IFRS OPENING BALANCE SHEET

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					   Department of Treasury and Finance
   Government of Western Australia




Financial Management Forum
IFRS Opening Balance Sheet


Financial Policy Division
July 2004
Structure of presentation
               Introduction
               Overview of transition to IFRS
               Audit expectations
               Balance sheet - key areas of change
               AASB 1047 – 30 June 2004 disclosures
               Conclusion



Department of Treasury and Finance
Government of Western Australia
Introduction
     Status:
               AASB Standards
               DTF analysis (www.dtf.wa.gov.au/ias2005)
     Focus:
               Preparation of opening balance sheet
               Not For Profit (NFP) entities




Department of Treasury and Finance
Government of Western Australia
                   Financial Reporting Timelines
 Financial Reporting (June year-ends)



                             AGAAP (Published)



                                          IFRS (Unpublished)               IFRS (Published)

31/12/03                     30/6/04*         31/12/04         30/06/05*      31/12/05        30/06/06



* AASB 1047 disclosures (AASB 1047 also applies to interim reporting)




     Department of Treasury and Finance
     Government of Western Australia
Overview of transition to IFRS

     AASB 1 requirements
               Opening Balance Sheet consistent IFRS
                  – Same accounting policies in this and all periods
                    presented in first IFRS financial report
                  – Retrospective application
               Opening adjustments to equity
     Treasurer’s Instruction 1106


Department of Treasury and Finance
Government of Western Australia
Overview of transition to IFRS
     AASB 1048 Interpretation and Application of
     Standards
               Applies to annual reporting periods beginning on or after 1
               January 2005
               ‘Service Standard’ listing UIG Abstracts applicable
                  – to be updated by re-issuing AASB 1048 when new or
                    revised Abstracts are released
               UIG Abstracts to be called Interpretations
               Applies to opening balance sheet
                  – adjustments to accumulated surplus (deficit) or, if
                    appropriate, another category of equity
Department of Treasury and Finance
Government of Western Australia
Audit expectations

     Opening balance sheet
               Significant accounting policies notes
               Other notes:
                  – Supporting information – where further
                    breakdown of line items is appropriate
                  – Notes to explain material adjustments from
                    30 June closing balance sheet



Department of Treasury and Finance
Government of Western Australia
Balance sheet - identifying key
areas of change
     Summary checklist in handout




Department of Treasury and Finance
Government of Western Australia
               Opening IFRS Balance Sheet –
                                     Assets




Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment (PPE)

                  GAAP               IFRS
                  PPE                PPE
                                     Intangibles
                                     Assets Held for Sale
                                     Investment Property



Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     AASB 116 Property, Plant and Equipment
     AASB 136 Impairment of Assets
     AASB 123 Borrowing costs
                  – allows borrowing costs on qualifying assets
                    to be expensed or capitalised
     TI 954 Revaluation of Non-Current Assets
                  – land and buildings at fair value by 30 June 2005
     TI 1106 Transition to IFRS
                  – deemed cost not permitted (AASB 1)
                  – assume asset will be replaced unless
                    identified as surplus (AASB 136)
Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     AASB 116 does not change:
               Initial recognition at cost (fair value is acquired
               at no cost or for nominal cost)
               Assets at cost or fair value (FV)
               Consistent measurement within class
               FV = market value or depreciated replacement cost
               for specialised assets
               Frequency of revaluation - no material variance from FV
               Accounting for revaluations
               Treatment of depreciation on revaluation - gross or net
               Depreciation

Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment

     Key changes under AASB 116 that do not impact
     on the opening balance sheet:
               Gains and losses on disposal of items of PPE to be
               recognised in Income Statement on net basis
               Additional note disclosure for revalued assets




Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     Key changes under AASB 116 that impact
     on the opening balance sheet:
               Costs of dismantling, removal and restoring
               to be recognised in the cost of PPE
               Change in recognition criteria for subsequent costs
                  – replacement parts
                  – major inspections
               Derecognition of replacement parts and inspections
               No progressive revaluations


Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     Costs of dismantling, removal and restoring
     to be recognised in the cost of PPE
     Refer AASB 116 paragraphs 16 (c) and 18, AASB 1
     Implementation Guidance paragraph IG13, UIG 1 Changes in
     Existing Decommissioning, Restorative and Similar Liabilities
               Present value of obligation recognised as provision under
               AASB 137
               Initial estimate of provision added to cost of the related
               asset and depreciated over the useful life of the asset
               Unwinding of the discount is interest expense
               Other changes to the provision added to the cost of the
               asset
               Costs retained for revalued assets - see UIG 1
Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     Costs of dismantling, removal and restoring
     to be recognised in the cost of PPE
     Where an agency has a provision in the opening balance
     sheet, the following opening balance sheet adjustments are
     required where an expense was previously recognised when
     the liability was incurred:
     DR Asset                        present value of the liability at the
                                     date the liability was incurred
     CR Acc Depreciation             depreciation to 30 June 2004
     CR Acc Surplus (deficit) the difference


Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     Change in recognition criteria for subsequent
     costs - replacement parts and major inspections
     Refer AASB 116 paragraphs 12 to 14
     Any existing replacement parts or inspections that have been
     expensed would need to be recognised and depreciated to 30
     June 2004
     Opening balance sheet adjustments:
     DR Asset                        cost
     CR Acc Depreciation             depreciation to 30 June 2004
     CR Acc Surplus (deficit) the difference

Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     Derecognition of replacement parts and
     inspections
     Refer AASB 116 paragraphs 12 to 14 and 67 to 72
     Where an agency recognises a replacement part in the
     opening balance sheet, the estimated carrying amount of the
     part being replaced is derecognised
     Opening balance sheet adjustments:
     CR Asset                        cost
     DR Acc Depreciation             depreciation to replacement date
     DR Acc Surplus (deficit) the difference


Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     No progressive revaluations
               Transitional provisions in AASB 1041 allow a progressive
               revaluation over the 5 years to 30 June 2005
               Consequently, a class of PPE may have assets measured
               at of cost and assets measured at fair value (FV) at 30 June
               2004
               No equivalent transitional provisions in AASB 116 - a class
               must be all at cost or FV in the opening balance sheet
               TI 1106 does not permit deemed cost option




Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment

     No progressive revaluations
               Where a class has assets at cost and FV, all assets in the
               class must be measured at FV in the opening balance sheet
               Revaluation increments and decrements are adjusted
               against accumulated surplus (deficit) or the asset
               revaluation reserve
               Where a class of assets is measured at cost there is no
               requirement to revalue to FV – except land and buildings




Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
  Land and buildings
           Land and building at FV by 30 June 2005 (TI 954)
           AASB 1 requires consistent accounting policies to be
           applied during transition (1 July 2004 to 30 June 2006)
           Therefore, all land and buildings must be measured at fair
           value in the opening balance sheet
           Valuations provided by the Valuer General are consistent
           with fair value
           TI 954 will be amended to exclude land and buildings
           subject to AASB 5 – non-current assets held for sale or
           AASB 102 – inventories from the fair value requirement


Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     AASB 136 Impairment of Assets
               Assessment of PPE in opening balance sheet for
               indications of impairment
               Measure recoverable amount where indication of
               impairment exists
               Recoverable amount is the higher of FV less costs to
               sell and depreciated replacement cost
               Write-down to recoverable amount where this is less than
               the carrying amount



Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     AASB 136 continued
               For PPE at cost, impairment losses are adjusted against
               accumulated surplus (deficit),
               For PPE at FV, impairment losses are accounted for as
               revaluation decrements and are adjusted against asset
               revaluation reserve and/or accumulated surplus (deficit)
               Limited impact expected




Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment
     AASB 136 continued
               Assets at cost
                  – depreciated replacement cost would normally exceed
                    depreciated cost
                – risks are insufficient depreciation recognised and falling
                  replacement costs
               Assets at FV
                  – for specialised assets FV is depreciated replacement
                    cost (recoverable amount)
                  – where FV is market value, maximum impairment is
                    selling costs
Department of Treasury and Finance
Government of Western Australia
Property, Plant and Equipment

     AASB 136 continued
               Surplus assets
                – recoverable amount is higher of FV less costs to
                   sell and the present value of cash flows expected
                   to be derived from an asset
                – if reclassified as ‘Held for sale’ in accordance with
                   AASB 5, AASB 136 does not apply
               Agencies required to assess assets for impairment




Department of Treasury and Finance
Government of Western Australia
Intangible Assets
     AASB 138 Intangible Assets
               Identification criteria
                 – must be separable, or
                 – arise from contractual or legal rights
               Additional recognition requirements for internally
               generated intangible assets
                – all research expenditure expensed
                – specific rules for development expenditure
                – brands, mastheads, publishing titles, customer list and
                  items similar in substance cannot be recognised
                – only expenditure incurred from date when the
                  recognition criteria met can be capitalised
Department of Treasury and Finance
Government of Western Australia
Intangible Assets
     AASB 138 continued
               Initial recognition at cost
               Subsequent measurement at cost or fair value (FV)
               Revaluation only permitted where there is an active market
               to determine FV
               Active market
                  – homogenous items
                  – willing buyers and sellers at any time
                  – prices available to the public
               Software not integral to the related hardware is an
               intangible asset

Department of Treasury and Finance
Government of Western Australia
Intangible Assets

     AASB 138 continued
               Opening balance sheet adjustments:
                  – intangibles assets must be reported on the
                    face of the balance sheet
                  – software reclassified as intangibles
                  – derecognise revaluations (no active market)
                  – derecognise assets that do not meet additional
                    recognition criteria
               AASB 136 also applies to intangible assets


Department of Treasury and Finance
Government of Western Australia
Non-Current Assets Held for Sale

     AASB 5 Non-Current Assets Held for Sale
            and Discontinued Operations
               New class of asset
               Recovery principally through sale
               Must be available for immediate sale
               Sale must be highly probable
               Disclosed on the face of the balance sheet
               Assets not depreciated once classified as held for sale
               AASB 136 does not apply
Department of Treasury and Finance
Government of Western Australia
Non-Current Assets Held for Sale
     AASB 5 continued –
               Measurement
                  – measured at the lower of carrying amount and
                    fair value (FV) less costs to sell
                  – assets measured at FV must be revalued immediately
                    prior to reclassification
                  – any initial or subsequent write-down of an asset to
                    fair value less costs to sell must be recognised as an
                    impairment loss
                  – a gain is recognised for any subsequent increase in
                    fair value less costs to sell (only to the extent of
                    impairment losses under this Standard or AASB 136)

Department of Treasury and Finance
Government of Western Australia
Non-Current Assets Held for Sale
               Opening balance sheet adjustments:
               Consider item of PPE at cost that would have met the sale
               criteria at 1 July 2003 (and is unsold at 30 June 2004)
                  – asset must be reclassified
                  – derecognise the depreciation for the 12 month period
                  – where carrying amount at 1 July 2003 is higher than
                    estimated FV less costs to sell, recognise an initial
                    impairment loss
                  – recognise any gains or other impairment losses for a
                    subsequent write-down to FV less costs to sell or
                    changes in FV less costs to sell
Department of Treasury and Finance
Government of Western Australia
Non-Current Assets Held for Sale
               Opening balance sheet adjustments continued:
               For PPE carried at FV, any revaluations during the year
               would need to be derecognised




Department of Treasury and Finance
Government of Western Australia
Inventories
     AASB 102 Inventories
               Inventory held for distribution
                  – new class of assets held for distribution at no or
                    nominal consideration
                  – lower of cost and current replacement cost
                  – separate disclosure (notes)
               Requirement for opening balance sheet
                  – identify and reclassify assets from current class to
                    inventory
                  – remeasure, adjustments to accumulated surplus
                    (deficit)

Department of Treasury and Finance
Government of Western Australia
               Opening IFRS Balance Sheet –
                                     Liabilities




Department of Treasury and Finance
Government of Western Australia
Employee Benefit Obligations
     AASB 119 Employee Benefits
        • Recognition & measurement
                  – post-employment benefits such as defined benefit plans
                  – other long-term employee benefits
        • Requirement for opening balance sheet
                  – Defined benefit superannuation plans
                              - Departments & Budget-funded statutory authorities
                                  - superannuation liabilities assumed by the
                                    Treasurer will not require recognition


Department of Treasury and Finance
Government of Western Australia
Employee Benefit Obligations
     AASB 119 continued
                  – Defined benefit superannuation plans
                              - Other statutory authorities
                                  - fair value of the proportionate share of the plan
                                    assets (if any), less
                                  - present value of the proportionate share of the
                                    gross obligation to pay the defined benefits
                                  - discount rate to be used is based on government
                                    bonds
                                  - agencies to liaise with GESB and their actuary
                                  - remeasure, adjustments to accumulated surplus
                                    (deficit)
Department of Treasury and Finance
Government of Western Australia
Employee Benefit Obligations
     AASB 119 continued
                  – Other long-term employee benefits
                              - if payable later than 12 months, to be discounted
                                and now include:
                                  - annual leave, sick leave, deferred salary
                                    scheme, non-monetary benefits
                                  - discount rate used to calculate PV of long-term
                                    employee benefits to be based on government
                                    bonds
                              - remeasure, adjustments to accumulated surplus
                                (deficit)


Department of Treasury and Finance
Government of Western Australia
Provision for Other Liabilities
     AASB 137 Provisions, Contingent Liabilities and
     Contingent Assets
     Provision for dividends
                  – applies to Public Corporations that are required to
                    return a dividend to Government
                  – AASB 110 ‘Events after the Balance Sheet Date’
                    clarifies that a provision for dividend liability is not
                    recognised if approved after reporting date
     Requirement for opening balance sheet
                  – may need to adjust provision for dividends for those
                    approved after 30 June 2004
                  – adjustments to accumulated surplus (deficit)
Department of Treasury and Finance
Government of Western Australia
Income Taxes
  AASB 112 Income Taxes
               – applies to agencies subject to the ‘income tax
                 equivalent regime’
  ‘Balance sheet approach’
               – current and deferred tax liabilities and assets
               – “tax base” and “temporary differences”
  Requirement for opening balance sheet
               – current tax liabilities and assets recognised for tax
                 payable for the current year
               – deferred tax assets or liabilities for temporary
                 differences
               – remeasure, adjustments to accumulated surplus
                 (deficit)
Department of Treasury and Finance
Government of Western Australia
AASB 1047 Disclosing the Impact of
Adopting IFRS
     Applies to annual or interim reporting periods
     ending on or after 30 June 2004
                  – requires agencies to disclose:
                              • an explanation of how the transition to Australian
                                equivalents to IFRSs is being managed; and
                              • a narrative explanation of the key differences in
                                accounting policies that are expected to arise from
                                adopting Australian equivalents to IFRSs
                  – guidance and example disclosures provided in IFRS
                    package sent to PAOs in June 2004

Department of Treasury and Finance
Government of Western Australia
                                     DTF Action

     Complete gap analysis for all new
     standards – almost final now
     Policy position on some individual issues
     (e.g. treatment options)
     Resolve whole-of-government reporting
     issues – collection of comparatives
     Prepare new model financial statements for
     IFRS
Department of Treasury and Finance
Government of Western Australia
Contact details
Website                           www.dtf.wa.gov.au/ias2005
John Stanley       9222 9280
email:   john.stanley@dtf.wa.gov.au

Phillip Forward       9222 9282
email:     phil.forward@dtf.wa.gov.au

Anthony Smith     9222 9368
email:   anthony.smith@dtf.wa.gov.au
Department of Treasury and Finance
Government of Western Australia
                                     Questions ???




Department of Treasury and Finance
Government of Western Australia

				
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Description: IFRS OPENING BALANCE SHEET