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TECHNICAL: ACCOUNTING

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IASC FOUNDATION AMENDS CONSTITUTION TO EXPAND THE PACTICAL EXPERIENCE OF ITS INTERPRETATIONS COMMITTEE

The Trustees of the International Accounting Standards Committee (IASC) Foundation, the oversight body of the International Accounting Standards Board (IASB) has published amendments to the Foundation’s Constitution reflecting its wish that the membership of the International Financial Reporting Interpretations Committee (IFRIC) should have greater diversity of practical experience. The constitutional changes enlarge the IFRIC from 12 to 14 members, and amend the quorum and voting requirements accordingly.

NEW ACCOUNTING STANDARD TO CHANGE ACCOUNTING FOR MERGERS AND ACQUISITIONS

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 new requirements take effect on 1 July 2009, although entities are permitted to adopt them earlier.

AMENDMENT TO IFRS 2 – SHARE-BASED PAYMENT – VESTING CONDITIONS

The IASB has issued an amendment to IFRS 2 – Share-based Payment. 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.

PROPOSED GUIDANCE ON DISTRIBUTIONS OF NON-CASH ASSETS TO OWNERS

The IFRIC has released for public comment a draft Interpretation, D23 – Distributions of Non-cash Assets to Owners. This has been issued in South Africa as ED 223 and can be viewed on the SAICA website. The proposed Interpretation addresses the following
two issues:

(a)           How should an entity measure an obligation to distribute non-cash assets to its owners (a dividend payable)?

(b)           When an entity settles the dividend payable, how should it account for any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable?

PROPOSED GUIDANCE ON ACCOUNTING FOR CUSTOMER CONTRIBUTIONS

The IFRIC has released for public comment a draft Interpretation, IFRIC D24 – Customer Contributions. This has been issued in South Africa as ED 224 and can be viewed on the SAICA website.

Customer contributions are transactions in which an entity – the access provider – receives an asset it uses to provide access to an ongoing supply of goods or services to a customer or customers. In some cases, the access provider receives cash, which it must use to acquire or construct the asset that will provide access.

IFRIC D24 proposes:

  • all access providers (recipients of customer contributions) will be required to recognise contributed assets and revenue from providing access to a supply of goods or services over the period access is provided;
  • those access providers that have previously not recognised contributed assets will now recognise increased property, plant, and equipment and revenue; and
  • those access providers that have previously recognised revenue immediately on
    the receipt of a contributed asset may now be required to recognise it over a
    longer period.

Comment deadline to SAICA for EDs 223 and 224 is 4 April 2008.

AUDITING

IAASB MAKES FURTHER PROGRESS ON CLARIFICATION OF ITS AUDITING STANDARDS

To enhance the quality and consistency of audits, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), is continuing to advance its project to clarify its auditing standards. At its meeting in December 2007, the IAASB approved for public comment the following exposure drafts of proposed International Standards on Auditing (ISA) and proposed International Standards on Assurance Engagements (ISAE):

  • ISA 501 (Redrafted) – Audit Evidence Regarding Specific Financial Statement Account Balances and Disclosures.
  • ISA 520 (Redrafted) – Analytical Procedures.
  • ISA 210 (Redrafted) – Agreeing the Terms of Audit Engagements.
  • ISA 710 (Redrafted) – Comparative Information-Corresponding Figures and Comparative Financial Statements.

These standards have not been revised, but are only exposed for comment in accordance with the IAASB’s new drafting conventions designed to enhance the clarity of its pronouncements.

  • ISA 265 – Communicating Deficiencies in Internal Control.

The proposed ISA 265 deals with the auditor’s responsibility to communicate appropriately to management and those charged with governance, deficiencies in internal control that the auditor has identified in an audit of financial statements. It distinguishes between significant and other deficiencies in order to establish requirements to communicate to the appropriate levels within the audited entity. It also requires the former to be communicated in writing to those charged with governance.

  • ISA 402 (Revised and Redrafted) – Audit Considerations Relating to an Entity Using a Third Party Service Organisation.

The Exposure Draft reflects the revision of extant ISA 402, Audit Considerations Relating to Entities Using Service Organizations, including the application of the IAASB’s clarity drafting conventions. Proposed ISA 402 (Revised and Redrafted) deals with the user auditor’s responsibilities to obtain sufficient appropriate audit evidence when an entity uses one or more third party service organisations. This may include obtaining reports prepared by the auditors of those organisations.

  • ISAE 3402 – Assurance Reports on Controls at a Third Party Service Organisation.

The Exposure Draft of proposed ISAE 3402, Assurance Reports on Controls at a Third Party Service Organization, follows the IAASB’s clarity drafting conventions.

Proposed ISAE 3402 is the first subject-matter-specific standard developed under the IAASB’s International Framework for Assurance Engagements.

The proposed ISAE deals with reasonable assurance engagements undertaken by a professional accountant to report on the controls at a third party organisation that provides a service to user entities when those controls are likely to be part of the user entities’ information systems relevant to financial reporting.

It complements proposed ISA 402 (Revised and Redrafted) in that reports prepared in accordance with proposed ISAE 3402 will be capable of providing appropriate audit evidence under the proposed ISA. It will help to bring consistency in reporting on controls at service organisations, thereby assisting such organisations to meet the needs of clients (user entities) and their auditors. In particular, it should ensure that reports issued in one country are likely to meet the requirements of the auditors of user entities in other countries.

The above standards have all been redrafted in accordance with the IAASB’s new drafting conventions designed to enhance the clarity of its pronouncements.

The exposure drafts may be viewed by going to the IRBA website (www.irba.co.za)

PUBLIC SECTOR

WHAT IS NEW IN PUBLIC SECTOR ACCOUNTING?

South Africa Accounting Standards Board

The Accounting Standards Board (ASB) has issued a newsletter that sets out the outcome of its Board meeting held on 27 November 2007. During the meeting, the Board approved the standard of Generally Recognised Accounting Practice (GRAP) – Presentation of Budget Information in Financial Statements, an exposure draft 44 – Heritage Assets (comment due by 30 April 2008) and discussion paper 4 – Transfer of functions (comment due by 30 April 2008). The newsletter and other information on the meeting outcomes and ASB projects can be obtained from the ASB website (www.asb.co.za)

International Public Sector Accounting Standards Board

The International Public Sector Accounting Standards Board (IPSASB), has issued an updated International Public Sector Accounting Standard, Financial Reporting under the Cash Basis of Accounting (Cash Basis IPSAS). It includes new requirements that will help governments and other public sector entities to report consistently on international aid, development grants and other forms of external assistance.

Currently, there are a number of reporting practices between providers and recipients of external assistance that can be costly for recipients. The disclosures in the updated Cash Basis IPSAS will reduce some of these multiple reporting practices, helping recipients to use resources more efficiently. The external assistance requirements are effective for reporting periods beginning on or after 1 January 2009. The requirements will be formally adopted in South Africa once considered and approved by the South African ASB.

The standard, together with other IPSASB standards and guidance, can be downloaded from IFAC website (www.ifac.org)

National Treasury issues updated templates

National Treasury has issued updated templates for annual financial statements for period to 31 March 2008 for public entities, trading entities and constitutional institutions, and national and provincial departments. The templates can be obtained from the treasury website (www.treasury.gov.za)

TAX

WHAT’S NEW AT SARS?

The latest updates can be viewed on the SARS website (www.sars.gov.za).

THE DRAFT REGULATION OF TAX PRACTITIONERS BILL

The current Bill envisages a new body to govern tax practitioners.

SAICA through its National Tax Committee members submitted comments on the proposed Bill. SAICA and SAIPA further made a joint submission to SARS in this regard. In essence, the joint submission recommends that existing structures such as SAICA and SAIPA should be used and in this manner a double layer would not be created, as is the case with the current proposed draft Bill, which sees members being members of a number of different bodies.

In this manner only tax practitioners, who are not already a member of such a body, need join a new body for tax practitioners.

Edited By: Muneer Hassan

Technical queries: standards@saica.co.za

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standards@saica.co.za

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Telephone: 011 621 6641

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Website: http://www.saica.co.za