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TECHNICAL: ACCOUNTING

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CONSOLIDATION OF ZIMBABWEAN SUBSIDIARIES

On 29 January 2009, following a period of chronic hyperinflation associated with the Zimbabwean dollar, the acting Finance Minister of Zimbabwe announced that Zimbabwean entities would be permitted to trade in foreign currency. As a result, Zimbabwean entities no longer consider the Zimbabwean dollar to be their functional currency.

During the latter half of 2008, inflation and exchange rate data ceased to be published. Due to the difficulty in obtaining hyperinflationary data for this period, the Public Accountants and Auditors Board of Zimbabwe issued guidance titled “Guidance: Change in Functional Currency 2009”. This item, also known as “the Guide” provides relief to Zimbabwean entities in a number of areas.

South African companies that consolidate Zimbabwean subsidiaries should note that financial statements prepared in accordance with the Guide do not result in compliance with International Financial Reporting Standards (IFRS). Accordingly, if a material Zimbabwean subsidiary submits information for consolidation purposes, the South African holding company should consider the impact of departures from IFRS on the group, and whether any adjustments are required to claim compliance with IFRS

GUIDANCE TO ADDRESS THE ACCOUNTING FOR DEBT FOR EQUITY SWAPS ISSUED

During the financial crisis, entities renegotiated the terms of their contracts to settle financial liabilities. In certain circumstances, the creditors may have allowed the entity to settle the financial liability with the entity’s shares or other equity instruments. The International Accounting Standards Board (IASB) has issued IFRIC 19 – Extinguishing Financial Liability with Equity Instruments, to clarify the accounting for such transactions, which are sometimes referred to as debt for equity swaps.

IFRIC 19 clarifies the following:
• the entity’s equity instruments issued to a creditor are part of the consideration paid to extinguish the financial liability;
• the equity instruments issued are measured at their fair value. If their fair value cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished; and
• the difference between the carrying amount of the financial liability extinguished and the initial measurement amount of the equity instruments issued is included in the entity’s profit or loss for the period.
The interpretation is effective for annual periods beginning on or after 1 July 2010. Earlier application is permitted.

IFRIC 19 will be issued as an Interpretation to Statements of Generally Accepted Accounting Practice (GAAP) once approved by the Accounting Practices Board (APB) at its meeting in January 2010. You can access IFRIC 19 in an online SAICA handbook.

ACCOUNTING FOR PREPAYMENTS OF MINIMUM FUNDING REQUIREMENTS CLARIFIED

The IASB has issued amendments to IFRIC 14(AC 447) – IAS 19(AC 116) – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction that will apply in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. These amendments will permit such an entity to treat the benefit of such an early payment as an asset.

These amendments are effective for annual periods beginning on or after 1 January 2011. Earlier application is permitted.
The amendments to IFRIC 14(AC 447) will be issued as amendments to an Interpretation to Statements of GAAP once approved by the APB. You can access IFRIC 14 – IAS 19 in an online SAICA handbook.

DISCLOSURE RELIEF UNDER IFRS 1

The IASB has issued an exposure draft proposing to amend IFRS 1(AC 138) – First time adoption of IFRSs. This has been issued in South Africa as ED 276. The exposure draft states that an entity need not provide the comparative prior-period information required by the March 2009 amendments to IFRS 7(AC 144) – Improving Disclosures about Financial Instruments. This applies to first time adopters, adopting before 1 January 2010.

The proposed amendment to IFRS 1(AC 138) would provide first-time adopters with the same relief available to those already applying IFRSs when they first apply Improving Disclosures about Financial Instruments (Amendments to IFRS 7(AC 144)) issued in March 2009.

The comment deadline for this exposure draft was 29 December 2009. The submission is available on the SAICA website.

REGULATED INDUSTRIES

EXCHANGE CONTROL

The Exchange Control department of the South African Reserve Bank (EXCON) has issued the following Exchange Control Circular:

No. 21/2009 – Local financial assistance to affected persons and non-residents.
Following representations made in respect of Exchange Control Circular No. 20/2009, Authorised Dealers are advised that the entire Section I.1 of the Exchange Control Rulings has been deleted and substituted with a revised Section I.1.

In view of the numerous changes made to Section I.1, it is incumbent on authorised dealers to ensure that they become fully conversant with the content of all such changes.

Replacement pages of the amended Exchange Control Rulings can be requested from SAICA through our query system on www.saica.co.za.

TAXATION

Reportback from Kampala: African Tax Administration Forum (ATAF)

SAICA’s Project Director: Tax was invited by the SARS Commissioner to attend the inaugural launch of the ATAF 2009, held in Kampala 18 – 21 November 2009.

ATAF Inaugural conference

Tax Commissioners from 25 African Tax Administrations signed an agreement formally establishing ATAF. ATAF was formed to promote efficient and effective tax administration to foster economic growth and improved service delivery for the betterment of the living standards of people in Africa. This creates a platform to promote and facilitate mutual co-operation among tax administrations in Africa, and between Africa and the rest of the world.

There were a number of other participating African tax administrations and development partners. SAICA was noted in the official media statement among the development partner organisations. A representative from SARS, South Africa, was elected as the Chair of ATAF. Council members included representatives from Botswana, Gabon, Ghana, Kenya, Nigeria, Rwanda, Senegal and Zimbabwe. They will be joined by a representative from the North African region.

A number of resolutions were passed regarding the ATAF Agreement, procedures, transitional arrangements, staffing, the budget and the work programme for 2010. The theme of the conference was “Revenue mobilisation and state-building in Africa in the current global economic environment”.

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