ASSURANCE & ADVISORY

Differences between Australian GAAP and IFRS

and the future direction of accounting standards

As at 31 March 2003
There are a number of differences, both big and small, between IFRSs (International
Financial Reporting Standards, previously known as International Accounting
Standards (IAS)) and AASBs.

The table below outlines the major differences are currently in a state of flux, particularly
that currently exist between Australian GAAP those issued by the IASB, who are currently
and IFRS and the effect of current proposed undertaking a number of major projects
changes. In this respect, both sets of standards including:

2003
Qtr 2 Qtr 3 Qtr 4 2004
Improvements to existing International Financial
IFRS
Reporting Standards
Amendments to IASs 32 and 39 Financial Instruments IFRS
First-time application of International Financial Reporting
IFRS
Standards
Deposit-taking, lending and securities activities: disclosures
ED IFRS
and presentation
Business combinations phase I IFRS
Share-based payment IFRS
Reporting performance ED IFRS
Business combinations Application of the purchase method ED IFRS
Insurance contracts phase I ED IFRS
Insurance contracts phase II To be determined
Concepts—revenue, liabilities and equity ED IFRS
Consolidation and special purpose entities To be determined
Convergence of International Financial Reporting
Standards and national accounting standards
Short-term issues ED IFRS
Other issues To be determined

2
Based on Standards and Interpretations on issue at 31 March 2003 and effective for
financial years ending 30 June 2003
Note, the proposed changes column reflects proposed changes outlined in the following
major proposed changes as reflected in current analysis may not reflect the final requirements.
EDs issued by the IASB before 31 March 2003. Disclosure differences are generally not noted.
Following the IASBs full due process, the

Topic International Australia Proposed changes

1. Presentation of Financial Statements (IAS 1 & AASB 1001/1018/1034/1040)

Financial statements Balance sheet Similar statements required

required Income statement although referred to by
different names, except that
Statement of changes in equity statement of changes in
Cash flow statement equity shown in the statement
of financial performance
(income statement).
True and fair override Departure from IFRS is required Compliance with Australian Departure from IFRS permitted
where compliance would be standards is compulsory where compliance would be
misleading or is necessary for fair under the Corporations Act misleading and the relevant
presentation. 2001 with separate disclosure regulatory framework requires
where compliance does not or does not prohibit such a
result in a true and fair view. departure. Where departure
is not permitted under the
regulatory framework separate
disclosures will be required.
Extraordinary items Extraordinary items arise from events that are clearly distinct Extraordinary items to be
from the ordinary activities of the company and therefore are not prohibited.
expected to recur frequently or regularly – examples given are the
expropriation of assets or an earthquake or other natural disasters.
Liabilities classification Where current liabilities and non-current liabilities are presented Ability to continue to classify
– current/non-current separately, liabilities as non-current
(a) long-term interest-bearing liabilities must continue to be where they are renegotiated
categorised as non-current, even when they are due to be by the time of completion of
settled within twelve months of the reporting date, when all of the financial report would be
the following conditions apply: removed.

• the original term was for a period of more than twelve Where an undertaking or
months covenant is in breach, and
no period of grace has been
• the entity is committed to an agreement to refinance, or provided at reporting date,
to reschedule payments, prior to the time of completion of generally the liability becomes
the financial report; or payable on demand. The
(b) in the event that an undertaking, including a covenant amount will be classified as
included in a borrowing agreement, is breached such that the current even where the lender
liability becomes payable on demand, the liability must be has waived or otherwise dealt
categorised as current unless all of the following conditions with the breach subsequent to
apply: the reporting period end.
• the lender has agreed, prior to the time of completion
of the financial report, not to demand payment as a
consequence of the breach;
• it is not probable that further breaches will occur within
twelve months of the reporting date; and
• in the absence of the breach, the liability would not have
been due for settlement within twelve months of the
reporting date.

3
Topic International
2. Inventories (IAS 2 & AASB 1019)
Compliance with AASB 1019 will ensure compliance with IAS 2.
Some minor differences exist with respect to disclosure and the
allowed alternative treatment of LIFO under IFRS is not acceptable
in Australia.
3. Cash Flow statements (IAS 7, & AASB 1026)
Compliance with AASB 1026 will ensure compliance with IAS 7.
Additional disclosures are required under AASB 1026.
4. Profit or loss for the period, fundamental errors and changes in Accounting Policies (IAS 8 & AASB 1001)
Changes in accounting A change in accounting policy
policies should only be made if required
by statute, or by a standard-
setting body, or so as to give a
more appropriate presentation
of events or transactions in the
financial statements.
A change made on the basis of
a new IFRS should be accounted
for in accordance with the
transitional provisions specified
in the Standard.
Benchmark treatment – other
changes should be applied
retrospectively with an
adjustment to the opening
balance of retained earnings.
Comparative information should
be restated where practicable.
Allowed alternative treatment
– the effect of the retrospective
application of the accounting
policy may be included in
the current period’s results
and comparative information
presented as previously reported.
A change in accounting policy
should be applied prospectively
when the adjustment to opening
retained earnings cannot be
reasonably determined.
4
Australia Proposed changes
Elimination of the LIFO
method.
IFRS scope exclusion
regarding certain inventories
measured at net realisable
value extended to include
inventories of brokers and
dealers.
A change in an accounting Allowed alternative treatment
policy must be made only under IAS 8 to be prohibited.
when:
(a) it is necessary in order
to comply with another
Accounting Standard or
an Urgent Issues Group
Consensus View; or
(b) no specific Accounting
Standard applies and
the change will result in
an overall improvement
in the relevance and
reliability of financial
information about the
financial performance,
financial position and cash
flows of the entity; or
(c) an Accounting Standard
permits alternative
accounting policies and
the change from one
permitted accounting
policy to another
permitted accounting
policy will result in an
overall improvement
in the relevance and
reliability of financial
information about the
financial performance,
financial position and cash
flows of the entity.
Allowed alternative
treatment as per IFRS
is the only permitted
treatment in the absence
of transitional provisions
of a new accounting
standard or UIG.
Comparative information
not to be restated but
detailed disclosure of the
impact on comparative
information is disclosed in
the notes to the financial
statements.
Topic International
Errors/fundamental Fundamental errors are of such
errors significance that the financial
statements of one or more
prior periods can no longer be
considered to have been reliable
at the date of their issue.
Benchmark treatment
– treat the correction of a
fundamental accounting error
as an adjustment of the opening
balance of retained earnings and
restate comparative information.
Allowed alternative treatment
– the amount of the correction
may be included in the current
period’s results and comparative
information presented as
previously reported.
All other errors are accounted for
in accordance with the allowed
alternative treatment.
5. Events after the balance sheet date (IAS 10 & AASB 1002)
Post balance sheet Adjust for events that indicate
events that the going concern
assumption in relation to the
whole or part of the enterprise
is not appropriate.
Dividends A liability must be recognised for dividends declared, determined,
or publicly recommended on or before the reporting date.
6. Construction Contracts (IAS 11 & AASB 1009)
Compliance with AASB 1009 will ensure compliance with IAS 11.
5
Australia Proposed changes
All errors must be corrected in The distinction between errors
the reporting period in which and fundamental errors to
they are discovered unless be removed and accounted
the entity has amended and for in accordance with the
reissued the financial report benchmark treatment under
relating to the prior reporting IFRS.
period.
Detailed disclosures in
the notes to the financial
statements of the impact on
comparative information of
fundamental errors.
No adjustment is made if the
event indicates that the entity
ceases to be a going concern
after the reporting date.
Dividends declared before
reporting date would not be
recognised as liabilities if they
are subject to approval by the
shareholders after reporting
date.
Topic International Australia Proposed changes
7. Income taxes (IAS 12 & AASB 1020)
Compliance with revised AASB 1020 will ensure compliance with IAS 12, other than some minor
differences that exist. Revised AASB 1020 is effective for financial years beginning on or after
1 January 2005. The following analysis is based on the superseded version of AASB 1020, which
is still operative.
Recognition – deferred Balance Sheet Approach Income Statement Approach
tax liabilities A deferred tax liability should Full provision for all timing
be recognised for all taxable differences.
temporary differences other than
differences arising from:
• goodwill which is not
deductible for tax purposes;
• the initial recognition of an
asset/liability other than in a
business combination;
• undistributed profits from
investments in subsidiaries,
branches, associates and
joint ventures, where the
entity is able to control the
timing of the reversal of the
difference and it is probable
that the reversal will not
occur in the foreseeable
future.
Recognition – deferred A deferred tax asset should be Realisation of a deferred
tax asset recognised for all deductible tax benefit for all timing
temporary differences to the differences must be regarded
extent that it is probable that as being assured beyond
taxable profit will be available reasonable doubt.
against which the deductible
temporary differences can be
utilised other than differences
arising from:
• negative goodwill treated as
deferred income;
• the initial recognition of an
asset/liability other than in a
business combination;
• investments in subsidiaries,
branches, associates and
joint ventures where the
temporary difference will not
reverse in the foreseeable
future.

6
Topic International Australia Proposed changes
Unused tax losses and A deferred tax asset should be Realisation of the benefit must
unused tax credits recognised for the carry forward be virtually certain.
of unused tax losses and unused
tax credits to the extent that it
is probable that future taxable
profit will be available against
which the unused tax losses
and unused tax credits can be
utilised.
Measurement – deferred Deferred tax assets and liabilities No reference to discounting,
tax assets and liabilities should not be discounted. although in practice
deferred tax liabilities are
not discounted other than as
required under acquisition
accounting standards to be
measured at their fair value.
Financial statement Current and deferred tax should Not specifically addressed.
presentation be recognised as income or an Current and deferred taxes
expense and included in net usually recognised in the
profit or loss for the period, income statement. Tax
except to the extent that the tax arising on the hedge of a
arises from: net investment is however
• a transaction or event which required to be recognised in
is recognised directly in the FCTR.
equity; or
• a business combination that
is an acquisition.
If the tax relates to items that
are credited or charged directly
to equity, the tax should also be
charged or credited directly to
equity.
If the tax arises from a
business combination that is
an acquisition, it should be
recognised as an identifiable
asset or liability at the date of
acquisition in accordance with
IAS 22, thus affecting goodwill
or negative goodwill.
8. Segment reporting (IAS 14 & AASB 1005)
Compliance with AASB 1005 will ensure compliance with IAS 14.

7
Topic International
9. Property, plant and equipment (IAS 16 & AASB 1015, 1014 and 1021)
Initial measurement Where the asset is acquired in
exchange for another asset, the
cost will be recorded in the case
of an asset which has a similar
use in the same line of business,
at the carrying value of the
asset given up (no gain or loss
recognised on the transaction).
The estimated costs of
dismantling and removing an
asset and restoring the site,
should be included in the cost of
acquisition to the extent that it is
recognised as a provision under
IAS 37.
IFRS is silent on how to account
for net proceeds from selling
items produced in bringing
the asset to that location,
or revenues and expenses
incidental to construction or
development, but not necessary
to bring the asset to its required
location or working condition.
Subsequent Benchmark treatment – record
remeasurement at cost less accumulated
depreciation and impairment
losses.
Allowed alternative treatment
– record at fair value at the date
of valuation less subsequent
depreciation.
Australia
No relief is provided from the
acquisition rules in accounting
for the exchange of similar
assets that are not goods and
services – the acquired asset is
to be recorded at the fair value
of the asset given up.
Not specifically addressed,
general practice has been to
record the liability over the life
of use but not to impact the
carrying value. (Excluded from
scope of AASB 1044.)
Same as IFRS.
Similar to IFRS in that can
choose between cost and fair
value. However, IAS 16 does
not permit an asset to be
carried at deemed cost, being
the previous revalued amount,
where the entity reverts from
the fair value to the cost basis.
Proposed changes
Relief only to be provided
where the fair value of neither
of the assets exchanged can
be determined reliably.
Cost of an asset to include
the cost of dismantling
and removing an asset and
restoring the site on which the
asset was created.
Net proceeds from selling
items produced in bringing
the asset to that location
(such as the sale of samples
from testing equipment)
would be deducted from
the capitalised cost of the
asset. However, revenue
and expenses incidental to
construction or development,
but not necessary to bring the
asset to its required location or
working condition, would be
separately recognised in net
profit or loss.

Treatment of revaluation Where a revaluation gives rise
movement to a value uplift, it should be
credited to the revaluation
surplus (equity) unless it
represents the reversal of a
revaluation decrease of the same
asset previously recognised as an
expense, in which case it should
be recognised as income.
A decrease arising as a result of a
revaluation should be recognised
as an expense in so far as it
exceeds the amount that can
be charged to the revaluation
surplus (i.e. the amount held in
the revaluation surplus relating
the same asset).
An impairment write-down
should be recognised as an
expense in so far as it exceeds
the amount held in the
revaluation surplus relating to
the same asset.
Similar to IFRS except that
movements can be offset
within a class and only the
net amount recognised in
the revaluation surplus or
the statement of financial
performance, as appropriate.
The reversal of a decrease
previously recognised as
an expense in respect of
the same class of asset is
recognised as income.
Similar to IFRS except that a
charge to income will only
arise to the extent that the
write-down exceeds the
balance of the revaluation
reserve in respect of the same
class of assets.

8
Topic International Australia Proposed changes
Residual value Residual value is estimated at the date of acquisition and is not Residual value is reviewed
subsequently increased for changes in prices, unless the asset is at each balance date and
revalued. is based on the current net
amount expected from the
disposal of the asset if it
were already at the age and
condition expected at the end
of its useful life at the date of
estimation.
10. Accounting for leases (IAS 17 & AASB 1008)
Accounting treatment in Record an asset and a liability at Record an asset and a liability
the financial statements the lower of: equal in amount to the
of lessees – finance • the fair value of the asset; present value of the minimum
leases (or equivalent) and lease payments.

• the present value of the

minimum lease payments.
Lessor accounting for The lessor should recognise the UIG was not able to reach
lease incentives aggregate cost of incentives as a consensus on this issue and
reduction of rental income over under generally accepted
the lease term on a straight-line practice certain incentives are
basis unless another systematic capitalised by lessors.
basis is more representative of
the time pattern of the benefit.
Operating leases of Accounted for as operating leases with lease payments recognised A property interest held
investment property as an expense over the lease term based on the pattern of benefit. under an operating lease can
be classified as investment
property provided that the rest
of the definition of investment
property is met and the lessee
uses the fair value model in IAS
40 to account for the interest.
11. Revenue (IAS 18 & AASB 1004)
Recognition criteria Based on transfer of risks and Based on the transfer of
rewards of ownership. control.
Disposal of non-current Net gain recognised as a Proceeds from disposal
assets component of revenue. recognised as a component
of revenue.
12. Employee benefits (IAS 19 & AASB 1028)
Defined benefit plans Fundamental difference exists between the method of
accounting for defined benefit retirement benefits and similar
post employment benefits under IAS 19 and that adopted under
Australian GAAP. There is currently no Australian accounting
standard that deals with accounting for retirement benefits and an
expense is generally brought to account as contributions are paid
to the fund.

9
Topic International
Discounting of non- High quality corporate bond rate
current employee used to discount non-current
benefits employee benefits except where
no deep market exists. Use then
made of government bond rates.
All non-current employee
benefits measured on a
discounted basis.
Increase in present value
because employee benefit
liability is one period closer to
settlement is to be treated as
an interest cost.
Share-based payments Disclosure only model for share-based payments.
13. Government grants (IAS 20 & UIG 11)
Criteria for recognition Government grants should not
be recognised until there is
reasonable assurance that:
• the enterprise will comply
with the conditions
attaching; and
• the grants will be received.
Income recognition Recognise as income over the
period necessary to match
them with the related costs,
for which they are intended to
compensate, on a systematic
basis – not to be credited directly
to equity.
Grants other than in monetary
form usually recorded at fair
value, but sometimes recorded
at nominal amount.
Presentation Grants relating to assets may be
presented as deferred income or
by deducting the grant from the
asset value.
Grants relating to income may
be reported separately as ‘other
income’ or deducted from the
related expense.
14. Changes in foreign exchange rates (IAS 21 & AASB 1012)
Reporting currency SIC 19 specifies that the
measurement currency is that
currency used to a significant
extent in the entity’s operation or
that currency having a significant
impact on the entity.
Presentation currency not
prescribed.
10
Australia Proposed changes
National government
guaranteed security rates
used to discount non-current
employee benefits.
Salaries and wages, annual
leave and sick leave, regardless
of whether they are current or
non-current, to be measured
at nominal amounts.
Interest component is not
required to be separately
disclosed.
Recognise fair value of share
options as an expense over
vesting period, based on fair
value at grant date.
No standard dealing
specifically with government
grants. Standards dealing
with contributions state that
non-reciprocal contributions
should be recognised when
the enterprise obtains control.
Recognise non-reciprocal
contributions as assets and
revenue in the period in which
control is obtained.
Contributions in non-
monetary form should be
recorded at the fair value of
the assets received at the date
the enterprise obtains control.
Contributions must be
recognised as income.
Australian companies are Financial statements may be
required to present their presented in any currency.
financial statements in Where presentation currency
Australian dollars. differs to functional currency,
that is the currency of
the primary economic
environment in which the
entity operates, any translation
difference is recognised
directly in equity.
Topic International Australia Proposed changes
Exchange differences Differences arising on a Similar to IFRS but differences
dealt with in reserves monetary item that, in substance, recognised in reserves cannot
forms part of an investment in be recognised in income/
a foreign enterprise (settlement expense on disposal of the
neither planned or likely to investment.
occur) should be dealt with in
reserves until the disposal of the
net investment, at which time
they should be recognised as
income/expense.
Differences arising on a foreign
currency liability, accounted for
as a hedge of an enterprise’s
net investment in a foreign
entity, should be dealt with in
reserves until the disposal of the
investment, at which time they
should be recognised as income/
expense.
15. Business combinations (IAS 22 & Various AASBs)
Pooling of interests/ Pooling of interests method used Pooling of interests method Elimination of the pooling of
merger accounting in accounting for uniting is not an acceptable basis interests method.
of interests. of accounting for a business
combination. Acquisition/
purchase accounting is
required to be used.
Group restructures Group restructures (transactions No relief provided for group
among entities under common restructures.
control) are excluded from
the scope of the Standard and
therefore frequently accounted
for at carrying values.
Acquired contingent Identifiable liabilities recognised at the date of acquisition where Contingent liabilities of the
liabilities it is probable that any associated resources embodying economic acquiree should be identified
benefits will flow from the acquirer, and a reliable measure is and recognised at their fair
available of their cost or fair value. Therefore contingent liabilities value at acquisition date and
are not recognised at the date of acquisition. at each subsequent reporting
For subsequent changes in value, refer below. date. Any changes in fair value
should be recognised in the
income statement.

11
Topic International Australia Proposed changes
Acquired restructuring Restructuring provisions that do not qualify as liabilities of the Restructuring provisions
provisions acquiree are recognised at acquisition if, and only if: should be included as part
• at, or before, the date of acquisition, the acquirer has developed of the cost of acquisition
the main features of a plan that involves terminating or only when the acquiree
reducing the activities of the acquiree and that relates to has an existing liability for
compensating employees of the acquiree, closing facilities restructuring at the date of
of the acquiree, eliminating product lines of the acquiree, acquisition.
or terminating contracts of the acquiree that have become
onerous because the acquirer has communicated to the other
party at, or before, the date of acquisition that the contract will
be terminated;
• by announcing the main features of the plan at, or before, the
date of acquisition, the acquirer has raised a valid expectation
in those affected by the plan that it will implement the plan;
and
• by the earlier of three months after the date of acquisition and
the date when the annual financial statements are authorised
for issue, the enterprise has developed those main features into
a detailed formal plan.
Subsequent Carrying amounts should be Similar to IFRS except that If the amounts to be assigned
identification of changes adjusted when additional the adjustment is always to the identifiable assets,
in value of assets and evidence becomes available to made against goodwill and liabilities or contingent
liabilities assist with the estimation of the never treated as income liabilities of the acquiree
fair value of assets and liabilities or expense, even beyond can be determined only on
at the date of acquisition. the first annual accounting a provisional basis by the
Goodwill should also be adjusted period commencing after the end of the reporting period
if the adjustment is made by acquisition. in which the combination
the end of the first annual occurred, the acquirer must
accounting period commencing account for the combination
after the acquisition otherwise using those provisional
the adjustment should be values. Any adjustments
treated as income or expense. to those provisional values
as a result of completing
Provision for restructure should the initial accounting for
be reversed only if restructure the combination must be
costs are no longer probable completed and recognised
or detailed formal plan to within twelve months of the
implement as anticipated acquisition date.
or within the timeframe
established, not achieved. Such Adjustments to the initial
reversals should be reflected accounting for a business
as adjustments to goodwill combination after that
regardless of the period since accounting has been
acquisition. completed can be recognised
only in order to correct
an error, and therefore
accounted for retrospectively.
Adjustments to the initial
accounting shall not be
recognised for the effect
of changes in accounting
estimates. A change in an
accounting estimate shall be
accounted for prospectively.
Goodwill Capitalised and amortised over Capitalised and amortised Goodwill, allocated to the
its useful life, with a rebuttable over its useful life, a period smallest ‘cash-generating unit’,
presumption of 20 years. that is not to exceed 20 capitalised and subject to an
Amortisation will normally years. Straight-line basis of annual impairment test but no
be on a straight-line basis. amortisation required. amortisation.

12
Topic International
Intangible assets Unless there is an active market
for intangible assets acquired
in a business combination, the
fair value recognised for the
intangible asset is limited to an
amount that does not increase
negative goodwill.
In-process research and IPR&D can only be separately
development (IPR&D) recognised as part of an
acquisition where the definition
and recognition requirements for
intangible assets are met.
Negative goodwill Any remaining negative goodwill
that relates to expectations of
losses and expenses which can
be reliably measured but which
do not meet the definition of a
liability, must be carried forward
and recognised as income when
the losses and expenses are
recognised.
Otherwise recognise amount of
negative goodwill not exceeding
fair values of non-monetary
assets, over remaining weighted
average useful life of depreciable
assets.
Excess of negative goodwill over
fair values of non-monetary
assets to be taken to income
immediately.
Reverse acquisitions Where an entity (the issuer)
acquires another entity (the
target) such that control of the
combined enterprise passes
to the holders of the shares
issued as consideration (i.e. to
the shareholders of the target),
then the issuer may be deemed
to have been acquired by the
target and the purchase method
of accounting be applied to the
assets and liabilities of the issuer.
Fair values of employee Requires the discount rate
benefit liabilities used to measure the fair value
of a provision for termination
benefits arising out of an
acquisition to reflect current
market assessment of time/value
of money and risks specific to
the liability.
13
Australia Proposed changes
There is no such limitation Intangible assets acquired in a
on the recognition of the business combination should
fair value of an intangible be recognised separately
provided that the fair value from goodwill if they arise as
is reliably measurable. a result of contractual or legal
rights or are separable from
the business.
IPR&D can only be separately IPR&D to be recognised as
recognised as part of an an asset at fair value when
acquisition where research acquired as part of a business
and development costs combination.
are expected beyond any
reasonable doubt to be
recoverable.
Negative goodwill (discount Negative goodwill should be
on acquisition) must be recognised immediately in the
accounted for by reducing income statement as a gain.
proportionately the fair values
of the non-monetary assets
acquired. Any remaining
balance must be recognised as
revenue in the profit and loss
account.
Treating the subsidiary as Additional guidance on
acquirer is incompatible with how to account for reverse
the requirement to fair value acquisitions to be provided in
the net assets of the subsidiary the annexures.
and compute goodwill
accordingly.
The discount rate used
must be the market yield on
national government bonds.
Topic International Australia Proposed changes
16. Borrowing costs (IAS 23 & AASB 1036)
Compliance with AASB 1036 will ensure compliance with IAS
23, however the benchmark treatment under IFRS permits the
immediate recognition of borrowing costs as an expense, which is
not allowed under Australian Standards for qualifying assets.
17. Related party disclosures (IAS 24 & AASB 1017)
Definitions of related parties between AASB 1017 and IAS 24 differ, Definition of related party to
with the IFRS written in more general terms. In addition the AASB be amended and additional
requires more disclosures. disclosures to be included.
18. Consolidation and subsidiaries (IAS 27 & AASB 1024)
Subsidiaries to A subsidiary should be excluded No specific exclusions, but may Exclusion to only exist in
be excluded from from consolidation when control be able to exclude entities that relation to subsidiaries
consolidation is intended to be temporary operate under severe long- acquired and held exclusively
because the subsidiary is term restrictions if ability to with a view to subsequent
acquired and held exclusively control is impaired. disposal in twelve months
with a view to its subsequent from acquisition date.
disposal in the near future or if it
operates under severe long-term
restrictions, which significantly
impair its ability to transfer funds
to the parent.
Accounting policies Uniform accounting policies Uniform accounting Uniform accounting
should be used throughout the policies are to be followed policies are to be followed
group. If it is impracticable to do in the preparation of the in the preparation of the
so, that fact should be disclosed consolidated financial consolidated financial
together with the proportions statements. statements.
of the items in the consolidated
financial statements to which
the different accounting policies
have been applied.
Accounting year-ends The difference between the Consolidated financial
dates of financial statements statements are to incorporate
used for consolidation purposes financial statements of
should not exceed three subsidiaries for the same
months. If they are drawn up financial year as the parent’s
to different dates, adjustments financial statements. This may
should be made for the effects necessitate the preparation of
of significant transactions or interim financial information
other events that occur between for the subsidiary.
those dates and the date of the
parent’s financial statements.

14
Topic International Australia Proposed changes
Presentation of minority Minority interests in the assets of Outside equity interest is Minority interests to be
interests subsidiaries should be presented disclosed as an equity item. disclosed as an equity item.
separately from liabilities and
parent’s equity.
Where losses applicable to the Losses are attributable to
minority exceed its interest in the minority in full unless
the equity, the excess and any the parent entity agrees to
further losses attributable to bear the responsibility for
the minority are charged to outgoings resulting from
the group except to the extent accumulated losses.
that the minority has a binding
obligation to, and is able to, make
good the losses. If the subsidiary
subsequently makes profits,
the group is allocated all such
profits until the minority’s share
of losses previously absorbed by
the group has been recovered.
Treatment in parent’s Investments in subsidiaries that No provision that permits Investments in subsidiaries
financial statements are included in the consolidated inclusion in the parent’s that are included in the
financial statements should be financial statements using consolidated financial
included in the parent’s own equity accounting. Usually statements should be included
financial statements either: carried at cost, although in the parent’s own financial
• using the equity method of revaluation is permitted. statements either:
accounting; or • at cost; or
• carried at cost or revalued • in accordance with IAS 39.
amounts.
19. Investments in associates (IAS 28 & AASB 1016)
Accounting year-ends Where it is not possible to obtain Similar to IFRS except that Differences in reporting dates
financial statements to the significant events occurring to be limited to three months.
same date as the investor, the between the accounting
most recent available financial period ends will be disclosed
statements of the associate in a note rather than being
should be used in applying the adjusted for.
equity method, and adjustments
made for the effects of any
significant events occurring
between the accounting period
ends.
Treatment in parent Where the investor issues Where the investor issues Where the investor issues
financial statements consolidated financial consolidated financial consolidated financial
statements, in the investor’s statements, in the investor’s statements, investments in
separate financial statements, separate financial statements, associates should be included
associates other than those associates should be in the investor’s own financial
acquired and held exclusively accounted for at cost. statements either:
with a view to disposal in the Where the investor does not • at cost; or
near future, should be either issue consolidated financial
carried at cost, accounted for by • in accordance with IAS 39.
statements, in the investor’s
the equity method, or accounted separate financial statements, Where the investor does not
for as available-for-sale financial associates should be issue consolidated financial
assets under IAS 39. accounted for using the equity statements it may choose
Where the investor does not method. to apply IAS 28 or apply the
issue consolidated financial above measurement criteria.
statements, in the investor’s
separate financial statements,
associates should be either
carried at cost, accounted for
using the equity method, or
accounted for as available-for-
sale or held for trading financial
assets under IAS 39.
15
Topic International Australia Proposed changes
Carrying amount The carrying amount of an investment in an associate must only Amount to reduce to nil when
of investment in an include ordinary shares and other financial instruments which an associate incurs losses to
associate satisfy the characteristics of an ownership interest. be widened to include other
long-term interests.
20. Financial reporting in hyperinflationary economies (IAS 29 & AASB 1012)
Compliance with AASB 1012 will ensure compliance with
IAS 29 in relation to the translation of self-sustaining foreign
operations, which report to the parent entity in the currency of
a hyperinflationary economy. AASB 1012 does not deal with the
primary financial statements of an entity in a hyperinflationary
economy however it currently is not applicable in the Australian
context.
21. Disclosures by financial institutions (IAS 30 & AASB 1032)
Compliance with AASB 1032 will ensure compliance with IAS 30,
except with respect to the disclosure of the profit/loss impact of
hedges and certain in-substance defeasances where no offsetting
is allowed under IFRS.
22. Joint ventures (IAS 31 & AASB 1006)
Compliance with AASB 1006 will ensure compliance with IAS 31, Joint ventures acquired and
however where joint ventures are acquired and held exclusively held exclusively with a view of
with a view of disposal or operate under severe long term disposal within twelve months
restrictions, IFRS requires these to be measured in accordance from acquisition date must
with IAS 39, which is likely to result in fair value measurement, with be measured at fair value,
movements in fair value being recognised potentially in equity with changes in fair value
until the investment is disposed of (for joint ventures operating recognised in the profit or loss.
under severe long term restrictions) and in income (for joint No other exceptions will apply.
ventures acquired and held exclusively with a view to disposal). All venture capital investments
held by venture funds,
investment funds, and unit
trusts, can be classified as held-
for-trading financial assets
under IAS 39. Otherwise IAS 31
will apply.
Amount to reduce to nil when
an equity accounted joint
venture incurs losses to be
widened to include long-term
loans to joint ventures.
23. Financial instruments: Presentation and disclosure (IAS 32 & AASB 1033)
Compliance with AASB 1033 will ensure compliance with IAS 32, Elimination of options for
other than the transitional provisions for compound financial measurement of liability and
instruments issued prior to 1 January 1998. equity elements of compound
financial instruments – liability
element to be determined first
and the residual is equity.
Some changes and additional
guidance on the classification
of financial instruments will
result in units in unit trusts and
resetting preference shares
being classified as financial
liabilities, as well as some
derivatives.

16
Topic International Australia Proposed changes

24. Earnings Per Share (IAS 33 & AASB 1027)

Compliance with AASB 1027 will ensure compliance with IAS The improvements project
33 except that the IFRS does not specifically state that potential proposes a number of
ordinary shares for which conversion to, calling of, or subscription amendments to the standard
for, ordinary share capital is mandatory, or at the option of the including the disclosure of
entity and based on conditions at reporting date it is probable that parent entity EPS information,
the entity will successfully exercise its option at some time in the gains/losses on the settlement
future, are always considered dilutive. of preference shares to be
deducted from earnings used
in the EPS calculation, and
annual EPS determined based
on the number of potential
ordinary shares included in the
EPS calculation in each interim
financial report.
25. Interim financial statements (IAS 34 & AASB 1029)
Compliance with AASB 1029 will ensure compliance with IAS 34.
26. Discontinued operation (IAS 35 & AASB 1042)
Compliance with AASB 1042 will ensure compliance with IAS 35, Extraordinary items to be
except that IAS 35 prohibits a discontinuing operation from being prohibited.
classified as an extraordinary item and requires the amount of gain
or loss before income tax expense/revenue recognised on disposal
of assets or settlement of liabilities attributed to each discontinuing
operation to be disclosed on the face of the statement of financial
performance.
27. Impairment of assets (IAS 36 & AASB 1010)
Exploration and Exploration and evaluation costs Exploration and evaluation
evaluation costs carried forward by entities in the costs carried forward by
carried forward extractive industries in respect entities in the extractive
of an area of interest prior to any industries in respect of an
activity in that area of interest area of interest prior to any
entering the development stage activity in that area of interest
are not excluded from the scope entering the development
of IAS 36. stage are not tested for
impairment provided
exploration and evaluation
activities in the area of interest
have not at balance date
reached a stage which permits
a reasonable assessment of
the existence or otherwise
of economically recoverable
reserves, and active and
significant operations in, or in
relation to, the area of interest
are continuing.
Reversal of goodwill Reversal of the impairment of Reversal of the impairment of Reversals of impairment
impairment goodwill is required if it is clear goodwill is not permitted. losses recognised in respect of
that the effect of the specific goodwill to be prohibited.
external event giving rise to
that impairment loss has been
reversed.

17
Topic International
Definition of recoverable Recoverable amount is the
amount higher of the asset’s net
selling price and value in use
(determined on a discounted
basis).
Impairment test Detailed guidance provided for
calculating the impairment of
an asset particularly when such
assessment has to be done by
cash generating unit rather than
individual asset.
28. Provisions (IAS 37 & AASB 1044)
Recognition of Where an operation is to be sold,
restructure provision in a demonstrable commitment for
relation to the sale of an the restructure arises when there
operation is a binding sale agreement.
Expected recovery Recognised as assets when it is
of costs relating to virtually certain that they will be
provisions received.
29. Intangible assets (IAS 38 & AASB 1011)
Internally generated Internally generated goodwill,
intangibles brands, mastheads, publishing
titles, customer lists and similar
items may not be recognised.
Recognition of research Should be expensed when
costs incurred and should not be
subsequently recognised as an
asset.
Revaluation Revaluation only permitted if
there is an active market.
Amortisation Rebuttable presumption of 20
years and does not permit use
of an indefinite life.
Residual value is assumed
to be zero unless there is a
commitment by a third party to
purchase the asset or there is an
active market for the asset.
18
Australia Proposed changes
Recoverable amount is
defined as the amount that
is expected to be recovered
through cash inflows and
outflows from the continued
use and subsequent disposal
of the asset. The cash flows
may be discounted or
undiscounted.
No such guidance provided.
Under generally accepted
practice a demonstrable
commitment can exist before
a binding sale agreement
has been entered into
provided that the entity has
a detailed formal plan and is
without realistic possibility of
withdrawal, by having raised
a valid expectation in those
affected.
Recoveries of costs related
to provisions are recognised
when it is probable that they
will be received.
Internally generated goodwill
cannot be recognised as an
asset, however there is no such
prohibition under Australian
accounting standards for
the other types of internally
generated intangibles.
May be deferred where
expected beyond reasonable
doubt to be recoverable.
Revaluation to fair value
allowed provided that it is
reliably determinable.
No limit placed on the useful Intangible assets able to
life of intangible assets. have indefinite useful lives,
No restrictions placed on the or finite lives longer than
estimation of residual value. 20 years. Intangible assets
with indefinite useful lives
to be subject to an annual
impairment test. Intangible
assets with finite useful lives to
be amortised over useful life.
Topic International Australia Proposed changes

30. Financial instrument: Recognition and measurement (IAS 39 & AASB 1012, AASB 1014, UIG 33)
Financial assets Depends on classification of No specific guidance. Financial Any financial asset can be
– measurement asset: assets are generally not carried designated as held for trading
• if held to maturity or at fair value unless they are or available for sale on initial
originated by the entity then trading assets or are non- recognition and measured
carried at amortised cost, current assets being revalued at fair value. The option to
subject to impairment; through the asset revaluation recognise unrealised gains
reserve. Where revalued assets and losses on available for
• available for sale carried at are sold, the asset revaluation sale financial assets in profit or
fair value with unrealised reserve is not recognised in loss will be eliminated as the
gains and losses recognised current profit or loss but may ability to designate as either
in equity or earnings. If be transferred to retained held for trading or available
recognised in equity then on earnings. for sale means the option is
subsequent realisation they redundant.
are recognised in profit or
loss;
• financial assets held for
trading purposes carried at
fair value with unrealised
gains and losses recognised
in profit or loss. Derivatives
are deemed to be held for
trading unless hedging
instruments.
Fair value is not required if the
financial asset does not have a
quoted market price in an active
market and its fair value cannot
be reliably determinable. The
standard provides guidance
when a financial instrument can
be reliably measured.
Specific criteria exists as to
when it is acceptable to classify
investments as held to maturity.

19
Topic International Australia Proposed changes
Financial assets A financial asset, or portion No specific guidance provided. A financial asset, or a portion
– derecognition of a financial asset, should be of a financial asset, to be
derecognised when, and only derecognised when, and only
when, the enterprise loses when:
control of the contractual rights • the entity’s rights to the
that comprise the financial cash flows that constitute
asset (or portion of the financial the financial asset (or a
asset). The enterprise loses such portion of the financial
control when it realises the asset) expire or are
rights to benefits specified in the forfeited; or
contract, the rights expire, or the
enterprise surrenders such rights. • the entity transfers
the contractual rights
On derecognition, the profit to the cash flows that
or loss on disposal, being the constitute the financial
difference between: asset (or a portion of the
(a) the carrying amount of financial asset) and the
the asset (or portion of the entity has no continuing
asset); and involvement in all or a
(b) the sum of the proceeds and portion of those rights.
any prior adjustment to fair Guidance provided on what
value previously dealt with continuing involvement
in equity should be included means.
in net profit or loss for the
period.
If an enterprise transfers a part
of a financial asset to another
party while retaining a part, the
carrying amount of the financial
asset should be allocated
between the part retained and
the part sold based on their
relative fair values at the date
of sale.
If an enterprise transfers control
of an entire financial asset but, in
doing so, creates a new financial
asset or assumes a new financial
liability, the enterprise should
recognise the new financial asset
or financial liability at fair value
and should recognise a gain or
loss on the transaction based on
the difference between:
(a) the proceeds; and
(b) the carrying amount of the
financial asset sold plus
the fair value of any new
financial liability assumed,
minus the fair value of
any new financial asset
acquired, and plus or minus
any adjustment that had
previously been reported
in equity to reflect the fair
value of that asset.

20
Topic International Australia Proposed changes
Financial liabilities Measure liabilities that are No specific guidance. Any financial liability can be
– measurement held for trading at fair value Liabilities usually recognised designated as held for trading
with changes in the fair value at amortised cost. on initial recognition and
recognised through the profit measured at fair value.
and loss. Derivatives are deemed
to be held for trading unless
hedging instruments.
All other financial liabilities are
recognised at amortised cost.
Financial liabilities Liabilities may only be Similar to IFRS but also allows
– derecognition derecognised when in-substance defeasance to be
extinguished. treated as extinguishment if
The difference between the certain conditions are met.
carrying amount of a liability (or
part of a liability) extinguished
or transferred to another party,
including related unamortised
costs, and the amount paid for it
should be included in net profit
or loss for the period.
If an enterprise transfers a part
of a financial liability to others
while retaining a part, or if an
enterprise transfers an entire
financial liability and in doing so
creates a new financial asset or
assumes a new financial liability,
the enterprise should account
for the transaction in a similar
manner to the derecognition of
part of a financial asset or where
derecognition is coupled with a
new financial asset or liability.

21
Topic International
Hedging instruments The use of derivatives as hedging
and hedge accounting instruments is not restricted,
except for some written options.
However non-derivative
financial instruments can only
hedge foreign exchange risk.
There are three types of hedge
relationships:
• fair value hedge – In addition
to the gain or loss from
the hedging instrument
(derivative) being recognised
in profit or loss, changes in
fair value of the hedge item
related to the hedge risk are
also recognised in net profit
or loss. Any ineffectiveness is
automatically recognised in
profit or loss;
• cash flow hedge – The
effective portion of the
change in fair value of the
hedging instrument is
recognised in equity until
the hedged transaction
occurs. The ineffective
portion is recognised in
profit or loss;
• hedge of net investment
– Similar accounting to cash
flow hedges.
Effectiveness of hedge The effectiveness of the hedge
must be reliably measurable.
The hedge is required to be
highly effective with guidance
indicating that there should
be an expectation that cash
flows of the hedge item will be
almost fully offset by changes
in the cash flow of the hedge
instrument, with actual results
within a range of 80 to 125%.
The hedge is required to be
assessed on an ongoing basis
and determined actually to have
been highly effective throughout
the financial reporting period.
Australia Proposed changes
Foreign currency hedges Hedges of firm commitments
carried at current spot rate will be treated as fair value
with exchange differences and hedges rather than cash flow
costs or gains on entering the hedges.
hedge deferred as an asset or When a hedged forecasted
liability until the transaction transaction actually occurs and
occurs. results in an asset or liability,
Hedge of net investment the gain or loss deferred in
similar to IFRS, except no equity will not adjust the
requirement to account for initial carrying amount of the
any ineffectiveness separately. asset or liability but remains
in equity and will be reported
in profit or loss in a manner
that is consistent with the
reporting of gains or losses on
the asset or liability.
No specification of how
effective the hedge has to be.
At the inception of the hedge
and during the term of the
hedging instrument, it is
expected that the hedge
will be effective in reducing
exposure to the risks intended
to be hedged. There is no
requirement to actually
measure or determine that
effectiveness.

22
Topic International Australia Proposed changes
Embedded derivatives An embedded derivative should No specific guidance.
be separated from the host Embedded derivatives are
contract and accounted for as a generally not separated from
derivative if all of the following the host contract.
conditions are met:
(a) the economic characteristics
and risks of the embedded
derivative are not closely
related to the economic
characteristics and risks of
the host contract;
(b) a separate instrument with
the same terms as the
embedded derivative would
meet the definition of a
derivative; and
(c) the hybrid (combined)
instrument is not measured
at fair value with changes
in fair value reported in net
profit or loss.
Hedged items A held to maturity investment (as No specific exclusion.
opposed to an originated loan or
receivable) cannot be designated
as a hedged item with respect to
interest rate risk.
If the hedged item is a financial No specific requirement for
asset or liability, it may be effectiveness to be measured.
designated as a hedge item only
in relation to those risks where
effectiveness can be measured.
If the hedged item is a non- No specific exclusion.
financial asset or liability, it may
be designated as a hedge item
only for foreign currency risk
or in its entirety because of the
difficulty of isolating risks.
Hedge documentation At the inception of the hedge The hedging relationship is
there is formal documentation required to be designated
of the hedging relationship and prospectively, specifically
the enterprise’s risk management identifying the hedging
objective and strategy for instrument as well as the
undertaking the hedge. That hedged anticipated purchases
documentation should include or sales – the characteristics
identification of the hedging of the hedged purchases or
instrument, the related hedged sales must be designated
item or transaction, the nature with sufficient specificity so
of the risk being hedged, and that when a purchase or sale
how the enterprise will assess occurs it is clear whether
the hedging instrument’s that transaction is or is not a
effectiveness in offsetting the hedged purchase or sale.
exposure to changes in the
hedged item’s fair value or the
hedged transaction’s cash flows
that is attributable to the hedged
risk.

23
 Topic International Australia Proposed changes
Trade verses settlement A contract for the purchase No corresponding guidance
date or sale of financial assets that and practice may vary.
requires delivery of the assets
within the time frame generally
established by regulation or
convention in the market place
concerned (sometimes called
a ‘regular way’ contract) is a
financial instrument. A ‘regular
way’ purchase or sale of financial
assets should be recognised
using trade date accounting or
settlement date accounting.
When settlement date
accounting is applied, an
enterprise will account for any
change in the fair value of the
asset to be received during the
period between the trade date
and the settlement date in the
same way as it will account for
the acquired asset i.e. trade,
available for sale or held to
maturity.
31. Investment property (IAS 40)
IAS 40 permits the use of the cost (including subsequent
depreciation and impairment) or fair value model for accounting
for investment property. If the fair value model is adopted changes
in the fair value are taken through the income statement and
not the revaluation reserve as would be the case under current
Australian accounting standards.
32. Self-generating and regenerating assets (Agriculture) (IAS 41 & AASB 1037)
AASB 1037 and IAS 41 are similar, however IFRS includes guidance
with respect to government grants and fair value which may vary
under AASB.

Other Resources
Accounting Alerts – provide regular updates of accounting developments in Australia.
Available at www.deloitte.com.au

IAS Plus – www.iasplus.com is a Deloitte website dedicated to all things related to IFRS. The website includes
summaries of IASB decisions, quarterly newsletters, various IFRS publications and plenty more.

AASB – The AASB has published an in depth analysis of the differences between IFRS and Australian
standards. The Australian Convergence Handbook is available at www.aasb.com.au

24
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