Mr David Knott, Chairman of the Australian Securities and Investments Commission (ASIC), today expressed disappointment that ASIC’s interpretation of accounting standards had not been accepted by the Supreme Court of Victoria in ASIC's case against MYOB Limited (MYOB).
On 17 February 2000, the Senate disallowed the provisions of a new accounting standard that contained an optional accounting treatment adopted by MYOB in its 31 December 1999 financial statements. ASIC was of the view that MYOB should have made adjustments in subsequent financial statements increasing recorded share capital and asset values by about $90 million, resulting in increased amortisation charges.
Today, his Honour Mr Justice Hanson handed down a decision in the Supreme Court of Victoria in favour of MYOB.
‘The decision in MYOB comes at a time when audit and accounting standards are under intense scrutiny’, Mr Knott said.
‘Over the past three years, ASIC has been actively campaigning to enforce accounting standards and to improve the quality of financial reporting. In that period we have achieved more than $1.5 billion of restated accounting treatments by Australian corporates.
‘We continue to place high priority on improving the standards of financial reporting and market disclosure. Both are critical to the interests of investors, creditors and employees; and to our national reputation’, Mr Knott said.
Background
In April 1999, MYOB had been interposed between a unit trust and its unitholders prior to a public float. Accounting Standard AASB 1015 ‘Acquisition of Assets’ was released in November 1999 and introduced a new alternative treatment for internal reconstructions.
MYOB adopted the new standard early in its financial statements for the year ended 31 December 1999 and applied the new alternative treatment, recording the purchase of assets at book values to the trust rather than cost to the company.
MYOB recorded share capital and asset values that were about $90 million lower than otherwise, resulting in reduced amortisation charges.
After the Senate disallowed the provisions of AASB 1015 that contained the alternative treatment on 17 February 2000, MYOB did not adjust its share capital and asset values in subsequent financial statements.
ASIC held the view that this was contrary to the accounting standard and law. ASIC was also concerned that MYOB's continuing treatment allowed amounts that would otherwise be share capital to emerge as future distributable profits, and that comparability with other companies’ financial statements and results would be reduced.