4951370Accounting and Audit ReformAASB 1020
ilrobbinrosso (ID#: 406483) 4951370Accounting and Audit ReformAASB 1020 21/5/02 8:26:06 PM 5184726 « Previous Message Next Message »
--------------------------------------------------------------------- Ten Measures for Accounting and Audit Reform --------------------------------------------------------------------- Part of an address by David Knott, Chairman Australian Securities and Investments Commission, to the CPA 2002 Conference, Perth, --------------------------------------------------------------------- Ten Measures for Accounting and Audit Reform --------------------------------------------------------------------- What is clear, however, is a pressing need for measures which will restore confidence and credibility to accounting and audit. Some time ago President Bush outlined a ten-point reform plan. I do not propose to be quite so ambitious this afternoon. However, I will now discuss ten measures which we place on the table as a contribution to this debate. --------------------------------------------------------------------- 1. Australia should remain committed to the development and adoption of a complete and consistent package of international accounting standards. Those standards must address key areas of current international disparity and plug holes that currently exist. I include by way of examples: accounting for acquisitions and the resulting goodwill; accounting for other intangibles: accounting for executive and other stock options; recognition of off-balance sheet commitments resulting from leasing and similar arrangements; accounting for financial instruments including derivatives; and accounting for debt/equity instruments. --------------------------------------------------------------------- 2. Those international accounting standards should redress the current dominance in some jurisdictions of form over substance – and reintroduce to the law an overriding qualitative accounting consideration and audit opinion that the accounts truly and fairly report the financial condition of the corporation. The ‘true and fair override’ was removed in Australia some years ago because it was perceived that it was abused by preparers, who simply used it to avoid standards they did not agree with. If, as we hope, it is reintroduced here through the international harmonisation process, it must be accompanied by enforcement sanctions to prevent the repetition of past abuses. --------------------------------------------------------------------- 3. Australia should commit to the wholesale adoption of these updated international accounting standards. It is not acceptable that the efficacy of international standards should be undermined by selective fine-tuning by user countries. Our commitment to adoption should be unconditional. The AASB should, by the end of this decade, be almost entirely concerned with providing input into the international accounting standard setting process and only in extremely rare circumstances be issuing national standards that deal with unniquely Australian situations. --------------------------------------------------------------------- 4. The principle of rotating audit firms should be embraced to underpin the independence of auditors and to counter-balance the influence of any long-term service provider/client relationship. --------------------------------------------------------------------- I have previously stated that firm rotation should be seriously considered. I hold that view because I believe that partner rotation, while useful during the life of an audit engagement, will not achieve the same result as firm rotation. It is not credible that one partner will seriously challenge the established audit practice and advice previously provided by his firm through another partner. Rotation of firms, as encouraged by CPA Australia, is the more credible process. --------------------------------------------------------------------- Nevertheless, I also accept the significant pragmatic obstacles that confront firm rotation, particularly in light of increased concentration of the profession. I accept that this is a worldwide issue and that Australia's interests would not be served by adopting a unilateral reform. This therefore is one of those 'first principle' issues which we place on the table for serious discussion and consultations, but without pre-judging of the outcome. --------------------------------------------------------------------- I also make the point that it doesn't have to be all or nothing. For example, one might contemplate firm rotation every seven years for listed companies as a‘default’ position, but one which could be deferred by shareholder vote at theannual general meeting in the year preceding rotation. It is, after all, theshareholders we are trying to protect. If they are persuaded by their Directorsthat compulsory rotation might do more harm than good – taking account of the company's particular circumstances – then their voice should be heard. But atleast a default position of rotation would ensure active shareholder participation in the decision. In our view that is something that should be put to shareholders at each AGM after the rotation period has expired until a replacement firm is appointed. I also make the point that voluntary adoption of this process by companies would send strong signals to their shareholders and the market about a genuine commitment to increased standards of governance and shareholder protection. --------------------------------------------------------------------- 5. Audit and consultancy services should not be provided to the same clients. This is not the same as saying that audit firms should be banned from being engaged in consultancy. There is validity to the argument that diversity of service is desirable in order to maintain the attractiveness of firms to future generations of accountants. An ability to generate revenue streams across different business lines should not be readily dismissed. --------------------------------------------------------------------- However, there is no denying the conflict that arises when audit and consultancyservices are provided to the same clients. In such circumstances, it is natural and predictable that the firm will seek to optimise its overall financial return from the relationship. No amount of disclosure or Chinese walls will alter the dynamic of that commercial relationship. What is most likely to suffer? The rigour and independence of audit. --------------------------------------------------------------------- For these reasons, we believe that firms should be precluded from providingconsultancy services to their audit clients, but should be permitted to consult to other clients. --------------------------------------------------------------------- That is also something that might help to preserve a degree of pluralism ofspecialist accountancy services within the listed market segment,notwithstanding consolidation of the profession. --------------------------------------------------------------------- 6. The law needs to more clearly set out its expectations for corporatewhistleblowing. Consideration should be given not only to strengthening currentreporting obligations of auditors to the regulator, but extending those obligations to a nominated officer of the corporation itself. Financial misconduct within corporations usually requires the transactional assistance of staff who know that things are wrong, but who feel unable to influence the utcome. The law should encourage, even oblige, such people to make known their concerns to the Board,the auditor and even directly to the regulator. One possibility that could be seriously considered is to impose such a reporting obligation on the most senior line financial manager of the corporation who is not a Board member. At first blush this may seem radical, yet in the insurance sector direct reporting obligations by the auditor to the regulator and by the in-house actuary already exist. Indeed, those obligations are being extended under general insurance reforms. --------------------------------------------------------------------- Such obligations should be accompanied by adequate statutory indemnity toensure full protection against recrimination by the corporation or other parties. The almost total absence of misconduct reports to ASIC by auditors in the past reflects the ambivalent nature of their existing legal obligation and the absence of incentive and protection. It is time to do something about it. --------------------------------------------------------------------- 7. Existing auditing standards need to be reviewed to increase the rigour of audit. Those standards should have the force of law (as with accounting standards) and ASIC should have effective powers to police them. --------------------------------------------------------------------- 8. At least for the listed sector, it should be compulsory for the Board (in theabsence of full-time management representatives where the company structurepermits) to agree to the audit mandate and to review audit issues with theauditors at least six monthly. Whether this is achieved through AuditCommittees or not does not seem crucial. The much more important imperativeis to reinforce the need for active dialogue between the Board and auditors,independent of management sanitization. In most cases an Audit Committee may well be the best way to manage that dialogue. --------------------------------------------------------------------- 9. It should be compulsory that auditors attend AGMs of listed companies and that they be available to answer questions from shareholders. When this was lastconsidered seven years ago objections were raised on the grounds that Directorsare not themselves obliged to attend meetings. In my opinion, that is ananomalous situation which should be rectified. In the absence of valid excuse by reason of ill-health or other indisposition, directors and auditors should bepresent to account to shareholders on their one day of the year. I believe that this proposal should be back on the table. --------------------------------------------------------------------- 10. Rather than mandating quarterly reporting, as recommended by CPA Australia,the current continuous disclosure regime should be reviewed to ensure that itcaptures the timely publication of relevant information to shareholders and thebroader market. That review should examine the subjectivity inherent in thecurrent ASX Rules; and the sanctions available to the Regulator. A robustregime of continuous disclosure, supported by proportionate and timelysanctions, remains the best means of sustaining a well-informed and transparent market. --------------------------------------------------------------------- http://www.stockhouse.com.au/bullboards/viewmessage.asp?no=4951370%20%20&tableid=1 --------------------------------------------------------------------- rainbow8 (ID#: 401932) accountancy the next time ERG reports. 25/3/02 12:10:17 PM 4951370 « Previous Message Next Message » --------------------------------------------------------------------- The next time ERG report it will be under the method below. ------------------------------------------------------------------- Posted By Subject Post Time Post ID --------------------------------------------------------------------- viking116 (ID#: 399317) Standard AASB 1020-effect from 1 July 2002 9/3/02 1:19:04 AM 4882398 « Previous Message Next Message » --------------------------------------------------------------------- http://www.ey.com/Global/gcr.nsf/Australia/News_release_-_ --------------------------------------------------------------------- Tax effect accounting set to be next big challenge following introduction of GSTErnst & Young urges preparedness as fundamental shift in tax accounting practices looms21 February, 2002 Ernst & Young has monitored an unprecedented level of interest in the run up the introduction of a new accounting standard which could prove to be the next biggest challenge for Australian businesses following the introduction of the GST. When it comes into effect from 1 July 2002, the Australian Accounting Standard AASB 1020 "Income Taxes" (revised) will impact every Australian company as the changes represent a fundamental conceptual shift in the method of accounting for income taxes (tax effect accounting). --------------------------------------------------------------------- "Under the revised Standard, which is in line with key international Standards, the focus will be on a company's balance sheet, rather than on its profit and loss statement," said Ms Ruth Picker, Partner, National Accounting & Auditing Standards, with Ernst & Young. --------------------------------------------------------------------- "Given the response that we have had to our educational seminars and the feedback we have been receiving from our clients, it is clear that the introduction of the new standard is a particularly hot topic for most companies. We regard this as one of the most important accounting issues facing Australian companies since the introduction of the GST," she said. --------------------------------------------------------------------- Ernst & Young's educational seminars on the new standard are already oversubscribed with over 800 tax and accounting personnel rushing to better understand the Standard's full impact in seminars in Sydney and Melbourne in February. --------------------------------------------------------------------- According to Ms Picker, the issues relating to the Standard can look deceptively simple when bundled up. "We caution, that companies must have a thorough understanding of the Standard in order to predict and prepare for its business-wide impact. Assessing the full impact of the AASB 1020 (revised) is essential because looking at the change as simply an accounting issue will expose a company to a raft of risks. To identify and prepare for the full impact of the revised Standard, the wider business issues associated with the new method of tax-effect accounting need to be unpacked. The issues likely to end up on the table for most companies will include transition, tax planning, integration of the new tax consolidation rules with the new accounting rules, the management of income tax expense and operational issues". --------------------------------------------------------------------- The new balance sheet method of tax-effect accounting is more comprehensive in recording the taxation consequences of transactions recognised in financial reports. In the past, tax-effect accounting calculations were based on a comparison of profit and loss statements in a process that identified timing differences. Under the revised Standard, these calculations will be based on balance sheets. As a result, items that might have been previously ignored in tax-effect accounting calculations, such as revaluations, foreign currency issues, equity accounting, and acquisitions, will now need to be considered. --------------------------------------------------------------------- Ernst & Young emphasises the need for tax and accounting functions to work closely together to ensure optimal business outcomes are achieved under the new rules. Under the revised Standard, tax planning will need to incorporate strategic assessment from both accounting and tax specialists due to the potential impact of the new tax-effect accounting rules. --------------------------------------------------------------------- The new balance sheet method relies on the determination of tax assets and liabilities-effectively a tax balance sheet. As a result, the calculation of tax values is central to the approach. The application of tax knowledge is crucial to the determination of the tax base of assets and liabilities. --------------------------------------------------------------------- Read more in our Tax-effect accounting - Unpacking the impact. --------------------------------------------------------------------- Further media information: --------------------------------------------------------------------- Matthew Coleman National Public Relations Manager Ernst & Young Tel: 61-2-9248 5828 Mobile: 0410 589 528 --------------------------------------------------------------------- Christian May Media Relations Manager Ernst & Young Tel: 61-2-9248 5030 Mobile: 0405 255 503 ---------------------------------------------------------------------
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