Group of 100 Comments on ED 129 Disclosing the Impact of Adopting AASB Equivalents to IASB Standards

The G100 considers the proposed operative date of reporting periods ending on or after 30 June 2004 is not reasonable in view of the practice of the AASB to give twelve months notice for new standards and the uncertainties about when the full set of Australian equivalents to IASB Standards will be issued by the AASB. We believe that it is unreasonable to require companies to make quantitative disclosures shortly after the issue of the Standards taking into consideration that Pending Standards have been made available for a limited period before the issue of the Standards.

While companies have been preparing for the implementation of the Year 2005 strategy for some time it does not necessarily follow that they will be in a position to make reliable quantitative disclosures as at 30 June 2004. Companies should only be required to provide commentary in narrative form and quantitative information should only be required when the final standards and their effects can be determined on a comprehensive basis in a reliable manner.

It is unreasonable to expect companies to have assessed and implemented such potentially wide ranging changes to accounting policies and systems in a very short period in parallel with preparing financial reports in compliance with existing requirements.
 

The G100 believes that the Year 2005 strategy applies to all reporting entities and, as such, the requirements of the proposed Standard should apply to all reporting entities.
 

The G100 believes that the requirements should be applied in respect of the first annual reporting commencing on or after the Standard is issued and in respect of subsequent interim reporting periods. We consider that it is not appropriate that a Standard be first applied in respect of an interim reporting period, such as half-years ending 30 June 2004 because Standards are invariably applied in respect of an annual reporting period.
 

The G100 considers that narrative disclosures explaining the changes in accounting policies expected to have a material impact on a company’s reported financial position and future financial performance is a significant first step to providing useful information to enable users to make judgements about the impacts of the changes on the company. We note that a phased approach been adopted in Europe under which listed companies are first required to explain how they intend to undertake the transition and secondly, disclosure of the key differences in accounting policies by listed companies.

A requirement to disclose quantitative information to the extent only that it is known or reliably estimable will almost certainly result in a wide variation in the extent and nature of quantitative disclosures. Companies will differ as to the degree of readiness and in the nature, complexity and uncertainty of the issues and impacts they face. Some companies may suffer competitive disadvantages and be penalised by the market by providing more/less quantitative information than their peers or because previously disclosed information is revised.

The G100 believes that if quantitative disclosures are made those disclosures should relate to the impact in respect of the financial reports of that reporting period. We strongly oppose requirements to provide quantitative information about the prospective effect of changes in accounting policies in respect of the transition to Year 2005. For example, quantitative disclosures, if made in respect of financial reports for the year ended 30 June 2005, should explain the effect that adoption of the different accounting policies would have had on reported financial position and performance for that year.

In addition, we believe that the disclosure of quantitative information could be potentially misleading to users if not provided in the context of the overall impacts of adopting AASB equivalents of IASB Standards. Determining reliable information on this basis requires time and knowledge of the precise requirements of the Standards and interrelationships between the Standards which often present strategic choices. This is unlikely to occur for companies having a 30 June 2004 reporting date. Furthermore, the disclosure of information on a piecemeal basis may be misleading and provides scope for selective disclosure and potential ‘cherry-picking’.
 

It is important to avoid duplication and conflicts in requirements. Listed entities are subject to continuous disclosure requirements and ASX Listing Requirements. It would be unsatisfactory if disclosures required/expected under these arrangements conflicted with those required by an Accounting Standard.
 

If the proposals lead to the disclosure of reliable information to users of financial reports and reduce uncertainty about the expected impacts of the Year 2005 strategy the existence of a more informed and efficient market is in the best interests of the Australian economy.

If companies are required to make quantitative disclosures which are subsequently revised as more comprehensive analysis and impacts are undertaken this is likely to adversely affect users perceptions about the credibility and integrity of disclosures.