What's new for December 2008 financial statements?

Not a lot actually unless you are deeply involved in the complex world of financial instruments, or real estate development. However enjoy the pause in financial reporting changes as whilst there is stability in the international (and hence Australian) financial reporting standards (IFRS) framework at the moment, there will be a significant number of changes that will flow through for December 2009 and onwards balance dates.

Also note that there is a need to provide some disclosure on 'Other Standards and Interpretations issued but not yet effective' for reporting entities. Some sample Grant Thornton wording that you can use and individually tailor, is contained in Technical Accounting Alert 2008-20 (see 2.4 below).

The following section provides information regarding changes to accounting standards and other requirements related to financial reporting which have recently occurred, or which are likely to impact December 2008 year ends.

1.         AASB 2008-10 Amendments to Australian Accounting Standards –
            Reclassification of Financial Assets [AASB 139 & AASB 7]

In October 2008 the AASB released AASB 2008-10, in response to issues arising from the current credit crisis.  The changes were made by IASB and adopted verbatim in Australia.

Against the background of falling asset prices, concern was expressed that European companies (and consequently other companies complying with IFRS’s) were at a disadvantage compared to their US competitors. This was due to the ability of US companies to reclassify financial assets out of the ‘fair value through profit or loss’ category in certain ‘rare’ circumstances.

The amendments introduce into IFRS, and consequently AASB the same possibility of reclassifications that is already permitted under US GAAP, so removing this potential disadvantage to entities complying with IFRS.

These amendments are effective in two parts:

1.1       Where the decision to reclassify a financial asset is made between 1 July 2008
             and 31 October 2008, the fair value can be determined with reference to the fair
             value at any date during that period.  This is of limited relevance now as time
             has lapsed.

1.2       Where the decision to reclassify a financial asset is made after 1 November
             2008, the fair value is determined by reference to the fair value at the date of
             the reclassification.  Retrospective application is not permitted.

For further information on this topic refer to TA Alert 2008-19 Amendments to IAS 39

2.         Other newly issued standards and interpretations of note available for early
            adoption

2.1       AASB 2008-8 – Eligible Hedged Items [AASB 139]

The amendments made to AASB 139 aim to clarify the application of some of AASB 139's requirements relating to the designation of a risk or a portion of cash flows for hedge accounting purposes.

For further information on this topic refer to TA Alert 2008-15 Amendments to AASB 139 – Amendment to hedged item

2.2       AASB 2008-11-Business Combinations Among Not-for-Profit Entities [AASB 3]

This amendment has the effect of requiring assets acquired in a merger of not-for profit entities to be re-measured, normally at fair value, as at the date of the merger. This amendment applies to annual reporting period beginning on or after 1 July 2009 with early adoption permitted. Our next release of TA Alert will provide detail update on the amendments.

2.3       Interpretation 15 Agreements for the Construction of Real Estate
Interpretation 15 standardises revenue recognition accounting practice among real estate developers for sales of units, such as apartments or houses ‘off plan’, i.e. before construction is complete.
For further information on this topic refer to TA Alert 2008-10 Interpretation 15 agreements for the construction of real estate

2.4       Interpretation 16 Hedges of a Net Investment in a Foreign Operation

Interpretation 16 eliminates the possibility of an entity applying hedge accounting for a hedge of the foreign exchange differences between the functional currency of a foreign operation and the presentation currency of the parent’s consolidated financial statements.
For further information on this topic refer to TA Alert 2008-16 Interpretation 16 Hedged of a net investment in a foreign operation

2.5       Other Standards and Interpretations issued but not yet effective

As in prior reporting periods there are a number of Standards and Interpretations issued by the AASB which are not yet effective.  Entities need to ensure they have considered the impact of each of these standards and have made the appropriate disclosure in the financial statements.
For further information on this topic refer to TA Alert 2008-20 AASB 108 disclosures for standards issued not yet effective December 2008

Author, Kim Barson, December 08

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