The Group of 100 (G100) is an organization of chief financial officers from Australia's largest business enterprises with the purpose of advancing Australia's financial competitiveness. The G100 is pleased to provide comments on the Request for Views.
| Q1. |
Please describe the entity (or the individual) responding to this Request for Views. For example:
| a. |
Please state whether you are primarily a preparer of financial statements, an auditor, or an investor, creditor or other user of financial statements (including regulators and standard-setters). Please also say whether you primarily prepare, use or audit financial information prepared in accordance with IFRSs, US GAAP or both.
As indicated, the G100 is a representative group whose members are preparers of financial statements. Consistent with the requirements of the Corporations Act 2001 our members prepare financial statements in accordance with Australian Accounting Standards which have adopted IFRSs. Some members also satisfy requirements relating to foreign registrants in the USA.
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| b. |
If you are a preparer of financial statements, please describe your primary business or businesses, their size (in terms of the number of employees or other relevant measure), and whether you have securities registered on a securities exchange.
The majority of our members are CFOs for entities that have securities registered on a securities exchange, with market capitalisations up to US$150 billion.
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| c. |
If you are an auditor, please indicate the size of your firm and whether your practice focuses primarily on public entities, private entities or both.
Not applicable.
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| d. |
If you are an investor, creditor or other user of financial statements, please describe your job function (buy side/sell side/regulator/credit analyst/lending officer/standard-setter), your investment perspective (long, long/short, equity, or fixed income), and the industries or sectors you specialize in, if any.
Not applicable.
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| e. |
Please describe the degree to which each of the proposed new IFRSs is likely to affect you and the factors driving that effect (for example, preparers of financial statements might explain the frequency or materiality of the transactions to their business and investors and creditors might explain the significance of the transactions to the particular industries or sectors they follows).
All new IFRS will impact most of our members, in some instances significantly. However, the effect of each new IFRSs will vary according to the nature of activities of each member company.
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| Q2. |
Focussing only on those projects included in the table in paragraph 19 above:
| a. |
Which of the proposals are likely to require more time to learn about the proposal, train personnel, plan for, and implement or otherwise adapt?
While the impact will vary from company to company depending on the nature of its activities, it is anticipated that implementation of the following projects would involve significant time and resources for most companies:
- Revenue Recognition
- Leases
- Financial instruments
- Insurance contracts.
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| b. |
What are the types of costs you expect to incur in planning for and adapting to the new requirements and what are the primary drivers of those costs? What is the relative significance of each cost component?
The following types of costs are likely to be significant for most companies:
- interpretation of the standard into detailed reporting requirements, ensuring correct application of the principles to actual transactions
- training of personnel to ensure thorough understanding at a detailed level prior to planning change management program;
- procuring sufficient funding within the organization to enable successful implementation (while adoption of the changes is mandatory, a regulatory change is rarely seen as value add to an organization, and obtaining approval for sufficient funding can take considerable time);
- systems developments to incorporate the changes including coding, data capture at source, changes to the entity's chart of accounts and the collection of comparative information;
- updating and refining internal controls and risk management processes;
- cascading the effect and understanding of the changes through the company group including training of staff, ensuring understanding of the impacts by directors, shareholders and other users including analysts and regulators.
In addition, it is anticipated that implementation of the leasing proposals, in particular, will result in significant ongoing additional costs for record keeping and external audits.
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| Q3. |
Do you foresee other effects on the broader financial reporting system arising from these new IFRSs? For example, will the new financial reporting requirements conflict with other regulatory or tax reporting requirements? Will they give rise to a need for changes in auditing standards?
In some cases where taxation requirements are based on the accounting requirements such as taxation of financial arrangements, time may be required for convergence of the tax and accounting requirements. In addition, dividend distribution rules, debt covenants and employee remuneration may need to be adjusted to incorporate the changes.
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| Q4. |
Do you agree with the transition method as proposed for each project, when considered in the context of a broad implementation plan covering all the new requirements? If not, what changes would you recommend, and why? In particular, please explain the primary advantages of your recommended changes and their effect on the cost of adapting to the new reporting requirements.
The G100 considers that the effect of the method of transition is minimized if companies are provided with sufficient time to prepare for implementation. If sufficient time is provided there is less need to provide modified transitional arrangements and as such companies are likely to be in a better position to implement changes on a full retrospective basis. We believe that this should be the starting point with relief being provided on grounds of practicality and cost.
However, to enable companies to make best use of the period between issue of the standard and the mandatory implementation date, it is important that there are no changes (however small) to the standard once it is issued. Minor fixes can require considerable re-assessment and rework by preparers, and should be avoided.
Also, there may be some cases where the systems changes are so significant that collecting data under both new and old standards, for a period of time, may not be feasible. In these instances, it is not appropriate to require comparative data to be published. Such instances are best identified by seeking feedback from entities on the feasibility of collecting comparative data contemporaneously with actual data during the consultation process.
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| Q5. |
In thinking about an overall implementation plan covering all of the standards that are the subject of this Request for Views:
| a. |
Do you prefer the single date approach for major projects or the sequential approach? Why? What are the advantage and disadvantages of your preferred approach? How would your preferred approach minimize the cost of implementation or bring other benefits? Please describe the sources of those benefits (for example, economies of scale, minimizing disruption, or other synergistic benefits).
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| b. |
Under a single date approach and assuming the projects noted in the introduction are completed by June 2011, what should the mandatory effective date be and why?
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| c. |
Under the sequential approach, how should the new IFRSs be sequenced (or grouped) and what should the mandatory effective dates for each group be? Please explain the primary factors that drive your recommended adoption sequence, such as the impact of interdependencies among the new IFRSs.
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| d. |
Do you think another approach would be viable and preferable? If so, please describe that approach and its advantages.
The G100 considers that if sufficient time is given for implementation a mixed approach as a variant of a sequential approach would be appropriate provided that IFRSs with cross-over requirements such as the leases and revenue proposals are implemented at the same time. Even if a single date approach were adopted companies would still be required to plan and implement the ongoing changes to other IFRSs and presumably would be able to early adopt new IFRSs and those involving significant changes. In addition other regulatory requirements are not static.
The G100 suggests that the application date for IFRSs introducing major changes, such as leases, revenue, financial instruments, should not be before financial years commencing on or after 1 January 2015. This would give companies adequate time to prepare for their implementation including comparatives. For those IFRSs which are not introducing major changes such as defined benefits plan amendments and presentation of items of other comprehensive income, we suggest that there be at least two full years between the issue of the IFRS and its application date, to enable collection of comparative data after systems changes have been made.
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| Q6. |
Should the IASB give entities the option of adopting some or all of the new IFRSs before their mandatory effective date? Why or why not? Which ones? What restrictions, if any, should there be on early adoption (for example, are there related requirements that should be adopted at the same time)?
The G100 believes that companies should be able to early-adopt IFRSs subject to a requirement that IFRSs with cross over requirements such as leases and revenue, financial instruments and fair value disclosures and financial instruments and insurance are
adopted at the same time. Assuming that the new or amended IFRSs are improving the quality of financial reporting companies should not be precluded from early adoption because if this is the case the benefit of the quality improvements exceed the benefits of comparability.
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| Q7. |
Do you agree that the IASB and FASB should require the same effective dates and transition methods for their comparable standards? Why or why not?
The G100 believes that the IASB should focus on setting effective dates which are appropriate for those companies which must comply with IFRSs in accordance with requirements in their national jurisdiction. As such, the effective dates set by the FASB should not drive the effective date of IFRSs.
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| Q8. |
Should the IASB permit different adoption dates and early adoption requirements for first-time adopters of IFRSs? Why, or why not? If yes, what should those different adoption requirements be, and why?
The G100 believes that flexibility in respect of first-time adopters is appropriate on the grounds that it is more important to ease the transition to IFRSs and have jurisdictions adopt IFRSs rather than the pursuit of technical purity.
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