ACCOUNTING PRONOUNCEMENTS APPROVED
At a meeting held on 8 February 2008, the Accounting Practices Board (APB) approved the following for issue:
- Revised IAS 1(AC 101) – Presentation of Financial Statements
The changes made are to require information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in a company’s equity resulting from transactions with owners in their capacity as owners (such as dividends and share repurchases) separately from ‘non-owner’ changes (such as transactions with third parties). The revised standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements, a separate income statement followed by a statement of comprehensive income.
The revisions include changes in the titles of some of the financial statements to reflect their function more clearly, for example, the ‘balance sheet’ is renamed a ‘statement of financial position’. The new titles will be used in accounting standards, but are not mandatory for use in financial statements. The revised standard will come into effect for the annual periods beginning on or after 1 January 2009, but early adoption is permitted.
- Revised IFRS 3(AC 140) – Business Combinations
The International Accounting Standards Board (IASB) has completed the second phase of its business combinations project by issuing a revised version of IFRS 3 – Business Combinations and an amended version of IAS 27 – Consolidated and Separate Financial Statements.
The following are examples of major changes required in accounting for business combinations:
- Transparency of acquisition-related costs. Companies will be forced to reveal, for example, fees paid to the investment banks; finder’s fees; advisory, legal, accounting, valuation, and other professional or consulting fees.
- General administrative costs, including the costs of maintaining an internal acquisitions department. These will have to be expensed through profit and loss and not be absorbed into the goodwill figure as is done currently.
- Focusing on changes in control as a significant economic event. There are now requirements to remeasure interests to fair value at the time when control is achieved or lost.
- Simplified measurement of goodwill in a step acquisition. The requirement to measure, at fair value, every asset and liability at each step in an acquisition that is achieved in stages (that is, when an acquirer has an existing holding and acquires additional shares to achieve control) has been removed. These valuations were necessary to calculate goodwill. Instead, goodwill is now measured as the difference at the acquisition date between the value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired.
- Goodwill and minority interests (now called non-controlling interests). An option has been added to IFRS 3(AC 140) to permit an entity to recognise 100% of the goodwill of the acquired entity, not just the acquiring entity’s portion of the goodwill, with the increased amount of goodwill also increasing the non-controlling interest (NCI) in the net assets of the acquired entity. This is known as the ‘full goodwill method’. Such NCI is reported as part of consolidated equity. The ‘full goodwill’ option may be elected on a transaction-by-transaction basis.
- Contingent consideration: If the amount of contingent consideration changes as a result of a post-acquisition event, regarding information which did not exist at the acquisition date (such as meeting an earnings target) accounting for the change in consideration is recognised in profit or loss.
- Revised IAS 27(AC 132) – Consolidated and Separate Financial Statements
The revision to IAS 27(AC 132) requires an entity to attribute its share of total comprehensive income to the NCI, even if this results in the NCI having a deficit balance.
There are also consequential amendments to other standards, most notably IAS 28(AC 110) – Investments in Associates and IAS 31(AC 119) – Interests in Joint Ventures, where there are partial disposals of associates and joint ventures. If an investor loses significant influence over an associate, it derecognises that associate, but recognises in profit or loss the difference between the sum of the proceeds received and any retained interest, and the carrying amount of the investment in the associate at the date significant influence is lost. A similar treatment applies when an investor loses joint control over a jointly controlled entity. The new requirements take effect on 1 July 2009, although entities are permitted to adopt it earlier.
- Amendment to IFRS 2(AC 139) – IFRS 2 – Share-based Payment: Vesting Conditions and Cancellations
The amendment deals with two matters. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The new requirement takes effect on 1 January 2009, although entities are permitted to adopt them earlier.
AMENDMENTS TO FINANCIAL INSTRUMENTS
The International Accounting Standards Board (IASB) has issued amendments to improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares, but are at present classified as financial liabilities. The amendments, which respond to requests from entities around the world, are set out in Amendments to IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation.
The amendments to IAS 32 and IAS 1 can be downloaded from the SAICA handbook-on-line, (international section).
PREFACE TO STATEMENTS OF GAAP
The Preface to International Financial Reporting Standards was revised and reissued in January 2008, as a result of the constitution review undertaken by the International Accounting Standards Committee Foundation (IASCF).
The Preface to Statements of GAAP is reissued with the revised Preface to International Financial Reporting Standards (IFRS) as Appendix A.
SEGMENT REPORTING
An updated version of IAS 14 – Segment Reporting (includes amendments resulting from new and amended IFRSs issued up to 10 January 2008) was issued by the IASB in January 2008. IAS 14 is being superseded by IFRS 8 – Operating Segments. IFRS 8 is required to be applied from 1 January 2009, but earlier adoption is permitted.
EDITORIAL CORRECTIONS TO IFRS
The IASB issued editorial corrections to various IFRSs on 21 January 2008 and 7 February 2008. Refer to the IASB website, www.iasb.org to view the various lists of changes.
REMOVAL OF EXPOSURE DRAFTS
The following EDs had been removed from the SAICA website:
ED 202 – Amendments to IFRS 4(AC 140) – Business Combinations
ED 203 – Amendments to IAS 27(AC 132) Consolidated and Separate Financial Statements
ED 211 – Amendments to IFRS 2 Share-based Payment: Vesting Conditions and Cancellations
ED 212 – Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation
ED 213 – Draft Due Process Handbook for the IFRIC
ED 220 – Headline Earnings
STANDARDS AND INTERPRETATIONS ISSUED, EFFECTIVE 2008/2009
Paragraph 30 of IAS 8(AC 103) – Accounting Policies, Changes in Accounting Estimates and Errors states that “When an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity shall disclose:
(a) this fact; and
(b) known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity’s financial statements in the period of initial application.”
Paragraph 30 of IAS 8(AC 103) states that “In complying with paragraph 30, an entity considers disclosing:
(a) the title of the new Standard or Interpretation;
(b) the nature of the impending change or changes in accounting policy;
(c) the date by which application of the Standard or Interpretation is required;
(d) the date as at which it plans to apply the Standard or Interpretation initially; and
(e) either:
(i) a discussion of the impact that initial application of the Standard or Interpretation is expected to have on the entity’s financial statements; or
(ii) if that impact is not known or reasonably estimable, a statement to that effect”.
In order to assist companies with this disclosure, SAICA has included below a list of Standards and Interpretations that are effective for annual reporting dates beginning after 1 January 2008. The list highlights the International Accounting Standards Board’s (IASB’s)/International Financial Reporting Interpretations Committee’s (IFRIC’s) issue date as an International Financial Reporting Standard (IFRS) or interpretation (IFRIC), as well as the Accounting Practices Board’s (APB’s) issue date of the Statement of Generally Accepted Accounting Practice (SA GAAP) and the effective date thereof.
Please note that some of these new Standards and Interpretations or amendments and revisions thereto have transitional provisions that permit them to be early adopted. If a company chooses to early adopt, it should be adopted in full and the early adoption should be disclosed if this is required by the relevant Standard or Interpretation.
Amendment to
IFRS 2(AC 139) IFRS 2 – Share-based Payment: Vesting Conditions and Cancellations
IASB Issue date: January 2008
APB Issue date: February 2008
Effective date: 1 January 2009
Revised
IFRS 3(AC 140)* Business Combinations
IASB Issue date: January 2008
APB Issue date: February 2008
Effective date: 1 July 2009
IFRS 8(AC 145) Operating Segments
IASB Issue date: November 2006
APB Issue date: February 2007
Effective date: 1 January 2009
Revised
IAS 1(AC 101) Presentation of Financial Statements
IASB Issued date: September 2007
APB Issue date: February 2008
Effective date: 1 January 2009
IAS 23(AC 114) Borrowing Costs
IASB Issue date: March 2007
APB Issue date: August 2007
Effective date: 1 January 2009
Revised
IAS 27(AC 132)* Consolidated and Separate Financial Statements
IASB Issue date: January 2008
APB Issue date: February 2008
Effective date: 1 July 2009
Amendments to
IAS 32(AC 125)
IAS 1(AC 101) Financial Instruments: Presentation and Presentation of Financial Statements: Puttable Financial Instruments and Obligations Arising on Liquidation
IASB Issue date: February 2008
Not yet approved by APB
Effective date: 1 January 2009
IFRIC 12(AC 445) Service Concession Arrangements
IFRIC Issue date: November 2006
APB Issue date: February 2007
Effective date: 1 January 2008
IFRIC 13(AC 446) Customer Loyalty Programmes
IFRIC Issue date: June 2007
APB Issue date: August 2007
Effective date: 1 July 2008
IFRIC 14(AC 447) The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
IFRIC Issue date: July 2007
APB Issue date: August 2007
Effective date: 1 January 2008
*These revisions have made consequential amendments to IAS 28(AC 110) – Investments in Associates and IAS 31(AC 119) – Interests in Joint Ventures.
STANDARDS AND INTERPRETATIONS ISSUED, EFFECTIVE FOR DECEMBER 2007 YEAR ENDS ONWARDS
When preparing financial statements for December 2007 year-ends you need to consider applying the requirements of Standards and Interpretations that became effective during 2006 and 2007. These are:
IFRS 7(AC 144) Financial Instruments: Disclosures
IASB Issue date: August 2005
APB issue date: November 2005
Effective date: 1 January 2007
Amendment to
IAS 1(AC 101) Presentation of Financial Statements: Capital Disclosures
IASB Issue date: August 2005
APB Issue date: November 2005
Effective date: 1 January 2007
IFRIC 7(AC 440) Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
IASB Issue date: November 2005
APB Issue date: February 2006
Effective date: 1 March 2006
IFRIC 8(AC 441) Scope of IFRS 2
IASB Issue date: January 2006
APB Issue date: February 2006
Effective date: 1 May 2006
IFRIC 9(AC 442) Reassessment of Embedded Derivatives
IASB Issue date: March 2006
APB Issue date: April 2006
Effective date: 1 June 2006
IFRIC 10(AC 443) Interim Financial Reporting and Impairment
ASB Issue date: July 2006
APB Issue date: October 2006
Effective date: 1 November 2006
AC 503 Accounting for Black Economic Empowerment (BEE) Transactions
APB Issue date: April 2006
Effective date: May 2006
Statement of GAAP for SMEs
APB Issue date: October 2007
Effective date: 1 October 2007
STANDARDS AND INTERPRETATIONS ISSUED, EFFECTIVE FOR DECEMBER 2007 INTERIMS AND JUNE 2008 YEAR ENDS ONWARDS
When preparing interim financial statements for interim periods ending December 2007 and therefore relating to the financial statements for the year ending June 2008, you need to ensure you have applied the following Standards and Interpretations that became effective in this period:
IFRS 7(AC 144) Financial Instruments: Disclosures
IASB Issue date: August 2005
APB issue date: November 2005
Effective date: 1 January 2007
Amendments to
IAS 1(AC 101) Presentation of Financial Statements: Capital Disclosures
IASB Issue date: August 2005
APB Issue date: November 2005
Effective date: 1 January 2007
IFRIC 10(AC 443) Interim Financial Reporting and Impairment
IASB Issue date: July 2006
APB Issue date: October 2006
Effective date: 1 November 2006
IFRIC 11(AC 444) IFRS 2 – Group and Treasury Share Transactions
IASB Issue date: November 2006
APB Issue date: February 2007
Effective date: 1 March 2007
Statement of GAAP for SMEs
APB Issue date: October 2007
Effective date: 1 October 2007
AUDITING
IAASB AMENDS INTERNATIONAL STANDARDS ON REVIEW ENGAGEMENTS TO CLARIFY THEIR APPLICABILITY TO SPECIFIC ENGAGEMENTS
The International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), has agreed to amend the following International Standards on Review Engagements (ISREs) to clarify to which engagements each is to be applied:
- ISRE 2400, Engagements to Review Financial Statements; and
- ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity.
The issue that had been brought to the IAASB’s attention is that ISRE 2410 applies in the case of a review by the entity’s auditor of interim financial information only, while ISRE 2400 applies to all reviews of historical financial information excluding those conducted by the entity’s auditor. Thus, there would appear to be no Standard directly relevant to reviews by the entity’s auditor of historical financial information other than interim financial information.
To resolve the issue, the IAASB has amended ISRE 2410 to apply also to such reviews. This reflects the principal distinction between ISRE 2400 and ISRE 2410, which is that ISRE 2410 is written on the basis that the entity’s auditor is able to use his or her audit-based knowledge of the entity when carrying out a review of any historical financial information. The most common example of a review engagement that might be undertaken by an entity’s auditor is the review of interim financial information issued by a public company; other examples have arisen in practice, however, and the change makes it clear that these also fall within ISRE 2410. When approving ISRE 2410, the IAASB did not intend to remove the auditor’s reviews of historical financial information (other than interim financial information) from the scope of the ISREs.
Furthermore, to align the application of ISRE 2400, ISRE 2410 and International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, the IAASB agreed to restrict the application of ISRE 2400 to a review of any historical financial information performed by a practitioner who is not the entity’s auditor. Before this amendment, ISRE 2400 indicated that it may be applied “to the extent practicable” to engagements to review other information.
These minor amendments, which are effective immediately, clarify the application of the ISREs and ISAE 3000 by eliminating a small gap in the apparent scope of the ISREs and ensuring that, as intended, there is no overlap in the scopes of the ISREs and ISAE 3000. As a result, practitioners will have no doubt about which standard is to be applied to a review engagement.
The amendments to ISREs 2400 and 2410 may be viewed by going to the IRBA website.
PUBLIC SECTOR
ACCOUNTING STANDARDS BOARD
The Accounting Standards Board, during its meeting on 14 February 2008, approved the following documents:
- GRAP 23 – Non-Exchange Transactions (Taxes and Transfers).
- Directives on Transitional Provisions. Directives that provide guidance to entities on the transition from their current applied basis of accounting to the basis of accounting as prescribed by the Standards of Generally Recognised Accounting Practice (GRAP).
The standards, exposure drafts, discussion papers and updates of the Board are available on the ASB website (www.asb.co.za).
REGULATED INDUSTRIES
HEADLINE EARNINGS – LIFE INSURANCE SECTOR-SPECIFIC RULE
Circular 8/2007 – Headline Earnings has been amended to include a new sector-specific rule. The rule applies to the investment properties of a listed life insurer and its subsidiaries and associates. Any listed entity that has a long-term insurer as a subsidiary or associate must also apply this rule to the investment properties of the long-term insurer and its subsidiaries and associates. Any listed entity that has a listed life insurer as a subsidiary or associate must use the reported headline earnings of that listed life insurer in its own headline earnings calculation.
In terms of the rule “all gains or losses (unrealised and realised) on the re-measurement (which by definition includes a disposal) of all investment properties are included re-measurements and must therefore be included in headline earnings. This rule applies irrespective of whether the investment property was purchased with policyholders’ or shareholders’ funds and irrespective of whether the entity’s accounting policy is to measure its investment properties at cost or fair value.”
The effective date for the listed life insurers and the long-term insurer subsidiaries and associates of entities listed in other sectors of the JSE to apply this rule is for all financial periods (interim and/or annual periods) ending on or after 31 January 2008. Early adoption is permitted but not for results published before 22 February 2008, the date on which this rule was issued.
EXCHANGE CONTROL CIRCULARS
The Exchange Control department of the South African Reserve Bank (EXCON) has issued the following Exchange Control Circulars:
- 1/2008 – Annual withdrawal and retention of Circulars
All exchange control circulars that were current in 2007 have been withdrawn with the exception of the following:
- 1/2005 – Re-issue of exchange control rulings
- 2/2006 – Study facilities – Church of Scientology
- 7/2006 – Loans extended by South African development finance institutions to African companies or projects
- 15/2006 – Export Pilot Project
- 16/2006 – Statement on Exchange Control
- 22/2007 – Authorised Dealers in Foreign Exchange
- 26/2007 – United Nations Security Council resolutions against Iraq, Liberia, Democratic Republic of the Congo, Cote d’Ivoire and Sudan
- 2/2008 – Nominated branches to transact insurance business
The list of names contained in Section B.10(K) of the Rulings has been updated.
- 3/2008 – Securities Control – Authorised Banks
The reference to ABSA bank contained in the table in Section G(A)(iii)(j) has been amended.
The content of withdrawn circulars has been incorporated into the Exchange Control Rulings (the Rulings). Please direct any specific queries regarding the Exchange Control Circulars or Rulings to standards@saica.co.za.
TAX
WHAT’S NEW AT SARS?
The latest updates can be viewed on the SARS website (www.sars.gov.za).
JOINT SUBMISSION
The South African Institute of Chartered Accountants (SAICA) and the South African Institute of Professional Accountants (SAIPA) made a joint submission to the South African Revenue Service (SARS) regarding the body known as the ‘South African Institute of Tax Practitioners’ (SAIT). The submission requests SARS views relating to the following:
4.1 The lawfulness and fairness of the new name of the SOUTH AFRICAN INSTITUTE OF TAX PRACTIONERS.
4.2 The perceived endorsement of the SAIT.
4.3 The effect of such name on other existing professional bodies, their members and the accounting profession in general.
4.4 The exclusive right of the impending Regulatory Board for Tax Practitioners to the use of the words ‘Tax Practitioners’.
A copy of the submission is available on the SAICA website.
Edited By: Annelies Dieusaert
Technical queries: standards@saica.co.za
Ethics and Discipline queries: standards@saica.co.za
Information Centre: pelmag@saica.co.za
Telephone: 011 621 6641
Telefax: 011 621 6819
Website: http://www.saica.co.za
