Notes to and forming part of the Financial Statements
Note 2: Adoption of Australian 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 Australian Equivalents to International Financial Reporting Standards (AEIFRS) 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 The standards being replaced are to be withdrawn with effect from 2005-06, but continue to apply in the meantime, including reporting periods ending on 30 June 2005.
The purpose of issuing AEIFRS 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 AEIFRS will be able to make an explicit and unreserved statement of compliance with International Financial Reporting Standards (IFRS) as well as with the Australian Accounting Standards.
AEIFRS 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 IFRS and therefore the Department of the Senate will only be able to assert that the financial report has been prepared in accordance with Australian Accounting Standards.
AAS 29 Financial Reporting by Government Departments will continue to apply under AEIFRS.
Accounting Standard AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to IFRS requires that the financial statements for 2004-05 disclose:
- an explanation of how the transition to AEIFRS is being managed;
- narrative explanations of the key policy differences arising from the adoption of AEIFRS;
- any known or reliably estimable information about the impacts on the financial report had it been prepared using AEIFRS; and
- if the impacts of the above are not known or reliably estimable, a statement to that effect.
The purpose of this note is to make these disclosures.
Management of the transition to AEIFRS
The Department of the Senate has taken the following steps towards the implementation of AEIFRS:
- The department’s Audit and Evaluation Committee is tasked with oversight of the transition to and implementation of AEIFRS. The Chief Finance Officer is formally responsible for the project and reports regularly to the committee on progress against the formal plan approved by the committee.
- The plan requires the following key steps to be undertaken
and sets deadlines for their achievement:
- All major accounting policy differences between current AASB standards and AEIFRS were identified by 30 June 2004.
- System changes necessary to be able to report under the AEIFRS, including those necessary to capture data under both sets of rules for 2004-05 were completed on 18 August 2004. This included the testing and implementation of those changes.
- A transitional balance sheet as at 1 July 2004 under AEIFRS was completed and presented to the Audit Committee on 15 December 2004.
- An AEIFRS compliant balance sheet as at 30 June 2005 was also prepared during the preparation of the 2004-05 statutory financial reports.
- The 2004-05 Balance Sheet under AEIFRS will be reported to the Department of Finance and Administration in line with their reporting deadlines.
- 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 the system changes have been tested successfully.
- Consultants have been engaged where necessary to assist with each of the above steps.
Major changes in accounting policy
The department believes that the first financial report prepared under AEIFRS i.e. at 30 June 2006, will be prepared on the basis that the department will be a first time adopter under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. Changes in accounting policies under AEIFRS are applied retrospectively i.e. as if the new policy had always applied except in relation to the exemptions available and prohibitions under AASB 1. This means that an AEIFRS compliant balance sheet has to be prepared as at 1 July 2004. This will enable the 2005-06 financial statements to report comparatives under AEIFRS.
A first time adopter of AEIFRS may elect to use exemptions under paragraphs 13 to 25E. When developing the accounting policies applicable to the preparation of the 1 July opening balance sheet, no exemptions were applied by the department.
Changes to major accounting policies are discussed in the following paragraphs.
Property plant and equipment
It is expected that the 2005-06 Finance Minister’s Orders will require property, plant and equipment assets to be valued at fair value in 2005-06.
Impairment of Non-Current Assets
The department’s policy on impairment of non-current assets is at note 1.11. Under AEIFRS, these assets are 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.
Inventory
The department recognises inventory not held for sale at cost, except where no longer required, in which case net realisable value is applied. AEIFRS requires inventory held for distribution for no consideration or at a nominal amount to be carried at the lower of cost or current replacement cost.
Employee 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.
The 2003-04 Financial Report noted that the AEIFRS standards may require the market yield on corporate bonds to be used. The AASB has decided that a deep market in high quality corporate bonds does not exist and therefore national government bonds will be referenced.
AEIFRS require that annual leave that is not expected to be taken within 12 months of balance date is to be discounted. After assessing the staff leave profile, the department does not expect that any material amounts of the annual leave balance accrued will be taken in the next 12 months.
Administered Item
Assessment of the administered assets and liabilities of the department indicate that there are no adjustments due to the transition to AEIFRS.
Financial Instruments
AEIFRS include an option for entities not to restate comparative information in respect of financial instruments in the first AEIFRS report. It is expected that Finance Minister’s Orders will require entities to use this option. Therefore, the amounts for financial instruments presented in the department’s 2004-05 primary financial statements are not expected to change as a result of the adoption of AEIFRS.
The department will be required by AEFIRS to review the carrying amounts of financial instruments at 1 July 2005 to ensure they align with the accounting policies required by AEIFRS. It is expected that the carrying amounts of financial instruments held by the department will not materially change as a result of this process.
| 30 June 2005* $’000 |
30 June 2004 $’000 |
||
|---|---|---|---|
| Reconciliation of Departmental Equity | |||
| Total Departmental Equity under AGAAP | 15,504 | 27,368 | |
| Adjustments to accumulated results | 32 | 70 | |
| Adjustments to other reserves | - | (1,140) | |
| Total Equity under AEIFRS | 15,536 | 26,298 | |
| Reconciliation of Departmental Accumulated Results | |||
| Total Departmental Accumulated Results under AGAAP | 15,838 | 13,179 | |
| Adjustments: | |||
| Employee Benefits | 32 | 70 | |
| Total Accumulated Results under AEIFRS | 15,870 | 13,249 | |
| Reconciliation of Departmental Reserves | |||
| Total Departmental Reserves under AGAAP | 10,796 | 11,662 | |
| Adjustment: | |||
| Asset Revaluation Reserve | - | (1,140) | |
| Total Departmental Reserves under AEIFRS | 10,796 | 10,522 | |
| Reconciliation of Departmental Contributed Equity | |||
| Total Departmental Contributed Equity under AGAAP | (11,130) | 2,527 | |
| Adjustments: | - | - | |
| Total Contributed Equity under AEIFRS | (11,130) | 2,527 | |
* 30 June 2005 total represents the accumulated impacts of AEIFRS from the date of transition.
