons why ASIC appear to have been quiet Accounts surveillance programme continues this year Will cover large unlisted companies in some cases Linkage between ASIC’s accounts review process and the process to review audit workpapers Even when alerted to a particular issue in a company’s accounts, they will conduct a cover to cover review

    53. 2. ASIC Specific areas of concern: Impairment testing: method, documentation and disclosure Debt/equity classification Current/non-current classification Special purpose entities Presentation Revenue recognition Expense deferral What do we think ASIC’s areas of concern are: Impairment testing: method, documentation and disclosure Debt/equity classification Current/Non-current classification Special purpose entities Presentation of alternate results/EPS and undue prominence Old favourites: revenue recognition (multiple element arrangements) and expense deferral What do we think ASIC’s areas of concern are: Impairment testing: method, documentation and disclosure Debt/equity classification Current/Non-current classification Special purpose entities Presentation of alternate results/EPS and undue prominence Old favourites: revenue recognition (multiple element arrangements) and expense deferral

    54. 4. Remuneration reporting Duplicated reporting requirements for listed companies Corporations Act and AASB 124 Reg 2M.6.04 permitted transfer of AASB 124 disclosures into Directors Report Changes to Corps Act- integration of AASB 124 paras Aus25.2 to Aus25.7.2 into Regulations Effective reporting periods ending 30 June 2008 onwards Remuneration Report now required by all companies which are disclosing entities Extends beyond listed companies To a topic more closely aligned to financial reporting - Remuneration reporting A topic where we have disclosure changes every year and we never seem to get the model right We now have 2 sources of disclosure – Corps Act/Regs and a number of Australian specific paras. in AASB124 Last year the Corps Regs allowed the 124 disclosures in the Aus paras to be moved to the rem report in the DR The proposed changes to the Corporations Act have been driven by inconsistencies and duplications between the two sets of requirements under the Australian Accounting Standards (in ‘AASB 124’) and the Corporations Act 2001. If the current proposed changes are adopted: all companies that are “disclosing entities” would be required to prepare an audited remuneration report; the current disclosure requirements regarding director and executive remuneration in AASB 124 would form the basis for the Corporations Act 2001 disclosure requirements. However, these will be supplemented to include the disclosures currently required in the Corporations Act 2001 that are not covered by the requirements in AASB 124 (for example, additional disclosures required by the Corporations Act 2001 in relation to bonuses); the current requirements to disclose the maximum and minimum value of option grants and the aggregate value of options that have been granted, exercised or lapsed during the period would be repealed; remuneration disclosures would be required for all ‘Key Management Personnel’ as defined in AASB 124, but the definition would be supplemented to mandate disclosure of the five most highly remunerated executives; and a new disclosure requirement would be introduced requiring companies to disclose the board’s policy on executives and directors entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package and how the company enforces this policy. To a topic more closely aligned to financial reporting - Remuneration reporting A topic where we have disclosure changes every year and we never seem to get the model right We now have 2 sources of disclosure – Corps Act/Regs and a number of Australian specific paras. in AASB124 Last year the Corps Regs allowed the 124 disclosures in the Aus paras to be moved to the rem report in the DR The proposed changes to the Corporations Act have been driven by inconsistencies and duplications between the two sets of requirements under the Australian Accounting Standards (in ‘AASB 124’) and the Corporations Act 2001. If the current proposed changes are adopted: all companies that are “disclosing entities” would be required to prepare an audited remuneration report; the current disclosure requirements regarding director and executive remuneration in AASB 124 would form the basis for the Corporations Act 2001 disclosure requirements. However, these will be supplemented to include the disclosures currently required in the Corporations Act 2001 that are not covered by the requirements in AASB 124 (for example, additional disclosures required by the Corporations Act 2001 in relation to bonuses); the current requirements to disclose the maximum and minimum value of option grants and the aggregate value of options that have been granted, exercised or lapsed during the period would be repealed; remuneration disclosures would be required for all ‘Key Management Personnel’ as defined in AASB 124, but the definition would be supplemented to mandate disclosure of the five most highly remunerated executives; and a new disclosure requirement would be introduced requiring companies to disclose the board’s policy on executives and directors entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package and how the company enforces this policy.

    56. 5. Looking forward Regulators’ interpretation of IFRS Emissions trading – accounting implications Response to credit crisis General market disclosure? Margin lending disclosure? Fair value accounting? Other? Finally: enough of the present – what regulatory change can we look forward to in the future As mentioned, the IFRS views of regulators will continue to develop and should be consistent As the US has now removed the IFRS to US GAAP reconciliation, we would expect the SEC to continue to interpret IFRS its own way Accounting implications of emissions trading Finally, every crisis sees regulators react – press starting to predict changes following credit crisis Improvements in general market disclosure Margin lending disclosures for key directors/executives with significant holdings Does fair value accounting have anything to answer for END – comment that was a quick summary of recent regulatory developments Finally: enough of the present – what regulatory change can we look forward to in the future As mentioned, the IFRS views of regulators will continue to develop and should be consistent As the US has now removed the IFRS to US GAAP reconciliation, we would expect the SEC to continue to interpret IFRS its own way Accounting implications of emissions trading Finally, every crisis sees regulators react – press starting to predict changes following credit crisis Improvements in general market disclosure Margin lending disclosures for key directors/executives with significant holdings Does fair value accounting have anything to answer for END – comment that was a quick summary of recent regulatory developments

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