22 December 2003

Mr David Boymal
Chairman
Australian Accounting Standards Board
PO Box 204
COLLINS STREET WEST VIC 8007

Dear David

ED 127 Provisions, Contingent Liabilities & Contingent Assets

The Group of 100 response to the exposure draft ED 127 is attached.

The G100 is a strong supporter of the convergence and harmonisation strategy of the Board and considers that implementation of the policy is in the best interests of the Australian economy over the longer term.

The Group of 100 believes that IASB Standards should be adopted for application in Australia without changing the requirements of the IASB Standards unless there are compelling reasons to do so. As set out in our submission on D 102 ‘International Convergence and Harmonisation Policy’ (29 October 2001) we believe that the Board should apply its policy on the presumption that IASB Standards reflect best international practice and that the Board would only depart from IASB Standards in rare and exceptional circumstances.

Yours sincerely

John V Stanhope
National President

ED 127 Provisions, Contingent Liabilities & Contingent Assets

Specific matters for comment

Whether any practical difficulties may be encountered in only recognising liabilities for dividends once final approval has been granted to pay the dividend;

This requirement is an outcome of the adoption strategy and may result in a change in behaviour and processes of companies. It is important that the potential significance of this change in Australian practice be highlighted.

Whether the additional disclosure requirement within AASB 1044 should be included in the proposed Australian equivalent of IAS 37 (see section D within the section entitled ‘Comparison of IAS 37 with Australian Requirements’ above);

No.

Whether any other features of AASB 1044 identified as different from IAS 37 in the comparison of this Preface should be included in the proposed Australian equivalent of IAS 37, and if so, which features;

No.

Whether any implementation guidance (which would not form part of the standard) should be provided, and if so, what guidance;

Companies in the Extractive Industries are more likely to be significantly impacted by this Standard than companies in other industries as they generally incur very considerable costs to remove facilities and to restore the production site upon decommissioning. The generally accepted accounting practices for upstream activities in the Extractive Industries vary widely from country to country and from company to company. For example, the amortisation of restoration and decommissioning costs on a unit of production basis will vary considerably based on the definitions of the cost pool (well, field, cash generating units) and reserves (proved reserves or proved plus probable) adopted by a particular company. Accordingly, without an International Accounting Standard in place dealing with the unique accounting issues attached to the upstream activities of the Extractive Industries, a wide variety of accounting outcomes will result among petroleum and mining companies when applying ‘Provisions, Contingent Liabilities and Contingent Assets’.

We do not believe that it is appropriate to provide extensive implementation guidance for this International Accounting Standard for companies in the Extractive Industries. We would prefer to see efforts of the IASB directed to accelerating the development of an IAS to address the unique reporting requirements of the Extractive Industries.

Any regulatory issues or other issues arising in the Australian environment that may affect the implementation of the proposals, particularly any issues relating to:
(i) not-for-profit entities;
(ii) public sector entities; and

i.	not-for-profit entities;
ii.	public sector entities; and

No comment.

Whether the proposals are in the best interests of the Australian economy.

See covering letter.