The Australian Accounting Standards Board (AASB) decided to implement the Financial Reporting Council’s policy of adopting the Standards of the International Accounting Standards Board (IASB) in 2005. The AASB decided to issue sector-neutral Standards which can be applied to both for-profit and not-for-profit organizations. However, the AASB still issues Standards that are specific for not-for-profit or public sectors or that are of a purely domestic nature. The AASB uses IASB as a foundation, on which the AASB Standards are based. However, the AASB adds material detailing the scope and applicability of a Standard in the Australian environment.
The AASB decided to add paragraphs of applicability to the AASB Standards that incorporate International Financial Reporting Standards (IFRSs) in order to ensure that these standards are applicable to the Australian environment.
For example the AASB issued AASB 1004 Contributions which is applicable only to not-for-profit entities since AASB 120 Accounting for Government Grants and Disclosure of Government Assistance is deemed not applicable to not-for-profit entities. The AASB 1004 was issued as a means of retaining the existing requirements for contributions made to not-for-profit entities. AASB 120 Accounting for Government Grants and Disclosure of Government Assistance, on the other hand, is only applicable to for-profit entities. AASB 1004 Standard:
· Applies to contributions to not-for-profit entities
· Requires income to be measure at the fair value of the contributions received or receivable
· Requires income from a contribution to be recognized when an entity obtains control of the contribution or right to receive the contribution, it is probable the economic benefits comprising the contribution will flow to the entity, and the amount can be measured reliably
· Requires the gross amount of a liability forgiven by a credit provider to be recognized by the borrower
As a result, compliance by a not-for-profit entity with AASB 1004 does not necessarily entail compliance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. The AASB designed AASB 1004 for not-for-profit entities which resulted in a difference in the recognition criteria between AASB 1004 and AASB 120. AASB 1004 requires contributions received or receivable to be recognized immediately as revenue when:
· The entity obtains control of the contribution or the right to receive the contribution
· It is probable that the economic benefits comprising the contribution will flow to th entity
· The amount of the contribution can be measured reliably
These provisions are different from the provisions set in AASB 120 which requires government grants to be recognized as income on a systematic basis over the periods necessary to match them with the related costs which they are intended to compensate when there is reasonable assurance that:
· The entity will comply with the conditions attaching to them
· The grants will be received
It should be noted, the in Australia, the AASB has issued 41 Accounting Standards, referred to as Australian equivalents to International Financial Reporting Standards (A-IFRS) which incorporates the Standards of International Financial Reporting Standards (IFRS). Although the AASB is committed to the incorporation of IFRS Standards, Australian entities are required to comply with A-IFRS. Moreover, compliance with A-IFRS is equivalent to compliance with IFRS but compliance with IFRS does not equate to compliance to A-IFRS. AIFRS is not consistent with IFRS because of:
· Wording amendments to accommodate the Australian legislative environment, for example, reference to the Corporations Act 2001 in the application paragraphs
· The deletion of transitional provisions in individual Standards due to the application of AASB 1 ‘First-Time Adoption of Australian Equivalents to International Financial Reporting Standards’ on transitions to A-IFRS
· Additional/amended requirements for not-for-profit entities
· In some cases, the AASB permitting only one of a number of options available in the corresponding IFRS
· Additional disclosures
The AASB also modified IFRSs for Public Benefit Entities (PBEs) and Not-for-Profit Entities (NFPs). PBEs are defined as ‘reporting entities whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders. NFPs are defined as entities whose principal objective is not the generation of profit. A not-for-profit entity can be a single entity or a group of entities comprising the parent and each of the entities that it controls. AASB decided to modify IFRSs for PBE and NFP in order to reflect the differences between the PBE and NFP and for-profit sectors, including differences in user information needs that warrant a different accounting treatment or guidance for public benefit and not-for-profit entities.
The reason for modifying IFRSs for PBE/NFP is based on the following assumptions:
a) IFRSs are developed by an expert standard setting board, the International Accounting Standards Board, and its views represent international consensus on best practice for publicly accountable for-profit entities
b) IFRSs are developed following a stringent due process which encourages parties interested for-profit entities to express their views
c) Modifications of IFRSs for PBE/NFP may be required when the IASB’s focus on for-profit entities means that an IFRS does not appropriately address PBE/NFP issues
It follows from the above that the mere fact that AASB prefer a different requirement from that reached by IASB on an issue will rarely be a sound basis for modifying an IFRS for PBE/NFP.
The basis for modifying IFRSs for PBE/NFP generally lies in the differences between the PBE/NFP and for-profit sectors, including user information needs. Information needs will generally differ between the sectors where matters such as the selection of options and transactions, events and circumstances differ between the sectors in prevalence and/or differences in the balance between costs and benefits. In some cases, the context or increased or reduced prevalence of a transaction or event for PBE/NFP, as compared with for-profit entities, required modifications to the relevant IFRS to ensure that user needs are met while considering the balance between costs and benefits. In such cases, requirements in an IFRS may be amended or a new standard may be developed to address the issue.
Few transactions, events and circumstances would uniquely occur in relation to PBE and NFP. However, some transactions, events and circumstances are more common among PBE and NFP than for-profit-entities and may warrant a separate standard or more specific guidance. Transactions and circumstances that would generally be considered on this basis include the following:
a) Non-exchange transactions, where an entity receives value from another entity without directly giving approximately equal value in exchange. Typical non-exchange transactions for PBE and NFP are the receipt of grants and donations and the exercising of taxing powers.
b) Non-cash generating assets or units, where the future economic benefits of an asset or unit are not primarily dependent on the activity’s ability to generate net cash inflows. Although such activities can occur in the for-profit sector, they are usually minor and subsidiary to the main objectives of the entity.
Additionally, there are many cases where user needs for information will be different between for-profit and PBE and NFP. For this reason, it is important that the Standards in presenting information and information to be presented be specifically designed for PBE and NFP. In particular, users of the financial reports of PBE and NFP are likely to be especially interested in:
a) Service delivery, being the quality of the goods and services produced and whether this level of quality is appropriate
b) Efficiency and productivity, being more likely to involve information that is based on costs and on information about outputs/outcomes that may be non-financial in nature
c) Sustainability, because the sustainability of PBE and NFP is more likely to depend on its meeting its mission than on its profits and profitability, whereas the sustainability of a for-profit entity is primarily dependent on financial performance
It follows that users of PBE and NFP financial reports may benefit from a modification that is not considered a significant benefit in respect of for-profit entities because of the relative frequency of certain transactions and other events. For example, in respect of an asset received for no cost, the determination of a deemed cost by reference to the asset’s fair value at acquisition can be viewed as providing more relevant information for users in a PBE and NFP context in which non-exchange transactions are relatively common. Such an amendment would result in a different measurement requirement for PBE and NFP from the measurement requirement applying to for-profit entities.
0 comments:
Post a Comment