CHANGES AND TRENDS CHANGES AND TRENDS IN INTERNATIONAL IN INTERNATIONAL

ACCOUNTING ACCOUNTING STANDARDSSTANDARDS

John HoggettJohn Hoggett

School of AccountingSchool of Accounting

Curtin UniversityCurtin University

Australia’s road to adopting Australia’s road to adopting international standardsinternational standards

Europe’s decisionEurope’s decision EU companies listed on stock exchanges to follow EU companies listed on stock exchanges to follow

IASB standards in consolidated financial reports on or IASB standards in consolidated financial reports on or after 1 January 2005after 1 January 2005

AustraliaAustralia FRC in July 2002, direction to the AASB to adopt FRC in July 2002, direction to the AASB to adopt

IASB standards as from 1 January 2005IASB standards as from 1 January 2005

New ZealandNew Zealand By 2007By 2007

Australian Equivalents to IASB Australian Equivalents to IASB StandardsStandards

See AASB website: See AASB website: www.aasb.com.auAASB and IASB standards exactly the same AASB and IASB standards exactly the same except for the following:except for the following:IASB Framework + SAC 1 and SAC 2 (SACs 3 IASB Framework + SAC 1 and SAC 2 (SACs 3 and 4 deleted)and 4 deleted)Numbering system:Numbering system: IFRS 1 = AASB 1IFRS 1 = AASB 1 IAS 1 = AASB 101 (three digits)IAS 1 = AASB 101 (three digits) AASB 1031 (four digits) etc for no equivalent IASB AASB 1031 (four digits) etc for no equivalent IASB

standardstandard

Differences between AASB and Differences between AASB and IASB standardsIASB standards

Addition of NFP paragraphsAddition of NFP paragraphs

Additional “Aus” paragraphs for disclosureAdditional “Aus” paragraphs for disclosure

Wording differences eg entity v enterpriseWording differences eg entity v enterprise

Deletion of some options eg delete indirect Deletion of some options eg delete indirect method in cash flow statementsmethod in cash flow statements

AASB’s influence on the IASBAASB’s influence on the IASB

Minimal for most standards – AASB little Minimal for most standards – AASB little more than a lobbyistmore than a lobbyist

Representation on the IASBRepresentation on the IASB

Special projects eg business combinationsSpecial projects eg business combinations

Analysis of exclusively Australian Analysis of exclusively Australian problems, based on Australian law eg problems, based on Australian law eg treatment of GSTtreatment of GST

Syllabus changes – the Syllabus changes – the FrameworkFramework

Qualitative characteristicsQualitative characteristics understandability, relevance, reliability, understandability, relevance, reliability,

comparabilitycomparability Substance over form now part of “reliability”Substance over form now part of “reliability” Materiality part of “relevance”Materiality part of “relevance”

Accounting assumptionsAccounting assumptions Addition of “accrual basis”Addition of “accrual basis”

Elements areElements are Assets (different wording from SAC 4 but meaning is Assets (different wording from SAC 4 but meaning is

essentially the same)essentially the same) Liabilities (minor change in nature)Liabilities (minor change in nature) Equity (same)Equity (same) Income (same as the definition of “revenue” in SAC 4)Income (same as the definition of “revenue” in SAC 4) Expenses (similar wording to SAC 4)Expenses (similar wording to SAC 4)

Major change is with revenues, gains and losses. Major change is with revenues, gains and losses. Revenues and Gains are subcategories of “income”Revenues and Gains are subcategories of “income”

Syllabus changes – the Syllabus changes – the FrameworkFramework

RevenuesRevenues are from “ordinary activities of are from “ordinary activities of an entity” – sales, fees, interest, dividends, an entity” – sales, fees, interest, dividends, royalties, rent.royalties, rent.GainsGains are other items that meet the are other items that meet the definition of income and “may or may not definition of income and “may or may not arise in the course of ordinary activities”arise in the course of ordinary activities”LossesLosses are a subcategory of expenses are a subcategory of expensesGains/losses are reported eg Gains/losses are reported eg on the sale on the sale of non-current assetsof non-current assets

Syllabus changes – the Syllabus changes – the FrameworkFramework

External reporting External reporting

4 statements required by AASB 101, as 4 statements required by AASB 101, as named –named – Income statementIncome statement (not profit and loss (not profit and loss

statement or statement of financial statement or statement of financial performance)performance)

Balance sheetBalance sheet (not statement of financial (not statement of financial position) position)

Statement of changes in equityStatement of changes in equity Cash flow statementCash flow statement (not statement of cash (not statement of cash

flows)flows)

Income StatementIncome StatementRevenuesRevenues, as defined in the Framework and , as defined in the Framework and AASB 118 – AASB 118 tends to restrict AASB 118 – AASB 118 tends to restrict revenues to (i) sale of goods (ii) rendering of revenues to (i) sale of goods (ii) rendering of services (iii) use by others of the entity’s assets services (iii) use by others of the entity’s assets yielding interest, royalties and dividends.yielding interest, royalties and dividends.ExpensesExpenses, classified either by nature or by , classified either by nature or by function. If by function, then you may disclose function. If by function, then you may disclose gross profit if desired. See AASB 101 paras. 88-gross profit if desired. See AASB 101 paras. 88-92.92.Gains and lossesGains and losses Only Only disclosedisclose gain/loss on sale of a non-current gain/loss on sale of a non-current

asset as an item of profit asset as an item of profit For the purpose of Accounting syllabus, will continue For the purpose of Accounting syllabus, will continue

to use Gross Calculation Method in the accountsto use Gross Calculation Method in the accounts

Balance SheetBalance Sheet

Current/non-current classification, or liquidityCurrent/non-current classification, or liquidity AssetsAssets Liabilities - major categories for TEE purposes areLiabilities - major categories for TEE purposes are

PayablesPayables

BorrowingsBorrowings

Current tax liabilityCurrent tax liability Note: Final dividends – liability when declared Note: Final dividends – liability when declared

Not a liability at end of financial year (in most cases) Not a liability at end of financial year (in most cases)

See AASB 110 paras. 12-13See AASB 110 paras. 12-13 Equity section – share capital, retained earnings, Equity section – share capital, retained earnings,

other reservesother reserves

Statement of Changes in EquityStatement of Changes in Equity

Purpose –to show movements in each Purpose –to show movements in each equity item and total income from equity item and total income from all all sourcessources Profit or loss + any income or expense Profit or loss + any income or expense

recognised directly in equity e.g. revaluation recognised directly in equity e.g. revaluation surplus (not really a problem at TEE level)surplus (not really a problem at TEE level)

Movements in share capital, in retained Movements in share capital, in retained earnings, in each other reserve accountearnings, in each other reserve account

Cash Flow StatementsCash Flow Statements

Cash and cash equivalents – new definition Cash and cash equivalents – new definition AASB 107AASB 107 See: See: www.aasb.com.au Overdrafts may still be included as part of cash in Overdrafts may still be included as part of cash in

Australia in certain circumstancesAustralia in certain circumstances

Interest paid – an operating activityInterest paid – an operating activityInterest and dividends received – may be an Interest and dividends received – may be an investing activity. See illustrative example in investing activity. See illustrative example in AASB 107AASB 107Dividends paid – a financing activityDividends paid – a financing activity

Changes in terminologyChanges in terminology

Profit, not “net profit”Profit, not “net profit”

Loss, not “net loss”Loss, not “net loss”

Equity, not “shareholders’ equity”Equity, not “shareholders’ equity”

Cost of sales, not “cost of goods sold”Cost of sales, not “cost of goods sold”

Retained earnings, not “retained profits”Retained earnings, not “retained profits”

Minor changes to headings in cash flow Minor changes to headings in cash flow statement eg cash paid to suppliers and statement eg cash paid to suppliers and employeesemployees

Some other thoughtsSome other thoughts

Re Farm accounting consider AASB 141 Re Farm accounting consider AASB 141 “Agriculture” – move toward fair value “Agriculture” – move toward fair value accountingaccounting

The concept of “matching” is finally buriedThe concept of “matching” is finally buried

Preliminary expenses now an expense, Preliminary expenses now an expense, not an asset under AASB 138not an asset under AASB 138

Future trends at the IASBFuture trends at the IASB

Cooperation (!) with the FASBCooperation (!) with the FASB

CF to be amended (overhauled)CF to be amended (overhauled)

Adoption of fair value measurementAdoption of fair value measurement

Performance measurement using a Performance measurement using a “statement of comprehensive income”“statement of comprehensive income”

Liabilities, provisions and contingent Liabilities, provisions and contingent liabilities – the term “provision” to be liabilities – the term “provision” to be droppeddropped