The accounting rules 
It is important for the directors, CEOs and CFOs of companies affected by the plan to understand that their company’s financial reporting is unlikely to be ‘business as usual’.

AASB 110 Events After the Reporting Period
For many affected companies the timing of the public release of the plan on Sunday 10 July occurred after the end of the reporting period and before the authorisation of financial statements. Directors, CEOs and CFOs will need to determine the effect of the plan on their financial statements. The critical question for resolution is does the release of the plan give rise to a non-adjusting event or an adjusting event? In answering that question, the comments of Paul Drum, Head of Business and Investment Policy, CPA Australia, may be particularly relevant. At the time of the release of the plan, Drum said ‘the policy announced today provides business with some much needed certainty to help plan for operating in a
carbon-constrained future.’

Australian Accounting Standard AASB 110 Events After the Reporting Period requires that an event be identified as non adjusting and the business disclose in the notes to the financial statements for each material category of non-adjusting event the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.

In contrast, when the event provides evidence of conditions that existed at the end of the reporting period (an adjusting event), AASB 110 requires that the amount recognised in the financial statements reflects the adjusting event.

While an adjusting event is the answer likely to emerge from directors, CEOs and CFOs who see the plan as providing business with greater certainty about costs, others may see the plan as a non-adjusting event.

AASB 112 Income Taxes

One financial reporting issue on which there will be agreement is that the carbon tax is not a tax to which AASB 112 Income Taxes applies. This is because AASB 112 states income taxes include all taxes on taxable profits and the carbon tax has no profit concept – rather it is a tax on production. Instead, AASB 136 Impairment of Assets is the most relevant standard.

AASB 136 Impairment of Assets
AASB 136 requires that assets on an entity’s balance sheet are shown at no more than their ‘recoverable amount’. Whether or not application of AASB 136 will affect the ‘bottom line’ will depend on the decision reached on the application of AASB 110 to the release of the plan. An adjusting event will affect the bottom line, whereas, a non-adjusting event will affect the notes to the financial statements.

Recoverable amount is the higher of the amount obtainable from the sale of an individual asset or the present value of its anticipated cash flows. Where an individual asset would not be separately sold or does not generate cash inflows independent of the cash flows from other assets, the recoverable amount is calculated for the smallest identifiable group of assets that collectively generates cash inflows (cash generating unit).

Where the recoverable amount of the asset is less than the amount that it is carried at in the balance sheet, the asset is said to be impaired and must be written down to its ‘recoverable amount’ and the business must recognise an impairment loss.

The Climate Change Plan: How might it cause assets to be impaired?

At each reporting date, an entity must assess whether there is any indication that an asset may be impaired. Indications that an asset may be impaired include:

• significant changes with an adverse effect on an entity have taken place or will take place in the near future in the economic and legal environment in which the entity operates
• cash flow for operating or maintaining the asset (the cost on emissions) are significantly higher than those originally budgeted
• actual net cash flows or operating profit or loss flowing from the assets are significantly worse than those budgeted
• a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowing from an asset

As stated above, AASB 136 requires that assets on an entity’s balance sheet are shown at no more than their ‘recoverable amount’ and AASB 136 requires that the recoverable amount be assessed when significant changes with an adverse effect on the entity will take place in the near future in the economic or legal environment in which the entity operates or in the market to which an asset is dedicated. Commentators are like minded in their view that the release of the plan on Sunday 10 July is an event that triggers assessment action and the modelling for some assets may identify the carbon tax having a significant impact upon the cash flows and/or profitability of their assets – individually or as collective cash generating units and the price for which they can sell such assets, notwithstanding any compensation received under the plan.

Directors, CEOs and CFOs who see the release of the plan as a AASB 110 adjusting event will therefore write down the carrying amount of those assets and an impairment loss will be recognised. Others who see the release of the plan as a non-adjusting event will disclose this information in the notes to the financial statements and not on the face of the financial statements.

A consequence of the reduction in the value of assets, may be to impact the company’s gearing ratio (assets to liabilities), which may lead to a technical breach of their debt covenants and may reduce the amount that can be borrowed.

Tax rates 2011-12
The following rates for 2011-12 apply from 1 July 2011 .

The above rates do not include the Medicare levy of 1.5% (read Guide to Medicare levy for more information).
The above rates do not include the Flood levy (read Flood levy information for individuals for more information).
Tax rates 2010-11

The above rates do not include the Medicare levy of 1.5% (read Guide to Medicare levy for more information).
Tax offsets reduce the tax payable. Tax offsets based on taxable income levels apply to a range of circumstances. For more
information, read Guide to tax offsets.

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