Financial Account Newsletter: Updates on AASB and IASB Standards

This Financial Account Newsletter covers updates on AASB and IASB standards, including the proposed AASB 2019-X amendments, IASB updates, new accounting standards, and more. It also provides insights on fair representation and financial statements. The newsletter covers the period from 1st December 2018 to 31st March 2019.

Financial Accounting
News Letter

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NEWS LETTER
Proposed standard AASB 2019-X Amendments to the
Australian Accounting Standards with reference to
conceptual framework
Consequential amendments for supporting AASB issuing
conceptual framework for the financial reporting those are set out
in proposed standard AASB 2019-X. At this level, application
for Conceptual Framework will be restricted to for –profit private
sector companies those have public accountability and those are
required by legislation for complying with the AAS and other
for-profit companies those opt to apply conceptual framework
voluntarily. The proposed standard will make amendments to the
AAS, interpretation and various other pronouncements of AASB
for permitting other companies to continue using framework for
the purpose of preparing and presenting the financial statements
as adopted by AASB in the year 2004. Further, some of the AAS,
interpretation and various other pronouncements of AASB
contain the reference to or the quotation from framework for
preparing and presenting the financial statements. The proposed
standard will update quotation and references while required so
that it may refer the conceptual framework and may make the
related other amendments for clarifying which version of
conceptual framework has been referred for the particular
pronouncement (Aasb.gov.au, 2019).
AASB 137 – Onerous contracts – cot of fulfilling the contract
As per the standard the onerous contract is the contract where the
unavoidable costs for meeting contractual obligation is more than
the expected economic benefit that is to be received from it. The
unavoidable cost is the lower of cost for fulfilling the same and
any penalties or compensation created from failure for fulfilling
it. As per the amendment cost for fulfilling the contract also
includes the costs directly related to contract (Aasb.gov.au,
2019). Example for the costs directly related to contract includes
direct material, direct labour, costs those are chargeable
explicitly to counterparty under contract. Allocation of the costs
directly related to the contract activities and other costs incurred
as the entity entered into contract. However, the general as well
as the administrative cost is not directly related to the contract
unless those are chargeable explicitly to counterparty under the
contract.
Summary of the news and development in context of financial
reporting
Period covered: 1st December 2018 to 31st March 2019
IASB Update on February 2019
IASB update highlighted the
preliminary decisions of IASB.
Final decision of the board on the
IFRS standards, IFRIC and
amendments were formally
balloted as the set forth in Due
Process Handbook of IFRS.
Topics discussed in the board
were related to IFRS for the SMEs
Standards –review and update,
primary financial statements,
management commentary,
amendment to the IFRS 17 –
Insurance contracts and IBOR
Reform and effects on the
financial reporting. In the meeting
all the 14 board members were
agreed with the decision, board
also decided which of the topics
will be discussed in the next board
meeting and all the 14 board
members were agreed with this
(Iasplus.com, 2019).

New Accounting Standard: Right-of-Use assets for Not-for-
profit organisations
AASB issued the AASB 2018-8 Amendments to the AAS –
Right-of-use Assets of Not-for-profit organisations for providing
temporary option for the non-for-profit lessees for selecting to
measure the class or classes of right-of-use assets generated from
‘concessionary leases’ at the initial recognition, either – at the
cost in compliance with AASB 16 Leases Para 23-25 that
incorporates amount of initial recognition of lease liability or at
the fair values in compliance with the AASB 16, Para Aus25.1.
In this aspect the concessionary leases are those are the leases
that have considerably below market terms and the conditions
principally will enable the organisation further to its objective. 2
key changes incorporated by the standard are – allowing
temporary option required to be applied to right-of-use assets on
basis of class by class and amending the AASB 1049 Whole of
Government and General Government Sector Financial
Reporting for allowing the government to measure the right-of-
use assets at the cost instead of fair values (Aasb.gov.au, 2019).
Removal of the Registered Holder Collateral Cover
Authorisation forms for the Client Accounts
ASX obtained the regulatory clearance for implementing
amendments to ASX Settlement Operating Rules and ASX Clear
Operating Rules and Procedures outlined under Response to
Consultation in context of removal of the RHCCA forms. The
amendment removed RHCCA form for the clients accounts and
further enable the 3rd party in taking the security interest over the
collateral and the excess cash where the prescribed condition are
fulfilled. Among other things, the amendment further assure that
where the accounts if client is transferred to the new clearing
participant, registered holder are not required to execute and to
provide the RHCCA form ahead of transfer and collateral that is
linked with the client account will secure the obligation
automatically (Aasb.gov.au, 2019).
New Australian Accounting
Standard for definition
AASB clarified definition of
business and material through 2 new
amending standards as follows –
 AASB 2018-6 defines business
as integrated set of the activities
and the assets that is capable of
being managed and conducted
with the purpose of delivering
the services or goods to the
customers for generating
investment income
(Aasb.gov.au, 2019).
 AASB 2018-7 defines that the
information will be considered
material if obscuring, misstating
or omitting the same could
reasonably be likely to influence
the decision that primary users
of GPFS make based on the
financial statement that provide
the financial information
regarding particular reporting
entity (Aasb.gov.au, 2019).

Answer to Question 2:
As per the requirement of AASB 101 any entity shall present the financial statement
and the information represented in the financial statement regarding the entity’s financial
performance, cash flow position and financial position in true and fair manner. Fair
representation requires the faithful representation of the transaction taken place during the
period under consideration with reporting and disclosing impact for each of the transactions
(Aasb.gov.au, 2019). Further, the items reported in the financial statements including the
assets, equity, liabilities, revenues and expenses must meet the recognition criteria as per the
requirement of the conceptual framework. Further, the financial statement shall include the
additional disclosures, if necessary in accordance with the requirement of AAS. Requirement
of fair representation obliges to –
 Provide additional disclosures if any particular AAS is not enough to enable the user
to understand the effect of particular transaction, other events as well as conditions in
context of financial performance and financial position of the entity (Aasb.gov.au,
2019).
 Deliver the information for the accounting policies in such way that the information is
comparable, understandable, reliable and relevant.
 Select and apply appropriate accounting policies in compliance with AASB 108 for
the accounting policies, errors and the changes in the estimates associated with
accounting (Aasb.gov.au, 2019).
However, it is notable that any entity is not in a position to rectify any accounting
policies used by it which is not appropriate through the disclosures, explanatory materials or
explanatory notes. Hence, in any scenario if the management concludes that the compliance
with any particular AAS will mislead the users and it will have conflicts with the preparation

of financial statement in compliance with the framework, entity shall not apply the same
(Aasb.gov.au, 2019). However, in accordance to AASB101, Para 21, if any entity does not
follow any particular requirement of AAS in the previous period and the non-compliance has
an impact on the amount reported in the financial statement, the entity shall disclose it
through making appropriate disclosures. Disclosures required for the same are as follows –
 The organisation has been complied with all other requirement of AAS except the one
that has not been complied with for representing the statement fairly (Aasb.gov.au,
2019).
 Management opined that all the information associated to cash flows, financial
performance and financial position has been fairly presented for preparation of
financial statement.
 Title for the AAS that has not been complied with by the management, nature of non-
application, treatment required by AAS for the same, reason why the same has not
been complied and the reason why the compliance will mislead the users of financial
statement.
 For each presented period, financial effect on each of the items owing to non-
compliance will be disclosed in the financial statement as per the requirement
(Aasb.gov.au, 2019).
Financial statement is the structured representation for representing the financial
performance and financial position of the entity. Main objective of financial statement is
delivering the information regarding the financial position as well as performance and cash
flows of the entity those are useful in making different economic decisions. For achieving the
objective the financial statement delivers the information regarding the assets, liabilities,
equities, revenues and expenses including the losses and gains, distribution to and
contributions by the owners in the capacity of owners and cash flows (Aasb.gov.au, 2019).

The complete set of financial statement includes statement of the financial position as at the
closing of the period, statement of profit and loss and other comprehensive income for the
concerned period, statement of changes in the equity, statement of cash flows, notes including
the significant accounting policies and associated other explanatory information
(Aasb.gov.au, 2019).
In the given case, of Whirl Ltd, one of its trainee accountants prepared the profit and
loss statement, other comprehensive income, statement of changes in equity and statement of
financial position. The entity uses single statement format for preparing the profit and loss
statements and other comprehensive income, however the directors want to present the
analysis of the expenses by function rather than single statement format.
Going through the presented financial statements of Whirl Ltd various mistakes have
been found in context of presentation of the financial items as follows –
Profit and loss statement –
 Cost of sales shall be deducted from the revenues and shall be presented below the
revenues to obtain the figure of gross profit
 Expenses including the operating expenses and administrative expenses shall be
recorded below the gross profit and the total amount shall be deducted from gross
profit to obtain the figure of operating profit (Standard, 2015).
 Finance cost shall be recorded below the operating profit and deducted from the
operating profit to obtain at the figure of net profit after tax
 Income tax expenses shall be recorded under net profit after tax and shall be deducted
to obtain the figure of net profit.

 Prepaid insurance shall be recorded in statement of financial position and the
insurance expenses shall be adjusted with it for recording as expenses (Chand, Patel &
White, 2015).
Statement of profit and loss shall be presented as follows –
Whirl Ltd
Profit and loss statement of Whirl Ltd for the year ended 30th June 2018
Items Amount (in ‘000) Amount (in ‘000)
Income
Revenue $ 1,793.00
Less: Cost of sales $ 720.00
Gross profit $ 1,073.00
Less: Expenses
Operating expenses
Advertising $ 11.00
Repairs $ 3.00
Warranty expenses $ 8.00
Depreciation expenses $ 30.00
Insurance expenses $ 26.00
Total operating expenses $ 78.00
Operating income $ 995.00
Less: Administrative expenses
Other expenses $ 67.00
Rent expenses $ 43.00
Salaries and wages $ 190.00
Telephone expenses $ 13.00
Utilities expenses $ 21.00
Total administrative expenses $ 334.00
Profit before interest and tax $ 661.00
Less: Finance cost $ 10.00
Profit before tax $ 651.00
Less: Income tax expenses $ 190.00
Net profit for the year $ 461.00

Statement of financial position
 Asset section of the statement of financial position shall be segregated as non-current
assets and current assets
 Liabilities section of the statement of financial position shall be segregated as non-
current liabilities and current liabilities (Majercakova & Skoda, 2015).
 Inventories and trade receivables those have been presented together shall have been
reported separately
 Trade payable shall be reported under current liabilities (Henderson et al., 2015).
 Accumulated depreciation that is reported under liabilities shall have been reported
under the non-current assets as a deduction from property, plant and equipment.
 Prepaid insurance shall have been reported under current assets rather than reporting
in the income statement.
 Current tax and the deferred tax liabilities those have been presented together shall
have been reported separately (Xu, Davidson & Cheong, 2017).
Statement of financial position shall be presented as follows –
Whirl Ltd
Statement of financial position as at 30th June 2018
Particulars Amount ('000) Amount ('000)
ASSET
Current Assets
Cash and Cash Equivalent $ 212.00
Trade Receivable and Inventory $ 375.00
Prepaid expenses $ 3.00
Total Current Assets $ 590.00
Non-Current Assets
Property, Plant and Equipment and Intangible Assets $ 348.00
Less: Accumulated depreciation $ 30.00
Net value of property, Plant and Equipment and Intangible
Assets $ 318.00
Patents $ 20.00
Total Non-Current Assets $ 338.00
Total Assets $ 928.00

LIABILITIES
Current Liabilities
Current and Deferred Tax Liabilities $ 190.00
Trade payables $ 26.00
Provision for Annual Leave $ 18.00
Provision for Warranty $ 6.00
Total Current Liabilities $ 240.00
Non-Current Liabilities
Loan Westpac $ 80.00
Loan Commonwealth Bank $ 20.00
Total Non-Current Liabilities $ 100.00
Total Liabilities $ 340.00
EQUITY
Share Capital $ 200.00
Retained Earnings $ 388.00
Total Equity $ 588.00
Total Liabilities and Equity $ 928.00
Statement of changes in equity –
 In the statement of changes in equity it must report the changes in context of
ownership interests for the subsidiaries that will not result into loss of the control
(Cheung & Lau, 2016).
Statement of changes in equity shall be presented as follows –
Whirl Ltd
Statement of Change in Equity
Particulars Amount ('000)
Opening Balance of Retained earnings as reported $ 388.00
Less: Dividend Paid $ 50.00
Closing Balance of retained earnings $ 338.00
Statement showing changes in Equity
Share Capital - Issued and Paid up $ 200.00
Add: Closing Balance of Retained earnings $ 338.00
Total Shareholder’s Equity $ 538.00

Reference
Aasb.gov.au. (2019). Retrieved 6 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-
04_COMPjun14_07-14.pdf
Aasb.gov.au. (2019). Retrieved 6 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Aasb.gov.au. (2019). Australian Accounting Standards Board (AASB) - Home . Retrieved 6
April 2019, from https://www.aasb.gov.au/
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Cheung, E., & Lau, J. (2016). Readability of Notes to the Financial Statements and the
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accounting. Pearson Higher Education AU.
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2019, from https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb
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Xu, W., Davidson, R. A., & Cheong, C. S. (2017). Converting financial statements: operating
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