Part 4: Financial Statements – HTML version
Notes to and forming part of the Financial Statements
Note 2: Adoption of AASB Equivalents to International Financial Reporting Standards from 2005-2006
The Australian Accounting Standards Board has issued replacement Australian Accounting Standards to apply from 2005-06. The new standards are the AASB Equivalents to International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board. The new standards cannot be adopted early. The standards being replaced are to be withdrawn with effect from 2005-06, but continue to apply in the meantime.
The purpose of issuing AASB Equivalents to IFRSs is to enable Australian entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets by preparing their financial reports according to accounting standards more widely used overseas.
For-profit entities complying fully with the AASB Equivalents will be able to make an explicit and unreserved statement of compliance with IFRSs and well as with the AASB Equivalents.
It is expected that the Finance Minister will continue to require compliance with the Accounting Standards issued by the AASB, including the AASB Equivalents to IFRSs, in his Orders for the Preparation of Departmental financial statements for 2005-06 and beyond.
The AASB Equivalents contain certain additional provisions which will apply to not-for-profit entities, including Australian Government agencies. Some of these provisions are in conflict with the IFRSs and therefore The Department will only be able to assert compliance with the AASB Equivalents to the IFRSs.
Existing AASB standards that have no IFRS equivalent will continue to apply, including in particular AAS 29 Financial Reporting by Government Departments.
Accounting Standard AASB 1047 Disclosing the impact of Adopting Australian Equivalents to IFRSs requires that the financial statements for 2003–04 disclose:
- An explanation of how the transition to the AASB Equivalents is being managed, and
- A narrative explanation of the key differences in accounting policies arising from the transition.
The purpose of this Note is to make these disclosures.
Management of the transition to AASB Equivalents to IFRSs
The Department has taken the following steps for the preparation towards the implementation of AASB Equivalents:
- The Department's Audit Committee is tasked with oversight of the transition to and implementation of the AASB Equivalents to IFRSs. The Chief Finance Officer is formally responsible for the project and reports regularly to the Audit Committee on progress against the formal plan.
- The plan requires the following key steps to be undertaken and sets deadlines for their achievement:
- Identification of all major accounting policy differences between current AASB standards and the AASB Equivalents to IFRSs progressively to 30 June 2004.
- Identification of systems changes necessary to be able to report under the AASB Equivalents, including those necessary to enable capture of data under both sets of rules for 2004-05, and the testing and implementation of those changes.
- Preparation of a transitional balance sheet as at 1 July 2004, under AASB Equivalents, by 31 December 2004.
- Preparation of a AASB Equivalent balance sheet at the same time as the 30 June 2005 statements are prepared.
- Meeting reporting deadlines set by Finance for 2005-06 balance sheet under AASB Equivalent Standards.
- The plan also addresses the risks to successful achievement of the above objectives and includes strategies to keep implementation on track to meet deadlines.
- To date, all major accounting and disclosure differences and system changes have been identified and are expected to be implemented shortly.
Major changes in accounting policy
Changes in accounting policies under AASB Equivalents are applied retrospectively i.e. as if the new policy had always applied. This rule means that a balance sheet prepared under the AASB Equivalents must be made as at 1 July 2004, except as permitted in particular circumstances by AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. This will enable the 2005-06 financial statements to report comparatives under the AASB Equivalents also.
Changes to major accounting policies are discussed in the following paragraphs.
Infrastructure, plant and equipment
It is expected that the Finance Minister's Orders will require property plant and equipment assets carried at valuation in 2003–04 to be measured at up-to-date fair value from 2005-06. This differs from the accounting policies currently in place for these assets which, up to and including 2003–04, have been revalued progressively over a 3-year cycle and which currently include assets at cost (for purchases since the commencement of a cycle) and at deprival value (which will differ from their fair value to the extent that they have been measured at depreciated replacement cost when a relevant market selling price is available).
Intangible Assets
The Department currently recognises internally-developed software assets on the cost basis.
The AASB Equivalent on Intangibles does not permit intangibles to be measured at valuation unless there is an active market for the intangible. The Department's internally-developed software is specific to the needs to the Department and is not traded.
Impairment of Non-Current Assets
The Department's policy on impairment of non-current assets is at note 1.13.
Under the new AASB Equivalent Standard, these assets will be subject to assessment for impairment and, if there are indications of impairment, measurement of any impairment. (Impairment measurement must also be done, irrespective of any indications of impairment, for intangible assets not yet available for use). The impairment test is that the carrying amount of an asset must not exceed the greater of (a) its fair value less costs to sell and (b) its value in use. 'Value in use' is the net present value of net cash inflows for for-profit assets of the Department and depreciated replacement cost for other assets which would be replaced if the Department were deprived of them.
The most significant changes are that, for the Department's for-profit assets, the recoverable amount is only generally to be measured where there is an indication of impairment and that assets carried at up-to-date fair value, whether for-profit or not, may nevertheless be required to be written down if costs to sell are significant.
Employment Benefits
The provision for long service leave is measured at the present value of estimated future cash outflows using market yields as at the reporting date on national government bonds.
Under the new AASB Equivalent standard, the same discount rate will be used unless there is a deep market in high quality corporate bonds, in which case the market yield on such bonds must be used.