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international
In response to requests to clarify the interaction between statutory or contractual minimum funding requirements and the requirements of IAS 19, Employee Benefits, the International Financial Reporting Interpretations Committee (IFRIC) has issued a draft Interpretation. D19, IAS 19, The Asset Ceiling: Availability of Economic Benefits and Minimum Funding Requirements, proposes that where an entity has a statutory or contractual obligation to pay additional amounts into a pension scheme, the entity should determine the extent to which these will not be available once paid into the plan, and apply them to reducing any surplus or increasing any deficit accordingly.
The International Federation of Accountants (IFAC) has recently issued four substantial Information Papers.
Why Sustainability Counts for Professional Accountants in Business and Professional Accountants in Business – At the Heart of Sustainability both address the fact that accountants in business are increasingly being called upon to become more involved in sustainable development.
The first paper gives an overview of enterprise sustainability and sets out the business case for addressing the risks and opportunities of sustainable development at the enterprise level. The paper also considers the ways in which professional accountants, especially those working for organisations which have significant environmental or social impacts, will be involved in measuring, recording and interpreting sustainability-related information.
In the second paper, 11 senior professionals working in various enterprises around the world comment on the role of accountants in business and the challenges they face in promoting and implementing sustainable development strategies. Internal controls – A Review of Current Developments summarises key internal control frameworks, highlights recent legislative and other initiatives and discusses the role of internal control in enhancing corporate governance. The paper identifies the importance of tone at the top, and the cultural and ethical framework of an organisation in the effective implementation of an internal control system.
The International Accounting Education Standards Board’s (IAESB) information paper, entitled Approaches to the Development and Maintenance of Professional Values, Ethics and Attitudes in Accounting Education Programmes, represents the culmination of a wide-ranging research project into ethics education in the accountancy profession. Based on the findings of the project, the researchers are proposing the adoption of a flexible ethics education framework to assist current and prospective IFAC members in developing and maintaining education programmes. The framework emphasises the development of ethics knowledge and ethical sensitivity at an early stage in professional education, as well as an ongoing commitment to ethical behaviour.
The document will provide the basis for an International Education Practice Statement and assist and support IFAC members in carrying out their responsibilities in ensuring that candidates for membership of a professional body have the appropriate professional values, ethics and attitudes. An education toolkit is also under development.
Yvonne Lang, a director at Smith & Williamson, the accountancy and financial advisory group, and technical adviser to the audit committee
of Nexia International, an international network of accounting and consulting firms.
www.smith.williamson.co.uk
UK & Ireland
The UK Accounting Standards Board (ASB) has responded to consultation on a draft due process handbook for the International Financial Reporting Interpretations Committee (IFRIC). Issued by the International Accounting Standards Committee Foundation, the draft handbook sets out the policies and procedures related to the IFRIC’s due process.
In its response, the ASB expresses support for the work of the IFRIC and the majority of proposals set out in the handbook. However, it also puts forward a further suggestion for the handbook, namely that details should be made publicly available of which issues have been submitted for consideration, when they were submitted, and what stage each issue has reached in the IFRIC’s processes. The ASB also calls for details to be given of what, if anything, is causing a delay in the process and when a final decision is expected to be taken. The ASB believes such information would provide greater transparency and confidence in the IFRIC’s work, and help to make sure issues are dealt with in a suitable timeframe.
Members of the ASB’s staff have also been working with colleagues in other standard setting bodies round the world (in Australia, Canada and New Zealand) to prepare and publish a report relating to not-for-profit entities in the private and public sectors. The report comments on the applicability to such entities of concepts proposed in the conceptual framework project being run by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). At present the IASB/FASB project is focusing exclusively on concepts for private sector businesses. The national standard setters’ report therefore considers how some of the differences in the not-for-profit sector affect the possible application of the concepts proposed by the IASB and FASB. The group of standard setters feel this is important, given that not-for-profit entities have different objectives and operating environments, as well as other different characteristics.
Sarah Perrin, accountant and writer.
Auditors in Ireland are no longer required to prepare premium handling reports for insurance brokers. The financial regulator, the Irish Financial Services Regulatory Authority, has confirmed that it may request a report where there are “issues”, but that the reports will no longer be a standard requirement. A premium handling report was a negative assurance report based on the performance of specified audit tests.
The Solicitors’ Accounts Regulations (SAR) have changed. For solicitors’ accounting periods ending on or after 1 March 2006 there is an amended form of report to be submitted to the Law Society. The amended report includes an acknowledgement, signed by the solicitor, of their responsibilities under the SAR. The Law Society has said that it has circulated the new report to all reporting accountants. For accounting periods ending between 1 January 2006 and 1 March 2006 the old form of report should be used, with an additional one-page acknowledgement which should be signed by the solicitor. For accounting periods ending before 1 January 2006 the old form of report should be used without the additional acknowledgement. Copies of the new reports can be obtained from the Law Society.
All credit unions in Ireland have a September year-end and require their audits signed off within a very short time frame. Credit union customers expect to receive their dividend (interest payment on deposits) prior to Christmas, and this can only be paid after the audit is completed and an AGM called. In addition to the short timeframe, September 2006 is the first year-end that credit union audits in Ireland will have to be carried out under International Standards on Auditing (UK and Ireland). The difficulties of a tight deadline and the change in auditing standards will be added to in 2007 when an IFSRA requirement to rotate audit engagement partners comes into effect for the first time. While there will be an additional familiarisation time required by the new engagement partners, auditors who are in sole trade practice will have to resign before the 2006 AGM and a new auditor appointed at that time. An Auditing Practices Board practice note on the audit of credit unions is nearing completion, and this should greatly assist auditors.
New guidance on the completion of confirmations in respect of the Pension Federation Operatives Pension Scheme – Requests for confirmation of submission of P35 can be found at /ireland.accaglobal.com/ireland/resources/auditing/
The Commission for Aviation Regulation (CAR) require that all travel agents on application for a licence or licence renewal must provide a set of financial statements “duly audited”. This presents a particular difficulty for unincorporated travel agents. An alternative form of report for unincorporated entities has been agreed with CAR and details are available at /ireland.accaglobal.com/ireland/resources/auditing/
Aidan Clifford, advisory services manager, ACCA Ireland.
Asia Pacific
Hong Kong & Mainland China
The Hong Kong Special Administrative Region Government signed the Arrangement for the Avoidance of Double Taxation on Income and Prevention of Fiscal Evasion with the Central People’s Government on 21 August 2006. The new arrangement extends the scope of the original agreement, which was signed in 1998, on business profits and income from personal services. It covers direct income earned by businesses and individuals, as well as indirect income such as dividends, interest and royalties, and ensures that the same income will not be doubly taxed in the two tax jurisdictions. Under the new arrangement:
- top rates for withholding tax for dividends received by a Hong Kong resident from the Mainland enterprises will be reduced from 20% to 10%, and a Hong Kong business from 10% to 5% if the Hong Kong business holds at least 25% of the capital of the Mainland enterprise
- top rates for withholding tax for interest and royalties received by a Hong Kong resident from the Mainland will be reduced from 20% to 7%, and a Hong Kong business from 10% to 7%
- the taxing rights for gains received by a Hong Kong resident or a Hong Kong business from the transfer of shares in a Mainland enterprise is allocated exclusively to Hong Kong. If the income does not amount to a trading receipt or is not sourced in Hong Kong, no profits tax will be charged in Hong Kong. In the case where the assets of the Mainland enterprises are comprised mainly of immovable property situated on the Mainland, or the shares transferred are equal to or exceed 25% of the shareholding of the Mainland enterprise, the income may be taxed in both jurisdictions. However, a tax credit arrangement will effectively ensure that the same income will not be taxed twice.
The new arrangement contains an article on
the exchange of information between the
State Administration of Taxation and the
Hong Kong Inland Revenue Department. However, the information to be exchanged is limited to information that is necessary for carrying out the provisions of the domestic laws concerning taxes covered by the new arrangement.
The Ministry of Finance issued the Exposure Draft of Implementation Guideline (IG) for the 39 accounting standards promulgated in February 2006. The proposed IG consists of two parts – Part 1: interpretations of the accounting standards, and Part 2: chart of accounts and their accounting treatments. The proposed IG and the accounting standards will be implemented in listed companies on
1 January 2007.
The State Administration of Taxation adopted new Individual Income Tax rules on transfer of property in China in August 2006. Individuals selling property in China is subject to individual income tax, calculated as 20% on the net amount of sales revenue (i.e. the sales price minus the purchase price, relevant taxes and qualifying expenses). In addition, austerity measures were introduced to cool off the recent boom in the Chinese real estate market. These include measures to tighten up restrictions for foreign investment in the real property sector in China.
PRC authorities issued “Rules on Acquisition and Merger of Domestic Enterprises by Foreign Investors” to further regulate the requirements and procedures on the acquisition and merger of PRC domestic enterprises by foreign investors. The rules aim to improve the M&A regulatory environment and to prevent expatriation of strategic assets, including tangible and intangible properties owned by state and private enterprises.
Sonia Khao, head of technical services,
ACCA Hong Kong.
Malaysia
In the 2007 Budget on 1 September 2006, the Prime Minister announced that to inculcate the culture of corporate social responsibility (CSR) within corporate Malaysia, Plcs would now have to disclose their CSR activities. He emphasised CSR practices are likely to attract large local institutional investors such as the Employees Provident Fund (EPF) and National Pension Fund.
Subsequent to this announcement, on
5 September 2006 the Bursa Malaysia (BM) (the Stock Exchange) launched its CSR framework for Malaysian Plcs. The BM CSR framework is a set of voluntary guidelines for Plcs that wish to practice CSR and outlines four focal areas: the environment; community; workplace; and marketplace. BM is of the view that all criteria do not apply to all companies; Plcs may choose and prioritise. Choice of CSR focus and initiatives will depend on the nature of business, resources and company inclinations. BM is going to “walk the talk” by focusing on all four dimensions as its CSR agenda. In his speech officiating the launch, the Finance Minister II once again reiterated the PM’s announcement on the disclosure of CSR activities and that a minimum requirement would be a CSR statement.
As part of the Corporate Law Reform Programme, the Companies Commission of Malaysia recently issued its fifth public consultation document, entitled Clarifying and Reformulating the Directors’ Role and Duties.
The consultation paper comprises five parts:
- Part I – Definition of “directors”, “directors qualifications”, “appointment”, “removal” and “compensation”.
- Part II – Clarifying and reformulating the roles and functions of company and the board of directors.
- Part III – Duty of care, skill and diligence of directors. The need for the enactment of a Business Judgment Rule (BJR).
- Part IV – Directors’ fiduciary obligations and conflict of interest.
Part V – Exemption and indemnification of Directors’ and Officers’ Liability.
The public consultation period ends on
14 November 2006. A copy of the document can be downloaded at www.ssm.com.my
Jennifer Lopez, manager of technical services, ACCA Malaysia.
Singapore
The Ministry of Finance (MOF) has accepted all the recommendations of the Council on Corporate Disclosure and Governance (CCDG), including retaining mandatory quarterly reporting for listed companies with market capitalisation exceeding S$75m, and continued exemption of smaller listed companies from mandatory quarterly reporting.
The CCDG also recommended that the market capitalisation of exempt companies
be reviewed at the end of each calendar year, starting 31 December 2006, and that these companies be subject to mandatory quarterly reporting if their market capitalisation
exceeds S$75m. Should a qualifying company’s market capitalisation fall below S$75m subsequently, it will not be exempted from mandatory quarterly reporting. This should not be too onerous, according to the MOF, since the company would already
have the necessary reporting framework in place.
The CCDG had also recommended retaining the 45-day reporting deadline for Q1, Q2 and Q3 results, and 60 days for annual results, as well as retaining a consistent format for Q1, Q2 and Q3 reports.
The recommendations will take effect for annual general meetings held on or after
31 December 2006. More details can be found at app.mof.gov.sg/news_press/pressdetails.asp ?pressID=236
The MOF conducted a public consultation exercise, which ended on 8 September, to seek public feedback and comments on the draft Limited Partnerships Bill 2006. A Limited Partnerships Act will be enacted after the relevant consultations.
A limited partnership (LP) is different from a limited liability partnership (LLP) and is a structure comprising at least one general partner with unlimited liability and limited partners with limited liability. It is essentially a general partnership, but with passive investors in the form of limited partners. While the limited partners enjoy limited liabilities, they are prohibited from participating in the management of the LP. The LP structure is common in other countries such as the UK and the US. While the Singapore LP structure will be made available to most businesses and professions, it is most likely to appeal to niche markets like the private equity and fund investment businesses. More details can be found at www.mof.gov.sg/consultation_current/public_con_lp_bill_2006.html
Joseph Alfred, technical adviser,
ACCA Singapore.
Australia & New Zealand
Australia’s retirement income system is set for one of its biggest shake-ups in decades, following confirmation the Federal Government will proceed with reforms announced in its May Budget.
The superannuation and pension proposals have been undergoing an industry consultation period since their release, with most of the reforms due to start on 1 July 2007.
The Treasurer, Peter Costello, says there was strong support for the changes during the consultation period.
“This is the biggest reform to superannuation that Australia has ever seen,” he claims. “It makes superannuation the best investment a person can make in their lifetime.”
The Government’s “Simplifying Super” plan includes:
- removing the exit tax on benefits
- removing Reasonable Benefit Levels (RBLs)
- removing minimum and maximum limits on superannuation pensions
- removing age-based contribution bands and replacing them with a universal contribution level regardless of age
- replacing existing employer-eligible terminal payment rules with a simplified system consisting of only exempt and taxable components, and
- restricting the annual amount of undeducted contributions.
The biggest change to the existing system is the removal of the current 15% tax on superannuation benefits, so people who withdraw their superannuation after age 60 will not be taxed on it. Under the existing system, Australians’ contributions to the compulsory system were taxed on entry, investment earnings and exit.
In addition, drawdown of benefits after retirement will be simplified. Individuals will no longer be forced to cash out their accumulated savings at particular ages, such as at age 65, if they do not meet a work test.
The new rules will allow retirees to draw down savings from their superannuation fund
as needed.
This is likely to see strong competition develop between superannuation funds and the banking and insurance sector, which is the traditional source of retirement income streams in Australia.
According to the Treasurer, the new system will encourage Australians to invest more in their superannuation to save for their retirement.
The new system will also assist with the Federal Government’s policy of improving labour force participation rates as a way of coping with an ageing population.
Janine Mace, Australian freelance finance
and business journalist.
Americas
US
The US standard setter FASB has been continuing its work on a wide range of projects. In particular, in August the board reconsidered the scope of phase one of its project on the fair value option. Following discussion, it has now decided that equity method investments will remain in the scope of phase one, and no eligibility criteria will be imposed for those investments. An entity will be required to apply the fair value option, if elected, to all of its financial investments (equity and debt) in an investee, rather than on a contract-by-contract basis. An entity may irrevocably elect the fair value option upon obtaining the ability to exercise significant influence.
In addition, investments in equity securities that do not have a readily determinable fair value will remain in the scope of phase one and no eligibility criteria will be imposed. Insurance and reinsurance contracts that meet the definition of a financial instrument will also remain in scope, as will warranty rights and obligations that meet the definition of a financial instrument. A number of other detailed decisions were also taken as to what will be included in or excluded from the scope of phase one. For example, the board also agreed that demand deposit accounts will be considered in phase two.
Meanwhile, FASB has decided that a staff position should be drafted to clarify the existing guidance regarding fair value measurements in FASB Statements 141, Business Combinations, 142, Goodwill and Other Intangible Assets, and 144, Accounting for the Impairment or Disposal of Long-lived Assets. These statements contain potentially ambiguous wording regarding the assumptions used in fair value measurements. The proposed staff position would be effective until reporting entities adopt the FASB’s proposed fair value measurements statement, which would then take precedence.
Sarah Perrin, accountant and writer.
Canada
The existence of events and conditions that may cast substantial doubt on an entity’s ability to continue as a going concern has been the focus of discussions at both the Canadian Accounting Standards Board (AcSB) and the Auditing and Assurance Standards Board (AASB).
The International Auditing and Assurance Standards Board (IAASB) and the American Institute of Certified Public Accountants (AICPA) have both issued specific standards regarding going concern. However, while Canadian auditing standards include several references to going concern, there is no single standard that establishes basic principles and essential procedures for the auditor. So the AASB has issued an exposure draft for a proposed new handbook section to provide standards and guidance on this issue. It reflects the principles and procedures in the IAASB’s International Standard on Auditing 570, Going Concern (ISA 570), and the AICPA’s Statement on Auditing Standards 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (SAS 59). The AASB plans to approve the final handbook material in the first quarter of 2007.
Like US GAAP, Canadian GAAP does not address management’s responsibility when there is substantial doubt about an entity’s ability to continue as a going concern. So, in parallel with the AASB’s Going Concern project, the AcSB has issued an exposure draft proposing to adopt the going concern paragraphs from International Reporting Standard IAS 1, Financial Statement Presentation. The AcSB would amend Section 1400, General Standards of Financial Statement Presentation, to include going concern guidance that is harmonised with paragraphs 23 and 24 of IAS 1. The AcSB plans to issue the final amendments to Section 1400 in the first quarter of 2007, to be effective for interim and annual financial statements for fiscal years beginning on or after 1 January 2008.
Comments for both the AASB and
AcSB exposure drafts will be received until
31 October 2006.
Alison Arnot, freelance writer and editor, Ottawa.
South Africa
aThe Independent Regulatory Board for Auditors (IRBA) is looking to expand the accreditation of professional bodies that can perform external audits in South Africa. Currently, only the South African Institute of Chartered Accountants (SAICA) is recognised, but it will still need to be accredited under the new legislation. Accreditation will be in two parts: institutional accreditation and programme accreditation. The latter includes the academic qualification, the training, the core assessment exam and the education programme.
The IRBA has, to date, received five times more reports of irregularities under the new Audit Profession Act than was the case before. The new act increased the scope of reportable irregularities that are required to be submitted to the IRBA compared with the previous Public Accountants and Auditors Act.
Local research indicated the importance of headline earnings per share (HEPS) varies among readers of financial statements. The project was undertaken because of debate in the press that questioned the usefulness of HEPS since the introduction and continuous update of IFRS, and follows a questionnaire issued by the Accounting Practices Committee (APC) of SAICA. This questionnaire gave consideration to scrapping or updating of a circular (7/2002 – Headline Earnings). Disclosure of HEPS is also currently a listing requirement of the JSE Securities Exchange South Africa. Results, however, gave no clear-cut solution.
Earlier this year the Eastern, Central and Southern African Federation of Accountants (ECSAFA) issued guidance on financial reporting for small and medium-sized entities (SMEs). The guidance reduces complexity for SMEs not required to apply International Financial Reporting Standards (IFRS). National standard setters are encouraged to adopt this guidance by January 2007. With corporate law reform currently under way in South Africa, despite the possible removal of the external audit requirement for SMEs, there might also be a relaxation in the application of accounting standards. Under current law, all South African companies are required to comply with SA GAAP, which has been aligned with IFRS.
Bernardt van der Linde, freelance writer
and former PwC chartered accountant.
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