CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING STANDARDS

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CHANGES AND TRENDS IN INTERNATIONAL ACCOUNTING
STANDARDS

• John Hoggett
• School of Accounting
• Curtin University

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Australias road to adopting international
standards

• Europes decision
• EU companies listed on stock exchanges to follow
  IASB standards in consolidated financial reports
  on or after 1 January 2005
• Australia
• FRC in July 2002, direction to the AASB to adopt
  IASB standards as from 1 January 2005
• New Zealand
• By 2007

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Australian Equivalents to IASB Standards

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

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Differences between AASB and IASB standards

• Addition of NFP paragraphs
• Additional Aus paragraphs for disclosure
• Wording differences eg entity v enterprise
• Deletion of some options eg delete indirect
  method in cash flow statements

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AASBs influence on the IASB

• Minimal for most standards AASB little more
  than a lobbyist
• Representation on the IASB
• Special projects eg business combinations
• Analysis of exclusively Australian problems,
  based on Australian law eg treatment of GST

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Syllabus changes the Framework

• Qualitative characteristics
• understandability, relevance, reliability,
  comparability
• Substance over form now part of reliability
• Materiality part of relevance
• Accounting assumptions
• Addition of accrual basis

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Syllabus changes the Framework

• Elements are
• Assets (different wording from SAC 4 but meaning
  is essentially the same)
• Liabilities (minor change in nature)
• Equity (same)
• Income (same as the definition of revenue in
  SAC 4)
• Expenses (similar wording to SAC 4)
• Major change is with revenues, gains and losses.
  Revenues and Gains are subcategories of income

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Syllabus changes the Framework

• Revenues are from ordinary activities of an
  entity sales, fees, interest, dividends,
  royalties, rent.
• Gains are other items that meet the definition of
  income and may or may not arise in the course of
  ordinary activities
• Losses are a subcategory of expenses
• Gains/losses are reported eg on the sale of
  non-current assets

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External reporting

• 4 statements required by AASB 101, as named
• Income statement (not profit and loss statement
  or statement of financial performance)
• Balance sheet (not statement of financial
  position)
• Statement of changes in equity
• Cash flow statement (not statement of cash flows)

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Income Statement

• Revenues, as defined in the Framework and AASB
  118 AASB 118 tends to restrict revenues to (i)
  sale of goods (ii) rendering of services (iii)
  use by others of the entitys assets yielding
  interest, royalties and dividends.
• Expenses, classified either by nature or by
  function. If by function, then you may disclose
  gross profit if desired. See AASB 101 paras.
  88-92.
• Gains and losses
• Only disclose gain/loss on sale of a non-current
  asset as an item of profit
• For the purpose of Accounting syllabus, will
  continue to use Gross Calculation Method in the
  accounts

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Balance Sheet

• Current/non-current classification, or liquidity
• Assets
• Liabilities - major categories for TEE purposes
  are
• Payables
• Borrowings
• Current tax liability
• Note Final dividends liability when declared
• Not a liability at end of financial year (in most
  cases)
• See AASB 110 paras. 12-13
• Equity section share capital, retained
  earnings, other reserves

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Statement of Changes in Equity

• Purpose to show movements in each equity item
  and total income from all sources
• Profit or loss any income or expense recognised
  directly in equity e.g. revaluation surplus (not
  really a problem at TEE level)
• Movements in share capital, in retained earnings,
  in each other reserve account

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Cash Flow Statements

• Cash and cash equivalents new definition AASB
  107
• See www.aasb.com.au
• Overdrafts may still be included as part of cash
  in Australia in certain circumstances
• Interest paid an operating activity
• Interest and dividends received may be an
  investing activity. See illustrative example in
  AASB 107
• Dividends paid a financing activity

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Changes in terminology

• Profit, not net profit
• Loss, not net loss
• Equity, not shareholders equity
• Cost of sales, not cost of goods sold
• Retained earnings, not retained profits
• Minor changes to headings in cash flow statement
  eg cash paid to suppliers and employees

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Some other thoughts

• Re Farm accounting consider AASB 141
  Agriculture move toward fair value accounting
• The concept of matching is finally buried
• Preliminary expenses now an expense, not an asset
  under AASB 138

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Future trends at the IASB

• Cooperation (!) with the FASB
• CF to be amended (overhauled)
• Adoption of fair value measurement
• Performance measurement using a statement of
  comprehensive income
• Liabilities, provisions and contingent
  liabilities the term provision to be dropped

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The end