Visit the AASB website (www.aasb.gov.au) and find out the following items:
1.Who is the Chair of the AASB?
2.Who are the members, and which organisations do they represent?
3.Which accounting standards have been issued in the past year?
4.Why are there differences in the numbering systems for current accounting standards (e.g. AASB x, AASB xxx and AASB xxxx)?
5.What current projects (if any) is the AASB working on in cooperation with the IASB?
The Corporation Act 2001 and its regulation of companies
The corporation act regulates the companies in Australia and deals with the matter related to formation of the company, operation of the company, and duties of the officer, fundraising and takeover. The corporation act 2001 requires that the executive officers and directors of the company exercise their duty and discharge their power with care and diligence.
The powers and the duties of the directors and the executive officers of the company are subject to the judgment rule of the business which requires that the judgment which is taken by the director are taken in good faith and for proper purpose and they should not make any personal interest in the judgment of business (Federal Register of Legislation, 2018). The directors and executive officers should believe the judgment which is taken by them and they should believe that it is appropriate and in interest of the company.
As an owner of the small business you need to ensure that the company keeps updated financial records and correctly recording and updating company transaction (Veasey, 2001). Also the company needs to outline the financial position and performance on the current date. Further the director is required to display the company name at the place of the business and include CAN and ABN on the entire company document. As a director of the company you need to determine the action which will affect the company and question manager and staff about aspect of business.
So from the above report it can be identified that the company needs to follow the regulation stated under the corporation act 2001 as per the legislative requirement. The act is applicable to the all the organization wishing to operate for profit or conducting operation anywhere in Australia.
The person who is in the chair of Australian accounting standard board is Kris peach. She is the executive officer of the board and she was appointed as the chair for five year term in November2014. She has huge experience and development of accounting standards and she was also the member of AASB’s Urgent Issues Group.
The Australian standard board members are following:
Name of members
Ms. Regina Fikkers - Deputy Chair
Mr. Mike Blake
Member of International Public Sector Accounting Standards Board (IPSASB)
Ms. Kimberley Crook
Mr. Peter Gibson
Department of Finance
Mr. Ken Liow
Principal, Obsidian Capital
Ms. Carmen Ridley
Australian Financial Reporting Solutions / Member of the GAAP Consulting Network
Ms. Taryn Rulton
Chief Operating Officer
Prof Stephen Taylor
Professor of Financial Accounting
Mr. Marc Smit
Head of Accounting Policy
Ms. Alison White
The major amendments which are made by board in the previous year are; “AASB 2017-5 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections”, “AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation” and “AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures”. In addition to this the board has also issued a new accounting standard, “AASB 1048 Interpretation of Standards”.
Understanding the duties and powers of directors and executive officers
The Australian accounting standard board uses three different system of numbering of the accounting standards which are, AASB x, AASB xxx and AASB xxxx. The first one represents the standard which is adopted by the board from the IFRS. The second one is used for those standards which are adopted from the international accounting standard board and the last one represents those standards which are developed and issued by the Australian accounting standard board (AASB, 2014).
The Australian accounting standard board current projects with the international accounting standard boards are projects regarding the amendments in the present insurance contract standards and other projects which are related to it.
“Accounting for the original 30% investment in Bream Ltd”
The AASB 3 was set with in order to account for acquisition by reporting entity of one or more business. The key reporting requirement as per the standard are –
Identification of the date of the acquisition and the acquirer
As specified in paragraph 11-13 the recognition of acquisition, at the date all the assets and liability and non-controlling interest must be separately recognized from good will and in line with appropriate accounting standard and normal policies and practice.
Recognition of the goodwill should be at the aggregate of fair value at acquisition date of the consideration transferred and the amount of any non-controlling interest (Wines, et. al., 2007).
The acquirer in the financial statement should disclose business combination that occurred during the period and before the statement are released. Also enough information should be disclosed to evaluate the effect on the business combination.
The AASB 3 also states that the combination of business only consist of liabilities and assets acquired as part of the business combination and the assets released in payment using the method of acquisition (Chalmers, et. al., 2008). All the other assets should be recorded separately as per the applicable standard.
The remaining 70% will be merged with the 30% investment which has been owned by the bass ltd. the pervious investment of the company in bream ltd will not be considered for the purchase consideration calculation, however it is required to be merged after the business combination process completion.
The share price identification is significant as it helps in the calculation of the purchase consideration which is the aggregate of the shares and issued securities and the payment which is made in form of cash, shares or assets by the owners of the acquiree company by the transferee entity (Cheung, et. al., 2008).
Financial record keeping and updating of company transactions
The fair value of the consideration which is transferred and the acquired identifiable assets and liabilities are measured on the basis of date of acquisition. The acquisition date is that date on which the acquiree control is obtained by the acquirer. In the above case, the acquisition date is 30th September 2016.
There are several factors which should be considered by the management in order to determine the acquirer in the business combination. One of combining company in the business combination is considered as the acquirer, and it will further obtain the control from another party i.e. acquiree (Thomson, 2009). Certain guidelines for determining the acquirer has been provided in the Paragraphs B13-B18 of AASB 3. Some of the factors which should be considered by the management are the consideration form, subsequent management, large minority voting interest, business relative size and the target. Consideration of whether the company is transferring cash or other assets in return of the shares of another company is also significant in determination of the acquirer. The organization which holds larger voting interest and which subsequently control the business combination is considered as the acquirer. The manager needs to follow the guidelines in the AASB 127 for identifying the entity that obtain the control over the acquire (D’Arcy and Tarca, 2016). The factor stated in the paragraph B14- B18 should be considered in determining the acquirer of the AASB 127 fails to identify the same.
It is necessary to identify the acquirer for all the business combination as the assets of the acquiree are reported at the fair values and the shareholder group which will further control the business combination can only be determined after the identification of the acquirer. The acquirer identification is also significant because the earning effect of business combination will be influenced by the identification of the acquirer and acquiree to a great extent (Lusch, et. al., 2011). The assets and liabilities of the latter are largely influenced by the identification as it follows the new method of accounting. However, the identification can be challenging sometimes when a third party takes the control from both the parties. The measurement period is the period when the acquirer adjusts the entire amount which is recognized for the business combination.
The financial reporting board of the Sweden raised a question regarding the concept of exposure draft 10 of the Consolidated Financial Statements to the IASB. The board said that they agree with the IASB comment that there has been a scope of improvement in the consolidated financial statements, in the case in which they include de facto control. However, they are facing certain problems in understanding the entities which falls under the de facto control. Additionally there are several situations in which it is clear that the dominant shareholder de facto controls an additional entity and the circumstances in which it is not clear that the dominant shareholder de facto controls an additional entity. The board further suggested that the consolidation requirement which is based on the ‘de facto’ control is restricted to certain situations where there has been a problem in understanding about the control existence (TANG and PAN, 2007).
Introduction to the Australian Accounting Standards Board
To meet this problem the Australian accounting standard board provide further guidance on the new control model application so as to address the complex areas which further leads to the diversity in the past which include the de facto power and the special purpose and structured entities. The Australian standard board further provides additional application guidelines about the circumstances where the assessment of control is problematic and the circumstances create difficulties to determine the entities which fall under the de facto control. IFRS 10 and IFRS 12 “Disclosure of the interest in the other entities” directly affect the organization which poses more power of de facto in others comparison. One of the significant changes in these standards is the inclusion of guidelines regarding the same (Wines, et. al., 2007).
Further the judgments regarding the de facto control are not easy because of qualitative forces which are needed to be considered. The given table describes the largest shareholders which deemed to have more de facto factor.
The exposure draft 10 respondents do not object about the changes in the control of power definition in order to direct the investee activities. Most of the respondents have doubt regarding the meaning of “power to direct” and “activities” which was mentioned by the board. The respondents asked for the clear definition of term power to direct and they express their power which should relate to the investee significant activities and also the activities which has little effect on their returns. In order to resolve this issue, the board discusses about the consolidation project jointly with the FASB in order to ensure that the standard clarify all the requirements and terms.
The control on the basis of consolidation is further supported by the respondents. They further suggested that the risk and reward exposure should be used as the control proxy in the case when the power is not evident. The ED 10 proposes that in order to control investee, the powers to direct the activities of the investee should poses by the investor (Jahmani, et. al., 2010). This exposure draft further suggests many power characteristics, the powers do not need to be absolute or exercised, and it should prevent the others to control the investee. It is also further implied that the powers are arise from the rights which can be further exercisable after some point in the future. The power to direct is held with the councilor of council within the framework established by the state government and the majority of the council activity affect the return from the operation.
Current projects of the Australian Accounting Standards Board with the International Accounting Standards Board
The Australian accounting standard board 3 “business combinations” deals with the identifiable asset recognition in the company’s financial statements. However, there has not been any specific mention regarding the AASB 10 and the AASB 3 about adjustments. The AASB 113 and the AASB 116 guidelines will apply in case the subsidiary company identifiable assets are required to be adjusted to the fair value in the subsidiary accounts itself and the adjustments has been made on the revaluation. The business assets further should be shown in the current fair value so as to determine the business correct value.
The consolidation worksheet is just the worksheet. The consolidation worksheet entries do not affect the subsidiary and holding company accounting information. However, there is further need of the adoption of the revaluation model in case the recognition on the consolidation of the asset cost is made. The subsidiary company assets are required to be recognized at the fair value in order to determine the acquirer cost. The adjustments regarding the fair value should be made in the cancer ltd. books of accounts.
At the time when the business consolidates with the other several businesses, the liabilities and assets of both the organization are revalued as per the AASB 3 requirements. This standard specifies about the guidelines regarding the identifiable liabilities and assets recognition. The equity accounts which should be used at the time of asset revaluation are mentioned below:
Equity share capital- the share capital of the company is the major part of the equity and it is required to be revalued as sometimes the acquirer company are required to pay the consideration amount in share form because of the share capital changes composition which is required to be revalued.
Reserve and surplus- these are also taken into account while revaluation of assets and liabilities.
No similar accounts of equity are used in relation to the liabilities recognition.
The equity accounts of the identifiable liabilities and the assets which are taken by the company will indefinitely remains in existence. The point that it is related to the equity accounts which were recognized by the cancer ltd does not matter. The Cancer Ltd identifiable liabilities and the assets will be further revalued along with the liabilities and assets of Mensa ltd. the revaluation of the liabilities and assets will further be done at the fair value and all the requirements of the AASB 3 are required to be followed by Mensa ltd management at the time of preparation of the consolidated financial statements (Bugeja and Loyeung, 2017). The other applicable standard provisions are also required to be followed by the management at the time of equity recognition. The identifiable liabilities and assets fair values are required to be taken into account on the basis of acquisition date.
In case the goodwill is recorded by the subsidiary company in the books of accounts then it will further affect the goodwill adjustment on consolidation. When the group calculation goodwill will be made $15000 is already subsidiary recorded that means the amount remaining of goodwill will be adjustment in the consolidated worksheet (Tran and Zhu, 2017).
For e.g.: the group goodwill calculation shows the amount $20000. In case, the subsidiary company has already recorded $15000, i.e. only $5000 will be adjusted in the consolidation worksheets. In this case the debit adjustment will be made.
In case the group goodwill calculated amount is $10000 then the credit adjustment of $5000 will be made in the consolidation worksheet.
The subsidiary company goodwill recording will further affect the group’s goodwill accounting. The first thing which is required to be done by the hydra ltd. accountant is the group goodwill calculation. If the goodwill of the group will be more in comparison of the goodwill which is recognized by Draco ltd. then the debit adjustment will be made for the further amount (Guthrie and Pang, 2013).
When the goodwill carrying value in the financial statement exceeds the fair value then in such case the impairment charges are required to be recorded by the company in their books of accounts. In the case mentioned above, the goodwill book value increases and the recoverable value falls. The goodwill fair value comes down to $10000 which results in the impairment loss of $5000. The impairment loss is recorded in the books of accounts of the company. The adjustment entry is not made in the books of accounts for the loss of impairment but it is recorded so that the asset book value can be written down (Carvalho, et. al., 2016). Unless it is the case of assets revaluation, the loss on goodwill will be shown in the consolidated worksheet. Hydra ltd does not made any revaluation in the recent years which means that it is required to be shown as the consolidation adjustment.
AASB, C.A.S., 2014. Business Combinations. Disclosure, 66, p.77.
Bugeja, M. and Loyeung, A., 2017. Accounting for business combinations and takeover premiums: Pre-and post-IFRS. Australian Journal of Management, 42(2), pp.183-204.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), pp.4-20.
Chalmers, K., Clinch, G. and Godfrey, J.M., 2008. Adoption of international financial reporting standards: impact on the value relevance of intangible assets. Australian Accounting Review, 18(3), pp.237-247.
Cheung, E., Evans, E. and Wright, S., 2008. The adoption of IFRS in Australia: The case of AASB 138 (IAS 38) Intangible Assets. Australian Accounting Review, 18(3), pp.248-256.
D’Arcy, A. and Tarca, A., 2016. Reviewing goodwill accounting research: What do we really know about IFRS 3 and IAS 36 implementation effects. Working paper.
Federal Register of Legislation, 2018. Corporations Act 2001. [Online] Available at: https://www.legislation.gov.au/ [Accessed 07 April 2018].
Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 2005–2010. Australian Accounting Review, 23(3), pp.216-231.
Jahmani, Y., Dowling, W.A. and Torres, P.D., 2010. Goodwill impairment: a new window for earnings management?. Journal of Business & Economics Research, 8(2), p.19.
Lusch, R.F., Brown, J.R. and O’Brien, M., 2011. Protecting relational assets: a pre and post field study of a horizontal business combination. Journal of the Academy of Marketing Science, 39(2), pp.175-197.
TANG, B. and PAN, A.L., 2007. On the Choice of Accounting Method for Business Combination [J]. Collected Essays on Finance and Economics, 4, p.012.
Thomson, A., 2009. Comment: Australia's Adoption of IFRSs–A Clarification from the AASB. Australian Accounting Review, 19(2), pp.153-153.
Tran, A. and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax income gap. In Australian Tax Forum (Vol. 32, No. 4, p. 757). Tax Institute.
Veasey, E.N., 2001. Should Corporation Law Inform Aspirations for Good Corporate Governance Practices. Or Vice Versa?. University of Pennsylvania Law Review, 149(6), pp.2179-2191.
Wines, G., Dagwell, R. and Windsor, C., 2007. Implications of the IFRS goodwill accounting treatment. Managerial Auditing Journal, 22(9), pp.862-880.
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