Issues Relating to the Review of AAS 27

1
Issues Relating to the Review of AAS 27

• South Australian Local Government Financial
  Management Group ConferenceRobert Keys Senior
  Project Manager
• Australian Accounting Standards Board
• 8 December 2006

2
Public Sector Accounting Standards

• Three Immediate Challenges
• Transaction Neutral Accounting Standards
• Future of AAS 27
• GAAP/GFS Harmonisation

3
Transaction Neutrality

• What does it mean?
• Account for similar transactions in a similar
  manner no matter what sector
• Adopt IASB Standards and Framework as the core
• Flex where needed to cover the Public Sector
  Business Model
• To varying degrees, this approach is taken by
• Australia, NZ and IPSASB

4
Transaction Neutrality contd

• FRC is currently reviewing Consultants paper
  (comment period closed 31 October 2006)
• Some do not believe the public sector is
  well-served by the current approach
• Why? Introduction of IFRSs?
• Are we ahead of the rest of the world or taking
  the wrong path?
• Is a radical change warranted?

5
Transaction Neutrality contd

• Some complexities include
• We cant simply adopt IPSASs
• IPSASB is using 31 December 2003 IFRSs
• IPSASB has new standards projects
• Non-exchange Revenue
• Social Policy Obligations
• Service Concessions (PPP)
• Heritage Assets
• Budgetary Reporting
• IPSASB has a new Framework project
• IASB has a Framework Review project
• Local solutions Vs. International solutions

6
Transaction Neutrality contd

• AASB Approach
• Subject to any FRC Directive
• Retain existing approach most efficient
• Guiding principle rather than constraint
• Identify problem areas
• Review Aus paragraphs and amend where necessary
• Add further Aus paragraphs or separate
  topic-based standards for Public Sector where
  needed
• Review AASs 27, 29 31

7
Future of AAS 27

• Standard for Local Government
• You are not alone, also AASs 29 and 31
• IFRS approach is transaction-based not industry
  based, eg
• Insurance Industry is now Insurance Contracts
• Extractive Industry is now Exploration for
  Evaluation of Mineral Resources
• Consistent with IFRSs, much of the content of AAS
  27 ought now be found in other, topic-based
  standards
• See the paragraph-by-paragraph review on the AASB
  website (www.aasb.com.au)

8
Future of AAS 27 contd

• For each paragraph in AAS 27
• Do we need to keep it?
• No, if adequately addressed elsewhere, or no
  longer needed
• Yes, if not adequately addressed elsewhere
• If we keep it
• Where should it go?
• Should it be improved in the short-term?

9
Future of AAS 27 contd

• Expected outcomes
• Other standards will contain more Aus public
  sector paragraphs
• Possible new Standards for unique Public Sector
  matters, eg
• Segment-like information
• GAAP/GFS
• Does this mean the AASB doesnt love local
  government? No!
• See the AASBs Public Sector Policy on the AASB
  website
• Focus is on review, not withdrawal
• In sight and in mind

10
Future of AAS 27 contd

• The plan is to not leave a vacuum
• In the short-term, propose retaining unamended,
  warts and all, eg
• Non-exchange revenue
• Disaggregated information (segment-like
  reporting)
• Social policy obligations
• In the longer-term, undertake a detailed review
  of these and other issues
• May change some current requirements, even in the
  short-term, eg
• Accounting for restructure of local governments
• Land under roads

11
Future of AAS 27 contd

• Timing
• Aiming for ED in Q1 2007
• Please comment on it
• Contemplating making amended/new Standards
  operative for years ending on or after 30 June
  2008
• Big bang rather than staged

12
GAAP/GFS Harmonisation

• GAAP Generally Accepted Accounting Principles
• GFS Government Finance Statistics
• Arises from FRC directive, December 2002
• Harmonise GFS and GAAP reporting to achieve an
  Australian standard for a single set of
  government reports which are auditable,
  comparable between jurisdictions and in which
  outcome statements are directly comparable with
  budget statements
• Weve done it for the General Government Sector
  of the Australian Government and State/Territory
  Governments

13
GAAP/GFS Harmonisation contd

• AASB 1049 Financial Reporting of General
  Government Sectors by Governments
• Issued September 2006
• Mandatory years beginning on or after 1 July 2008
• Early adoption is allowed
• Accompanied by a Basis for Conclusions
• Accompanied by illustrative single-column
  financial statements and selected note
  disclosures, together with some explanatory
  material

14
GAAP/GFS Harmonisation contd

• Challenges faced
• AASB can change GAAP but not GFS
• To what extent should GAAP be abandoned/modified?
• Did it mean Adopt GFS? No!
• To what extent is a hybrid system acceptable?
• General Government Sector is a part of Whole of
  Government, which raised questions about
• Reporting entity
• Consolidation principles
• GPFR/SPFR

15
GAAP/GFS Harmonisation contd

• How AASB 1049 responds to the challenges
• Accept that GGS reporting breaches control
  criteria/ consolidation rules in GAAP
• GGS report to be prepared on a partial-consolidati
  on basis
• Report WoG at the same time, and provide a
  cross-reference
• No need to refer to whether GGS financial report
  is General Purpose/Special Purpose
• Adopt GAAP Measurement (even if different from
  GFS)
• Where GAAP has choices, adopt the choice aligning
  with or similar to GFS

16
GAAP/GFS Harmonisation contd

• How AASB 1049 responds to the challenges (contd)
• Adopt presentation that facilitates harmonisation
• Transactions/Other Economic Flows
• Key Fiscal Aggregates (eg Net Lending/(Borrowing))
  
• Disclose reconciliation of Key Fiscal Aggregates
• GAAP measures to GFS measures
• Many differences have been removed, but some
  remain
• GFS is ABS GFS not IMF GFS
• Compare outcomes with budget, and show and
  explain variances (at a high-level)
• Disclose limited disaggregated information
• Only expenses (excluding losses) and assets

17
GAAP/GFS Harmonisation contd

• How might local governments be affected?
• AASB will consider the extent to which its
  decisions for GGS should apply
• In principle, there is no reason not to
• Consider benefits in terms of duplication of
  effort
• Consider user needs?
• My best guess at this stage
• Unlikely to apply to local governments
• AASB will first deal with Australian Government
  and State/Territory Governments
• Whole of government
• PNFC sector and PFC sector
• Entities within the GGS

18
Some concluding comments

• Plenty happening that may affect you
• Review of the approach to transaction neutrality
• Review of implementation experience with AEIFRS
• Short-term review of AAS 27 requirements
• Mainly a relocation exercise, but it goes further
• Longer-term review of AAS 27 requirements
• In broader context of not-for-profit public
  sector entities, and even more broadly
  not-for-profit entities
• Ongoing work on GAAP/GFS harmonisation