Financial Reporting for June 2008 – AASB’s continue but Sustainability is coming

Financial reporting changes to consider for 30 June 2008

AASB 7 Financial Instruments: Disclosures
The standard which has everyone talking for 30 June 2008 year ends, is AASB 7 Financial Instruments: Disclosures which requires a number of additional disclosures to be included in the financial reports of reporting entities and those entities preparing General Purpose Financial Reports. This standard requires a significant level of quantitative disclosure relating to the financial risks (for example: credit, liquidity and market risk) faced by the entity, as well as qualitative disclosures regarding objectives, policies and strategies implemented by the entity to mitigate these risks. Entities are also required to disclose the sensitivity of financial assets and liabilities to reasonable possible changes in related financial risks, such as exchange rate movements and interest rate movements.

The majority of AASB 7 quantitative disclosures will require different formatting than those previously required by AASB 132 and possibly more detailed extraction of data in the trial balance since these disclosures are not likely to be based on reports currently produced by the accounting system.

As AASB 7 is a disclosure standard only, it is likely that entities preparing Special Purpose Financial Reports will opt out of complying with the requirements of AASB 7.

AASB 7 was effective for the first time in Australia for 31 December 2007 and ASIC feedback on December year end financial reports has been that the disclosures were not sufficient.

AASB 101 Presentation of Financial Statements
There are new capital management disclosures contained in the amended AASB 101 Presentation of Financial Statements which require all entities - whether reporting entities or not - to disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital.

AASB 2008-4 Amendments to Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities [AASB 124]
The AASB has released AASB 2008-4 which exempts disclosing entities that are companies, from the requirement to provide certain Key Management Personnel (KMP) disclosures in the notes to the financial report.

AASB 2008-4 replaces the relief previously provided by the Corporations Regulations 2M.6.04 which has now expired.

AASB 2008-4 is effective for annual reporting periods ending on or after 30 June 2008, however can be early adopted by entities for financial reporting periods beginning on or after 30 June 2007, but which end before 30 June 2008.

AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors
Entities are also reminded of the AASB 108 requirement to disclose the impact of new or amended Accounting Standards that have been issued, but not yet adopted – the relevant standards / interpretations are discussed in the technical alert available by clicking the link under further information.

Further information:
The technical alerts listed below provide more detailed information on these and other relevant changes for 30 June 2008 year ends:

• Reporting Developments for 30 June 2008
• AASB 7 Financial Instruments: Disclosures
• S300A remuneration report
• Standards / Interpretations for consideration under disclosure requirements of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors - 30 June 2008 year ends.

Sustainability

It is rare that a day goes by without some debate on Australia’s commitment to sustainability, whether that is Greenhouse Gas reduction, water consumption reduction or other general climate change improvements.

The former Government paved the way for sustainability reporting with the National Greenhouse and Energy Reporting Act 2007 (NGERA) which established an Australian framework for certain organisations to report greenhouse gas emissions, and energy consumption and production from 1 July 2008.

Who is affected?
The Department of Climate Change (formerly Australian Greenhouse Office) estimates that around 700 medium and large organisations will be included in the scope of NGERA for the 2008 – 2009 year.

Organisations required to report are those that:

(a) control a facility that:

(i) emits 25 kilotonnes or more of greenhouse gas, or

(ii) consumes or produces 100 terajoules or more of energy

or

(b) their corporate group:

(i) emits 125 kilotonnes or more of greenhouse gas, or

(ii) consumes or produces 500 terajoules or more of energy

These thresholds are even lower for the 2009-2010 year and the 2010-2011 trigger tests for reporting are just 40% of the 2008-2009 reporting period.

The Department of Climate Change has stated that it will provide further guidelines and case studies in due course to assist organisations with measuring what a kilotonne or terajoule is. However, it should be noted that given the 40% reduction in trigger tests for reporting by 2010/2011, and the Government’s commitment to reduce Greenhouse gas emissions by some 60% over time, it is likely that most organisations will be impacted by sustainability reporting in the shorter, rather than the longer term.

What to do now?
1. The organisations affected in 2008 -2009 should ensure that:

• systems are in place to collect the emissions of greenhouse gases and/or the consumption/production of energy from 1 July 2008. This information must be capable of being externally audited.
• they have registered with the Department of Climate Change by 31 August 2008.

A report on the emissions and consumption / production is required to be lodged by 31 October 2009, with the Department of Climate Change’s public report due by 28 February 2010.

2. If you think your organisation is close to the reduced 40% 2010 /2011 trigger tests, you should initiate a greenhouse gas/energy consumption/production review. Experience from those companies that have been collecting such data for some years, indicates that significant systems changes are necessary to ensure that the appropriate auditable data is collected.

3. Those organisations that believe they are currently well below the reduced trigger tests, should benefit from the experiences of those entities included in the first tranche of reporting. However, consideration should be given to conducting a greenhouse gas emissions and/or energy consumption/production (carbon footprint) review to determine just where their carbon footprint currently stands.

Grant Thornton Australia has started to review its sustainability position and our Sydney Office is currently being assessed.

Further inputs for the sustainability debate will arise from the 30 September 2008 report by Professor Garnet which will provide recommendations to the Government on Australia’s medium to long term policy for sustainability prosperity.

Author: Keith Reilly & Carmen Ridley

Keith is Grant Thornton’s National Head of Professional Standards and leads a team that has responsibility for ensuring Grant Thornton is at the leading edge of local and global regulatory requirements. Keith works closely with Grant Thornton’s International Public Policy Group, Independence Working Party, and IFRS Committees. Carmen is Grant Thornton’s Australia National Technical Principal who can assist with financial reporting queries and represents Grant Thornton Australia on a number of industry discussion groups.

Want advice or more information on this topic?

Click here to contact the author

T +61 2 8297 2400

or, for financial reporting queries phone Carman Ridley directly

T +61 3 8663 6299