AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments December 2013 (Cth)
| AASB Standard | AASB 2013-9 December 2013 |
Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments
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© Commonwealth of Australia 2013
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CONTENTS
PREFACE
ACCOUNTING STANDARD
AASB 2013-9 AMENDMENTS TO AUSTRALIAN ACCOUNTING STANDARDS – CONCEPTUAL FRAMEWORK, MATERIALITY AND FINANCIAL INSTRUMENTS
Paragraphs
Objective 1
Application 2 – 21
Part A – Conceptual Framework
General Amendments 22
Amendments to AASB 101 23 – 25
Amendments to AASB 108 26 – 27
Amendments to AASB 134 28 – 29
Amendments to AASB 1023 30
Amendments to AASB 1038 31
Amendments to Interpretation 115 32 – 33
Amendments to Interpretation 127 34
Amendments to Interpretation 131 35
Amendments to Interpretation 1031 36
Part B – Materiality
Deletion of References to AASB 1031 37 – 38
Amendments to AASB 134 39
Amendments to AASB 1023 40
Amendments to AASB 1038 41
Amendments to AASB 1052 42
Amendments to AAS 25 43 – 44
Editorial Corrections
Amendments to AASB 3 45
Amendments to AASB 4 46
Amendments to AASB 5 47
Amendments to AASB 7 48
Amendments to AASB 101 49 – 50
Amendments to AASB 112 51
Amendments to AASB 121 52 – 53
Amendments to AASB 132 54 – 56
Amendments to AASB 1049 57 – 58
Amendments to Interpretation 12 59
Amendments to Interpretation 14 60
Part C – Financial Instruments
Amendments to AASB 9 (December 2009) 61
Amendments to AASB 2009-11 62
Amendments to AASB 9 (December 2010) 63 – 70
Amendments to AASB 2010-7 71
Amendments to AASB 1 72
Amendments to AASB 3 73
Amendments to AASB 4 74
Amendments to AASB 5 75
Amendments to AASB 7 76
Amendments to AASB 101 77
Amendments to AASB 102 78
Amendments to AASB 108 79
Amendments to AASB 112 80
Amendments to AASB 118 81
Amendments to AASB 120 82
Amendments to AASB 121 83
Amendments to AASB 132 84
Amendments to AASB 136 85
Amendments to AASB 137 86
Amendments to AASB 139 87
Amendments to Interpretation 2 88
Amendments to Interpretation 5 89
Amendments to Interpretation 10 90
Amendments to Interpretation 12 91
Amendments to Interpretation 16 92 – 93
Amendments to Interpretation 19 94
Amendments to Interpretation 107 95 – 96
Appendix
List of Amended Australian Accounting Standards (including Interpretations) Page 67
IN RELATION TO PART B:
BASIS FOR CONCLUSIONS Page 69
IN RELATION TO PART C:
IASB IMPLEMENTATION GUIDANCE – AMENDMENTS
(available on the AASB website)
IN RELATION TO PART C:
IASB BASIS FOR CONCLUSIONS – AMENDMENTS
(available on the AASB website)
Australian Accounting Standard AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments is set out in paragraphs 1 – 96 and the Appendix. All the paragraphs have equal authority.
PREFACE
Introduction
This Standard makes amendments to the Australian Accounting Standards and Interpretations listed in the Appendix to this Standard.
This Standard comprises Parts A-C, each addressed below.
Part A – Conceptual Framework
Application Date
Part A of this Standard applies to annual reporting periods ending on or after 20 December 2013 and when the Framework for the Preparation and Presentation of Financial Statements, as amended by AASB CF 2013-1 Amendments to the Australian Conceptual Framework, is applied. It may be applied to periods beginning on or after 1 January 2005 but ending before 20 December 2013.
Main Requirements
Part A of this Standard updates references to the Framework for the Preparation and Presentation of Financial Statements (July 2004) (Framework) in particular Australian Accounting Standards (including Interpretations) as a consequence of the issue of AASB CF 2013-1 in December 2013.
Part A of this Standard makes various editorial corrections to Australian Accounting Standards.
It updates references to the Framework in a manner that is consistent with the amendments made by the International Accounting Standards Board (IASB) in its corresponding pronouncements. This includes, to be consistent with the AASB’s IFRS adoption policy, retaining references to specific superseded paragraphs of the Framework in Accounting Standards and Interpretations where the IASB has not yet updated the corresponding reference in the body of its pronouncements.
Part B – Materiality
Application Date
Part B of this Standard applies to annual reporting periods beginning on or after 1 January 2014. Early adoption is not permitted.
Main Requirements
As noted in the Preface to AASB 1031 Materiality (July 2004), at the time AASB 1031 was issued, the Framework for the Preparation and Presentation of Financial Statements contained limited guidance on materiality in comparison to AASB 1031. Accordingly, as part of the AASB’s implementation of the Financial Reporting Council’s policy of adopting the Standards of the International Accounting Standards Board (IASB) for application to reporting periods beginning on or after 1 January 2005, the AASB decided to retain AASB 1031, in a revised format, to ensure that the meaning of materiality remained well explained.
The AASB has a policy of not providing unnecessary local guidance on matters covered by International Financial Reporting Standards (IFRSs). As a consequence, the AASB decided to withdraw AASB 1031 – as was proposed in AASB Exposure Draft ED 243 Withdrawal of AASB 1031 Materiality. Accordingly, the AASB is re-issuing AASB 1031 as an interim Standard that cross-references to other pronouncements that contain guidance on materiality. Part B of this Standard deletes references to AASB 1031 in various Australian Accounting Standards (including Interpretations). Once all references to AASB 1031 have been deleted from all Australian Accounting Standards, AASB 1031 will be withdrawn.
Part B of this Standard makes amendments to particular Australian Accounting Standards to delete references to AASB 1031.
Part B of this Standard makes various editorial corrections to Australian Accounting Standards.
Part C – Financial Instruments
Application Date
Part C of this Standard applies to annual reporting periods beginning on or after 1 January 2015.
Main Requirements
Part C of this Standard amends AASB 9 Financial Instruments to add Chapter 6 Hedge accounting and makes consequential amendments to AASB 9 and numerous other Standards. Part C also amends AASB 9 to permit requirements relating to the ‘own credit risk’ of financial liabilities measured at fair value to be applied without applying the other requirements of AASB 9 at the same time.
Furthermore, Part C of this Standard amends the mandatory effective date of AASB 9 so that AASB 9 is required to be applied for annual reporting periods beginning on or after 1 January 2017 instead of 1 January 2015.
Part C of this Standard adds to or amends the Australian Accounting Standards – Reduced Disclosure Requirements for AASB 7 Financial Instruments: Disclosures and AASB 101 Presentation of Financial Statements. AASB 1053 Application of Tiers of Australian Accounting Standards provides further information regarding the differential reporting framework and the two tiers of reporting requirements for preparing general purpose financial statements.
ACCOUNTING STANDARD AASB 2013-9
The Australian Accounting Standards Board makes Accounting Standard AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments under section 334 of the Corporations Act 2001.
| Kevin M. Stevenson | |
| Dated 20 December 2013 | Chair – AASB |
ACCOUNTING STANDARD AASB 2013-9
AMENDMENTS TO AUSTRALIAN ACCOUNTING STANDARDS – CONCEPTUAL FRAMEWORK, MATERIALITY AND FINANCIAL INSTRUMENTS
Objective
The objective of this Standard is to make amendments to the Standards and Interpretations listed in the Appendix:
(a) as a consequence of the issue of Accounting Framework AASB CF 2013‑1 Amendments to the Australian Conceptual Framework, and editorial corrections, as set out in Part A of this Standard;
(b) to delete references to AASB 1031 Materiality in other Australian Accounting Standards, and to make editorial corrections, as set out in Part B of this Standard; and
(c) as a consequence of the issuance of IFRS 9 Financial Instruments – Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 by the IASB in November 2013, as set out in Part C of this Standard.
Application
Subject to paragraphs 3-15, this Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
In respect of AASB 101 and AASB 108, this Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
(b) general purpose financial statements of each reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
In respect of AASB 120 and Interpretation 110, this Standard applies to:
(a) each for-profit entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other for-profit reporting entity; and
(c) financial statements of a for-profit entity that are, or are held out to be, general purpose financial statements.
In respect of AASB 134, this Standard applies to:
(a) each disclosing entity required to prepare half-year financial reports in accordance with Part 2M.3 of the Corporations Act;
(b) interim financial reports that are general purpose financial statements of each other reporting entity; and
(c) interim financial reports that are, or are held out to be, general purpose financial statements.
In respect of AASB 1038, this Standard applies to each entity that is:
(a) a life insurer; or
(b) the parent in a group that includes a life insurer;
when the entity:
(c) is a reporting entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
(d) is an other reporting entity and prepares general purpose financial statements; or
(e) prepares financial statements that are, or are held out to be, general purpose financial statements.
In respect of AASB 1049, this Standard applies to each government’s whole of government general purpose financial statements and GGS financial statements.
In respect of AASB 1050, this Standard applies to general purpose financial statements of government departments.
In respect of AASB 1051, this Standard applies to general purpose financial statements of local governments, government departments and whole of governments, and financial statements of GGSs.
In respect of AASB 1052, this Standard applies to general purpose financial statements of local governments and government departments.
In respect of AASB 1055, this Standard applies to:
(a) whole of government general purpose financial statements of each government;
(b) financial statements of each government’s GGS;
(c) general purpose financial statements of each not-for-profit reporting entity within the GGS; and
(d) financial statements of each not-for-profit entity within the GGS that are, or are held out to be, general purpose financial statements.
In respect of AAS 25, this Standard applies to general purpose financial reports of each superannuation plan in the private or public sector that is a reporting entity.
In respect of Interpretation 1019, this Standard applies to superannuation plans when AASB 137 applies.
In respect of Interpretation 1038, this Standard applies to public sector entities as follows:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
In respect of Interpretation 1047, this Standard applies to entities that are or include medical defence organisations as follows:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act 2001 and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Part A of this Standard applies to annual reporting periods ending on or after 20 December 2013.
Part A of this Standard shall be applied when Accounting Framework AASB CF 2013-1 Amendments to the Australian Conceptual Framework is applied. It may be applied to annual reporting periods beginning on or after 1 January 2005 that end before 20 December 2013, provided that AASB CF 2013-1 and AASB 1048 Interpretation of Standards (December 2013) are also applied to the same period. When an entity applies Part A of this Standard to such an annual reporting period, it shall disclose that fact.
Part B of this Standard applies to annual reporting periods beginning on or after 1 January 2014. Early adoption of Part B of this Standard is not permitted.
Part C of this Standard applies to annual reporting periods beginning on or after 1 January 2015.
Part C of this Standard may be applied to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2015, except that the amendments to AASB 9 (December 2010) and AASB 2010-7 may be applied early only as set out in those Standards.
This Standard uses underlining, striking out and other typographical material to identify some of the amendments to a Standard or an Interpretation, in order to make the amendments more understandable. However, the amendments made by this Standard do not include that underlining, striking out or other typographical material.
Part A – Conceptual Framework
General Amendments
The reference to the “Framework for the Preparation and Presentation of Financial Statements” or to the “Framework” is amended to refer to the “Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards)” in each Accounting Standard or Interpretation listed in the table below:
Australian Accounting Standards (including Interpretations) Paragraph / Section amended AASB 3 11 AASB 118 Objective Interpretation 12 References Interpretation 18 References Interpretation 19 References Interpretation 127 6 Interpretation 132 5 Interpretation 1019 18, References Interpretation 1031 References Interpretation 1038 References, 34 Interpretation 1052 42
and a footnote is added against each of those references, as follows:
In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements.
Amendments to AASB 101
In paragraph 7, a footnote is added against the phrase “The Framework for the Preparation and Presentation of Financial Statements states in paragraph 25” that is in the text immediately following the definition of ‘material’, as follows:
In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements. The Framework is identified in AASB 1048 Interpretation of Standards. Paragraph 25 was superseded by Chapter 3 of the Framework.
In paragraph 15, a footnote is added against the phrase “the Framework”, as follows:
Paragraphs 15–24 contain references to the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048). In December 2013 the AASB amended the Framework, and thereby replaced the objective of financial statements with the objective of general purpose financial reporting: see Chapter 1 of the Framework.
In paragraphs 28 and 89, a footnote is added against the phrase “the Framework”, as follows:
The Framework for the Preparation and Presentation of Financial Statements was amended by the AASB in December 2013.
Amendments to AASB 108
In paragraph 6, a footnote is added against the phrase “The Framework for the Preparation and Presentation of Financial Statements (the Framework) states in paragraph 25”, as follows:
In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements. The Framework is identified in AASB 1048 Interpretation of Standards. Paragraph 25 was superseded by Chapter 3 of the Framework.
In paragraph 11, a footnote is added against the phrase “the Framework”, as follows:
In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements.
Amendments to AASB 134
Paragraph 31 is amended as follows (new text is underlined and deleted text is struck through):
31 Under the Framework for the Preparation and Presentation of Financial Statements (the Framework) (as identified in AASB 1048 Interpretation of Standards)1, recognition is the “process of incorporating in the
statement of financial positionbalance sheet orstatement of comprehensiveincome statement an item that meets the definition of an element and satisfies the criteria for recognition”. …
_______________________
1In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements.
Paragraph 33 is amended as follows (new text is underlined and deleted text is struck through):
33 … The Framework says that “expenses are recognised in the
statement of comprehensiveincome statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.... [The] Framework does not allow the recognition of items in thestatement of financial positionbalance sheet which do not meet the definition of assets or liabilities”.
Amendments to AASB 1023
Paragraph 17.6.4 is amended as follows (new text is underlined and deleted text is struck through):
17.6.4 When an insurer is presenting the disclosures required by paragraphs 17.6.1(c) and 17.6.1(d) the insurer determines the level and extent of disclosure that is appropriate having regard to its circumstances and the qualitative characteristics of financial statements under the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards)
of understandability, relevance, reliability and comparability.
Amendments to AASB 1038
Paragraph 14.1.7 is amended as follows (new text is underlined and deleted text is struck through):
14.1.7 When an insurer is presenting the disclosures required by paragraphs 14.1.1(c) and 14.1.1(d) the insurer determines the level and extent of disclosure that is appropriate having regard to its circumstances and the qualitative characteristics of financial statements under the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards)
of understandability, relevance, reliability and comparability.
Amendments to Interpretation 115
In paragraph 7, a footnote is added against the phrase “Paragraph 35 of the Framework for the Preparation and Presentation of Financial Statements”, as follows:
In December 2013 the AASB amended the Framework. Paragraph 35 was superseded by Chapter 3 of the Framework. References to the Framework in this Interpretation are to the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards).
In paragraph 8, a footnote is added against the phrase “Paragraph 22 of the Framework”, as follows:
In December 2013 the AASB amended the Framework. Paragraph 22 was deleted.
Amendments to Interpretation 127
In paragraph 13, a footnote is added against the phrase “paragraph 35 of the Framework”, as follows:
In December 2013 the AASB amended the Framework. Paragraph 35 was superseded by Chapter 3 of the Framework. References to the Framework in this Interpretation are to the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards).
Amendments to Interpretation 131
In paragraph 7, a footnote is added against the phrase “Paragraph 31 of the Framework for the Preparation and Presentation of Financial Statements”, as follows:
In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements. References to the Framework in this Interpretation are to the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards). Paragraph 31 was superseded by Chapter 3 of the Framework.
Amendments to Interpretation 1031
Paragraph 21 is amended as follows (new text is underlined, and deleted text is struck through):
21 … This Interpretation reflects the view that in these cases the GST is not part of the cost of the asset acquired or the expense incurred. This is consistent with the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards), which states that ‘expenses are recognised in the income statement
of comprehensive incomewhen a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.’ …
Part B – Materiality
Deletion of References to AASB 1031
The statement in each Australian Accounting Standard (including Interpretations) that the requirements of the Standard apply where information resulting from their application is material in accordance with AASB 1031 Materiality is deleted from the Australian Accounting Standard as listed in the table below:
Australian Accounting Standards
(including Interpretations)Paragraphs deleted AASB 1 Aus1.4 AASB 3 Aus1.4 AASB 4 Aus1.4 AASB 5 Aus1.4 AASB 7 Aus2.4 AASB 9 (December 2009) Aus1.5 AASB 9 (December 2010) Aus1.6 AASB 101 Aus1.4 AASB 102 Aus1.4 AASB 108 Aus2.4 AASB 112 Aus1.4 AASB 118 Aus1.4 AASB 120 Aus1.4 AASB 121 Aus2.4 AASB 132 Aus3.4 AASB 134 Aus1.6 AASB 136 Aus1.4 AASB 137 Aus1.4 AASB 139 Aus1.4 AASB 1023 1.4 AASB 1038 1.4 AASB 1049 5 AASB 1050 5 AASB 1051 5 AASB 1052 9 AASB 1055 5 Interpretation 1 Aus8.4 Interpretation 2 Aus13.4 Interpretation 4 Aus15.4 Interpretation 5 Aus13.4 Interpretation 6 Aus9.4 Interpretation 7 Aus5.4 Interpretation 9 Aus8.4 Interpretation 10 Aus9.4 Interpretation 12 Aus27.4 Interpretation 13 Aus9.4 Interpretation 14 Aus26.4 Interpretation 15 Aus23.4 Interpretation 16 Aus17.4 Interpretation 17 Aus17.4 Interpretation 18 Aus21.5 Interpretation 19 Aus11.4 Interpretation 20 Aus16.4 Interpretation 21 Aus14.4 Interpretation 107 Aus4.4 Interpretation 110 Aus3.4 Interpretation 115 Aus6.4 Interpretation 125 Aus4.4 Interpretation 127 Aus11.4 Interpretation 129 Aus7.4 Interpretation 131 Aus5.4 Interpretation 132 Aus10.4 Interpretation 1003 13 Interpretation 1019 14 Interpretation 1030 12 Interpretation 1031 16 Interpretation 1038 16 Interpretation 1042 11 Interpretation 1047 13 Interpretation 1052 20 Interpretation 1055 12
Except in relation to Interpretations 1, 6, 7, 9, 10, 12, 13, 14, 16, 19, 20, 21, 107, 110 and 125, a note is added against the paragraph number of each paragraph deleted as specified in paragraph 37, as follows:
[Deleted by the AASB]
Amendments to AASB 134
Paragraph 24 is amended as follows (new text is underlined and deleted text is struck through):
24
In deciding whether an item is material, its nature and amount usually need to be evaluated together. AASB 1031 Materiality provides guidance on the role of materiality in making judgements in the preparation and presentation of financial statements.AASB 101 and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors define an item as material if its omission or misstatement could influence the economic decisions of users of the financial statements. AASB 101 requires separate disclosure of material items, including (for example) discontinued operations, and AASB 108 requires disclosure of changes in accounting estimates, errors and changes in accounting policies. The two Standards do not contain quantified guidance as to materiality.
Amendments to AASB 1023
Paragraph 1.4.1 is deleted and a note added as follows:
1.4.1 [Deleted by the AASB]
Amendments to AASB 1038
Paragraph 1.4.1 is deleted and a note added as follows:
1.4.1 [Deleted by the AASB]
Amendments to AASB 1052
Paragraph 20 is amended as follows (new text is underlined and deleted text is struck through):
20 Judgement is required to identify those activities of a government department that warrant separate disclosure in the complete set of financial statements. Exercising this judgement involves a consideration of the following: …
(d) the concept of materiality
as set out in the Framework for the Preparation and Presentation of Financial Statements and AASB 1031. AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors define an item as material if its omission or misstatement could influence the economic decisions of users of the financial statements.
Amendments to AAS 25
Paragraphs 8 and 9, and the heading “Application of Materiality”, are deleted. A note concerning each paragraph is added as follows:
8 [Deleted by the AASB]
9 [Deleted by the AASB]
Paragraph 38 is amended as follows (deleted text is struck through):
38 … In establishing net market values of assets it may be necessary to exercise judgement in respect of determining such matters as:
(a) the costs expected to be incurred in realising the proceeds of any disposals (
consistent with the provisions of Australian Accounting Standard AAS 5 “Materiality in Financial Statements”,where such costs are not expected to be material, assets can be measured at gross market value. In addition, as a practical measure, the expected cost of disposal may be estimated by application of an average rate over all assets); …
Editorial Corrections
Amendments to AASB 3
In Appendix B, paragraph AusB68 is renumbered to paragraph B68 and the second sentence “Paragraph Aus1.3 allows earlier application by for-profit entities only.” is amended to “Earlier application is permitted.”.
Amendments to AASB 4
The second sentence of paragraph B7(b) in Appendix B is amended to read as follows:
That approach is also acceptable under this Standard, which permits the service provider (i) to continue its existing accounting policies for these contracts unless they involve practices prohibited by paragraph 14 and (ii) to improve its accounting policies if so permitted by paragraphs 22-30.
Amendments to AASB 5
The text “Australian equivalent to IFRSs.” in paragraph Aus42.1 is amended to “Australian Accounting Standard.”.
Amendments to AASB 7
Paragraph Aus2.9(e) is deleted.
Amendments to AASB 101
Paragraphs 7, 33, 47, 113 and 114(c) are amended as follows (new text is underlined and deleted text is struck through):
7 The following terms are used in this Standard with the meanings specified:
…
Notes contain information in addition to that presented in the statement of financial position, statement(s) of profit or loss and other comprehensive income,
separate income statement (if presented),statement of changes in equity and statement of cash flows. …
…
33 An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statement(s) of profit or loss and other comprehensive income or financial position
or in the separate income statement (if presented), except when offsetting reflects the substance …
47 This Standard requires particular disclosures in the statement of financial position or the statement(s) of profit or loss and other comprehensive income,
in the separate income statement (if presented),or in the statement of changes in equity …
113 An entity shall, as far as practicable, present notes in a systematic manner. An entity shall cross-reference each item in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income,
in the separate income statement (if presented),and in the statements of changes in equity …
114 An entity normally presents notes in the following order …
(a) …
(c) supporting information for items presented in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income,
in the separate income statement (if presented),and in the statements of changes in equity …
(d) …
The text “81A-81B” in paragraph 139J is amended to read “81A, 81B”.
Amendments to AASB 112
The text “other start up costs” in paragraph 5 of Example B in the Illustrative Examples accompanying AASB 112 is amended to read “other start-up costs”.
Amendments to AASB 121
The text “in which the foreign operation is consolidated, or accounted for” in paragraph 33 is amended to read “in which the foreign operation is consolidated or accounted for”.
The text “financial statements of the reporting entity by consolidation, or the equity method.” in paragraph 44 is amended to read “financial statements of the reporting entity by consolidation or the equity method.”.
Amendments to AASB 132
The comma after ‘associates’ in the first sentence of paragraph 4(a) is deleted.
The heading “Offsetting a Financial Asset and a Financial Liability (see also paragraphs AG38 and AG39)” immediately before paragraph 42 is amended to “Offsetting a Financial Asset and a Financial Liability (see also paragraphs AG38A-AG38F and AG39)”.
The text “derivates” in paragraph AG30 in the Application Guidance is amended to “derivatives”.
Amendments to AASB 1049
Paragraph 14(d) is deleted.
The reference to AASB 127 in paragraph 44(b) is amended to AASB 10.
Amendments to Interpretation 12
Appendix B Amendments to AASB 1 and to Other Interpretations accompanying Interpretation 12 is deleted.
Amendments to Interpretation 14
The heading “Effective Date of IFRIC 14” before paragraph 27 is amended to read “Effective Date”.
Part C – Financial Instruments
Amendments to AASB 9 (December 2009)
Paragraphs Aus1.3 and Aus1.4 of AASB 9 (December 2009) are amended to read as follows:
Aus1.3 This Standard applies to annual reporting periods beginning on or after 1 January 2017.1
Aus1.4 This Standard may be applied to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2017. When an entity applies this Standard to an annual reporting period beginning before 1 January 2017 it shall disclose that fact and at the same time apply the amendments in AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (as amended).
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1The International Accounting Standards Board, through International Financial Reporting Standard IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (November 2013) removed the mandatory effective date of IFRS 9. The application date of AASB 9 has been made for Australian legislative reasons and remains subject to review.
Amendments to AASB 2009-11
Paragraphs 5 and 6 of AASB 2009-11 are amended to read as follows:
5 This Standard applies to annual reporting periods beginning on or after 1 January 2017.
6 This Standard shall be applied when AASB 9 (December 2009) is applied. This Standard may be applied to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2017 provided AASB 9 (December 2009) is also applied for the same period. When an entity applies this Standard to such an annual reporting period, it shall disclose that fact.
Amendments to AASB 9 (December 2010)
Paragraphs Aus1.3 and Aus1.7 of AASB 9 (December 2010) are amended to read as follows:
Aus1.3 This Standard applies to annual reporting periods beginning on or after 1 January 2017. Earlier application is permitted. However, if an entity elects to apply this Standard early and has not already applied AASB 9 Financial Instruments issued in December 2009 (as amended), it must apply all of the requirements in this Standard at the same time (but see also paragraph Aus1.7 of this Standard). If an entity applies this Standard in its financial statements for a period beginning before 1 January 2017, it shall disclose that fact and at the same time apply the amendments in AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (as amended).1
Aus1.7 When applied or operative, this Standard supersedes AASB 9 issued in December 2009 (as amended). However, for annual reporting periods beginning before 1 January 2017, an entity may elect to apply AASB 9 issued in December 2009 (as amended) or this Standard as amended to September 2012, instead of applying this Standard (as amended to December 2013).
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1 The International Accounting Standards Board, through International Financial Reporting Standard IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (November 2013) removed the mandatory effective date of IFRS 9. The application date of AASB 9 has been made for Australian legislative reasons and remains subject to review.
In Chapter 4, sections 4.2 and 4.4 are amended to read as follows (amended paragraphs are set out in full, paragraphs not included are not amended by Part C of this Standard):
Option to designate a financial liability at fair value through profit or loss
4.2.2 An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when permitted by paragraph 4.3.5, or when doing so results in more relevant information, because either:
(a) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see paragraphs B4.1.29–B4.1.32); or
(b) a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel (as defined in AASB 124 Related Party Disclosures), for example, the entity’s board of directors and chief executive officer (see paragraphs B4.1.33–B4.1.36).
4.2.3 AASB 7 requires the entity to provide disclosures about the financial liabilities it has designated as at fair value through profit or loss.
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4.4 Reclassification
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4.4.3 The following changes in circumstances are not reclassifications for the purposes of paragraphs 4.4.1–4.4.2:
(a) an item that was previously a designated and effective hedging instrument in a cash flow hedge or net investment hedge no longer qualifies as such;
(b) an item becomes a designated and effective hedging instrument in a cash flow hedge or net investment hedge; and
(c) changes in measurement in accordance with Section 6.7.
In Chapter 5, sections 5.2, 5.3 and 5.7 are amended to read as follows (amended paragraphs are set out in full, paragraphs that are not included are not amended by Part C of this Standard):
5.2 Subsequent measurement of financial assets
5.2.1 After initial recognition, an entity shall measure a financial asset in accordance with paragraphs 4.1.1–4.1.5 at fair value or amortised cost (see paragraphs 9 and AG5–AG8 of AASB 139).
5.2.2 An entity shall apply the impairment requirements in paragraphs 58–65 and AG84–AG93 of AASB 139 to financial assets measured at amortised cost.
5.2.3 An entity shall apply the hedge accounting requirements in paragraphs 6.5.8–6.5.14 (and, if applicable, paragraphs 89–94 of AASB 139 for the fair value hedge accounting for a portfolio hedge of interest rate risk) to a financial asset that is designated as a hedged item.
5.3 Subsequent measurement of financial liabilities
5.3.1 After initial recognition, an entity shall measure a financial liability in accordance with paragraphs 4.2.1–4.2.2 (see paragraphs 9 and AG5–AG8 of AASB 139).
5.3.2 An entity shall apply the hedge accounting requirements in paragraphs 6.5.8–6.5.14 (and, if applicable, paragraphs 89–94 of AASB 139 for fair value hedge accounting for a portfolio hedge of interest rate risk) to a financial liability that is designated as a hedged item.
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5.7 Gains and losses
5.7.1 A gain or loss on a financial asset or financial liability that is measured at fair value shall be recognised in profit or loss unless:
(a) it is part of a hedging relationship (see paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs 89–94 of AASB 139 for the fair value hedge accounting for a portfolio hedge of interest rate risk);
(b) it is an investment in an equity instrument and the entity has elected to present gains and losses on that investment in other comprehensive income in accordance with paragraph 5.7.5; or
(c) it is a financial liability designated as at fair value through profit or loss and the entity is required to present the effects of changes in the liability’s credit risk in other comprehensive income in accordance with paragraph 5.7.7.
5.7.2 A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship (see paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs 89–94 of AASB 139 for the fair value hedge accounting for a portfolio hedge of interest rate risk) shall be recognised in profit or loss when the financial asset is derecognised, impaired or reclassified in accordance with paragraph 5.6.2, and through the amortisation process. A gain or loss on a financial liability that is measured at amortised cost and is not part of a hedging relationship (see paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs 89–94 of AASB 139 for the fair value hedge accounting for a portfolio hedge of interest rate risk) shall be recognised in profit or loss when the financial liability is derecognised and through the amortisation process.
5.7.3 A gain or loss on financial assets or financial liabilities that are hedged items in a hedging relationship shall be recognised in accordance with paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs 89–94 of AASB 139 for the fair value hedge accounting for a portfolio hedge of interest rate risk.
5.7.4 If an entity recognises financial assets using settlement date accounting (see paragraphs 3.1.2, B3.1.3 and B3.1.6), any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognised for assets measured at amortised cost (other than impairment losses). For assets measured at fair value, however, the change in fair value shall be recognised in profit or loss or in other comprehensive income, as appropriate under paragraph 5.7.1.
Chapter 6 is added:
Chapter 6 Hedge accounting
6.1 Objective and scope of hedge accounting
6.1.1 The objective of hedge accounting is to represent, in the financial statements, the effect of an entity’s risk management activities that use financial instruments to manage exposures arising from particular risks that could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5). This approach aims to convey the context of hedging instruments for which hedge accounting is applied in order to allow insight into their purpose and effect.
6.1.2 An entity may choose to designate a hedging relationship between a hedging instrument and a hedged item in accordance with paragraphs 6.2.1–6.3.7 and B6.2.1–B6.3.25. For hedging relationships that meet the qualifying criteria, an entity shall account for the gain or loss on the hedging instrument and the hedged item in accordance with paragraphs 6.5.1–6.5.14 and B6.5.1–B6.5.28. When the hedged item is a group of items, an entity shall comply with the additional requirements in paragraphs 6.6.1–6.6.6 and B6.6.1–B6.6.16.
6.1.3 For a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only for such a hedge), an entity may apply the hedge accounting requirements in AASB 139 instead of those in this Standard. In that case, the entity must also apply the specific requirements for the fair value hedge accounting for a portfolio hedge of interest rate risk and designate as the hedged item a portion that is a currency amount (see paragraphs 81A, 89A and AG114–AG132 of AASB 139).
6.2 Hedging instruments
Qualifying instruments
6.2.1 A derivative measured at fair value through profit or loss may be designated as a hedging instrument, except for some written options (see paragraph B6.2.4).
6.2.2 A non-derivative financial asset or a non-derivative financial liability measured at fair value through profit or loss may be designated as a hedging instrument unless it is a financial liability designated as at fair value through profit or loss for which the amount of its change in fair value that is attributable to changes in the credit risk of that liability is presented in other comprehensive income in accordance with paragraph 5.7.7. For a hedge of foreign currency risk, the foreign currency risk component of a non-derivative financial asset or a non-derivative financial liability may be designated as a hedging instrument provided that it is not an investment in an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5.
6.2.3 For hedge accounting purposes, only contracts with a party external to the reporting entity (ie external to the group or individual entity that is being reported on) can be designated as hedging instruments.
Designation of hedging instruments
6.2.4 A qualifying instrument must be designated in its entirety as a hedging instrument. The only exceptions permitted are:
(a) separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the change in intrinsic value of an option and not the change in its time value (see paragraphs 6.5.15 and B6.5.29–B6.5.33);
(b) separating the forward element and the spot element of a forward contract and designating as the hedging instrument only the change in the value of the spot element of a forward contract and not the forward element; similarly, the foreign currency basis spread may be separated and excluded from the designation of a financial instrument as the hedging instrument (see paragraphs 6.5.16 and B6.5.34–B6.5.39); and
(c) a proportion of the entire hedging instrument, such as 50 per cent of the nominal amount, may be designated as the hedging instrument in a hedging relationship. However, a hedging instrument may not be designated for a part of its change in fair value that results from only a portion of the time period during which the hedging instrument remains outstanding.
6.2.5 An entity may view in combination, and jointly designate as the hedging instrument, any combination of the following (including those circumstances in which the risk or risks arising from some hedging instruments offset those arising from others):
(a) derivatives or a proportion of them; and
(b) non-derivatives or a proportion of them.
6.2.6 However, a derivative instrument that combines a written option and a purchased option (for example, an interest rate collar) does not qualify as a hedging instrument if it is, in effect, a net written option at the date of designation (unless it qualifies in accordance with paragraph B6.2.4). Similarly, two or more instruments (or proportions of them) may be jointly designated as the hedging instrument only if, in combination, they are not, in effect, a net written option at the date of designation (unless it qualifies in accordance with paragraph B6.2.4).
6.3 Hedged items
Qualifying items
6.3.1 A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a forecast transaction or a net investment in a foreign operation. The hedged item can be:
(a) a single item; or
(b) a group of items (subject to paragraphs 6.6.1–6.6.6 and B6.6.1–B6.6.16).
A hedged item can also be a component of such an item or group of items (see paragraphs 6.3.7 and B6.3.7–B6.3.25).
6.3.2 The hedged item must be reliably measurable.
6.3.3 If a hedged item is a forecast transaction (or a component thereof), that transaction must be highly probable.
6.3.4 An aggregated exposure that is a combination of an exposure that could qualify as a hedged item in accordance with paragraph 6.3.1 and a derivative may be designated as a hedged item (see paragraphs B6.3.3–B6.3.4). This includes a forecast transaction of an aggregated exposure (ie uncommitted but anticipated future transactions that would give rise to an exposure and a derivative) if that aggregated exposure is highly probable and, once it has occurred and is therefore no longer forecast, is eligible as a hedged item.
6.3.5 For hedge accounting purposes, only assets, liabilities, firm commitments or highly probable forecast transactions with a party external to the reporting entity can be designated as hedged items. Hedge accounting can be applied to transactions between entities in the same group only in the individual or separate financial statements of those entities and not in the consolidated financial statements of the group, except for the consolidated financial statements of an investment entity, as defined in AASB 10, where transactions between an investment entity and its subsidiaries measured at fair value through profit or loss will not be eliminated in the consolidated financial statements.
6.3.6 However, as an exception to paragraph 6.3.5, the foreign currency risk of an intragroup monetary item (for example, a payable/receivable between two subsidiaries) may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates. In accordance with AASB 121, foreign exchange rate gains and losses on intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss.
Designation of hedged items
6.3.7 An entity may designate an item in its entirety or a component of an item as the hedged item in a hedging relationship. An entire item comprises all changes in the cash flows or fair value of an item. A component comprises less than the entire fair value change or cash flow variability of an item. In that case, an entity may designate only the following types of components (including combinations) as hedged items:
(a) only changes in the cash flows or fair value of an item attributable to a specific risk or risks (risk component), provided that, based on an assessment within the context of the particular market structure, the risk component is separately identifiable and reliably measurable (see paragraphs B6.3.8–B6.3.15). Risk components include a designation of only changes in the cash flows or the fair value of a hedged item above or below a specified price or other variable (a one-sided risk).
(b) one or more selected contractual cash flows.
(c) components of a nominal amount, ie a specified part of the amount of an item (see paragraphs B6.3.16–B6.3.20).
6.4 Qualifying criteria for hedge accounting
6.4.1 A hedging relationship qualifies for hedge accounting only if all of the following criteria are met:
(a) the hedging relationship consists only of eligible hedging instruments and eligible hedged items.
(b) at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements (including its analysis of the sources of hedge ineffectiveness and how it determines the hedge ratio).
(c) the hedging relationship meets all of the following hedge effectiveness requirements:
(i) there is an economic relationship between the hedged item and the hedging instrument (see paragraphs B6.4.4–B6.4.6);
(ii) the effect of credit risk does not dominate the value changes that result from that economic relationship (see paragraphs B6.4.7–B6.4.8); and
(iii) the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument that would create hedge ineffectiveness (irrespective of whether recognised or not) that could result in an accounting outcome that would be inconsistent with the purpose of hedge accounting (see paragraphs B6.4.9–B6.4.11).
6.5 Accounting for qualifying hedging relationships
6.5.1 An entity applies hedge accounting to hedging relationships that meet the qualifying criteria in paragraph 6.4.1 (which include the entity’s decision to designate the hedging relationship).
6.5.2 There are three types of hedging relationships:
(a) fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or loss.
(b) cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss.
(c) hedge of a net investment in a foreign operation as defined in AASB 121.
6.5.3 If the hedged item is an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5, the hedged exposure referred to in paragraph 6.5.2(a) must be one that could affect other comprehensive income. In that case, and only in that case, the recognised hedge ineffectiveness is presented in other comprehensive income.
6.5.4 A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or a cash flow hedge.
6.5.5 If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio (see paragraph 6.4.1(c)(iii)) but the risk management objective for that designated hedging relationship remains the same, an entity shall adjust the hedge ratio of the hedging relationship so that it meets the qualifying criteria again (this is referred to in this Standard as ‘rebalancing’—see paragraphs B6.5.7–B6.5.21).
6.5.6 An entity shall discontinue hedge accounting prospectively only when the hedging relationship (or a part of a hedging relationship) ceases to meet the qualifying criteria (after taking into account any rebalancing of the hedging relationship, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. For this purpose, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if such a replacement or rollover is part of, and consistent with, the entity’s documented risk management objective. Additionally, for this purpose there is not an expiration or termination of the hedging instrument if:
(a) as a consequence of laws or regulations or the introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. For this purpose, a clearing counterparty is a central counterparty (sometimes called a ‘clearing organisation’ or ‘clearing agency’) or an entity or entities, for example, a clearing member of a clearing organisation or a client of a clearing member of a clearing organisation, that are acting as a counterparty in order to effect clearing by a central counterparty. However, when the parties to the hedging instrument replace their original counterparties with different counterparties the requirement in this subparagraph is met only if each of those parties effects clearing with the same central counterparty.
(b) other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral requirements, rights to offset receivables and payables balances, and charges levied.
Discontinuing hedge accounting can either affect a hedging relationship in its entirety or only a part of it (in which case hedge accounting continues for the remainder of the hedging relationship).
6.5.7 An entity shall apply:
(a) paragraph 6.5.10 when it discontinues hedge accounting for a fair value hedge for which the hedged item is (or is a component of) a financial instrument measured at amortised cost; and
(b) paragraph 6.5.12 when it discontinues hedge accounting for cash flow hedges.
Fair value hedges
6.5.8 As long as a fair value hedge meets the qualifying criteria in paragraph 6.4.1, the hedging relationship shall be accounted for as follows:
(a) the gain or loss on the hedging instrument shall be recognised in profit or loss (or other comprehensive income, if the hedging instrument hedges an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5).
(b) the hedging gain or loss on the hedged item shall adjust the carrying amount of the hedged item (if applicable) and be recognised in profit or loss. However, if the hedged item is an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5, those amounts shall remain in other comprehensive income. When a hedged item is an unrecognised firm commitment (or a component thereof), the cumulative change in the fair value of the hedged item subsequent to its designation is recognised as an asset or a liability with a corresponding gain or loss recognised in profit or loss.
6.5.9 When a hedged item in a fair value hedge is a firm commitment (or a component thereof) to acquire an asset or assume a liability, the initial carrying amount of the asset or the liability that results from the entity meeting the firm commitment is adjusted to include the cumulative change in the fair value of the hedged item that was recognised in the statement of financial position.
6.5.10 Any adjustment arising from paragraph 6.5.8(b) shall be amortised to profit or loss if the hedged item is a financial instrument (or a component thereof) measured at amortised cost. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for hedging gains and losses. The amortisation is based on a recalculated effective interest rate at the date that amortisation begins.
Cash flow hedges
6.5.11 As long as a cash flow hedge meets the qualifying criteria in paragraph 6.4.1, the hedging relationship shall be accounted for as follows:
(a) the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts):
(i) the cumulative gain or loss on the hedging instrument from inception of the hedge; and
(ii) the cumulative change in fair value (present value) of the hedged item (ie the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge.
(b) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (ie the portion that is offset by the change in the cash flow hedge reserve calculated in accordance with (a)) shall be recognised in other comprehensive income.
(c) any remaining gain or loss on the hedging instrument (or any gain or loss required to balance the change in the cash flow hedge reserve calculated in accordance with (a)) is hedge ineffectiveness that shall be recognised in profit or loss.
(d) the amount that has been accumulated in the cash flow hedge reserve in accordance with (a) shall be accounted for as follows:
(i) if a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity shall remove that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment (see AASB 101 Presentation of Financial Statements) and hence it does not affect other comprehensive income.
(ii) for cash flow hedges other than those covered by (i), that amount shall be reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment (see AASB 101) in the same period or periods during which the hedged expected future cash flows affect profit or loss (for example, in the periods that interest income or interest expense is recognised or when a forecast sale occurs).
(iii) however, if that amount is a loss and an entity expects that all or a portion of that loss will not be recovered in one or more future periods, it shall immediately reclassify the amount that is not expected to be recovered into profit or loss as a reclassification adjustment (see AASB 101).
6.5.12 When an entity discontinues hedge accounting for a cash flow hedge (see paragraphs 6.5.6 and 6.5.7(b)) it shall account for the amount that has been accumulated in the cash flow hedge reserve in accordance with paragraph 6.5.11(a) as follows:
(a) if the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve until the future cash flows occur or until paragraph 6.5.11(d)(iii) applies. When the future cash flows occur, paragraph 6.5.11(d) applies.
(b) if the hedged future cash flows are no longer expected to occur, that amount shall be immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment (see AASB 101). A hedged future cash flow that is no longer highly probable to occur may still be expected to occur.
Hedges of a net investment in a foreign operation
6.5.13 Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment (see AASB 121), shall be accounted for similarly to cash flow hedges:
(a) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised in other comprehensive income (see paragraph 6.5.11); and
(b) the ineffective portion shall be recognised in profit or loss.
6.5.14 The cumulative gain or loss on the hedging instrument relating to the effective portion of the hedge that has been accumulated in the foreign currency translation reserve shall be reclassified from equity to profit or loss as a reclassification adjustment (see AASB 101) in accordance with paragraphs 48–49 of AASB 121 on the disposal or partial disposal of the foreign operation.
Accounting for the time value of options
6.5.15 When an entity separates the intrinsic value and time value of an option contract and designates as the hedging instrument only the change in intrinsic value of the option (see paragraph 6.2.4(a)), it shall account for the time value of the option as follows (see paragraphs B6.5.29–B6.5.33):
(a) an entity shall distinguish the time value of options by the type of hedged item that the option hedges (see paragraph B6.5.29):
(i) a transaction related hedged item; or
(ii) a time-period related hedged item.
(b) the change in fair value of the time value of an option that hedges a transaction related hedged item shall be recognised in other comprehensive income to the extent that it relates to the hedged item and shall be accumulated in a separate component of equity. The cumulative change in fair value arising from the time value of the option that has been accumulated in a separate component of equity (the ‘amount’) shall be accounted for as follows:
(i) if the hedged item subsequently results in the recognition of a non-financial asset or a non-financial liability, or a firm commitment for a non-financial asset or a non-financial liability for which fair value hedge accounting is applied, the entity shall remove the amount from the separate component of equity and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment (see AASB 101) and hence does not affect other comprehensive income.
(ii) for hedging relationships other than those covered by (i), the amount shall be reclassified from the separate component of equity to profit or loss as a reclassification adjustment (see AASB 101) in the same period or periods during which the hedged expected future cash flows affect profit or loss (for example, when a forecast sale occurs).
(iii) however, if all or a portion of that amount is not expected to be recovered in one or more future periods, the amount that is not expected to be recovered shall be immediately reclassified into profit or loss as a reclassification adjustment (see AASB 101).
(c) the change in fair value of the time value of an option that hedges a time-period related hedged item shall be recognised in other comprehensive income to the extent that it relates to the hedged item and shall be accumulated in a separate component of equity. The time value at the date of designation of the option as a hedging instrument, to the extent that it relates to the hedged item, shall be amortised on a systematic and rational basis over the period during which the hedge adjustment for the option’s intrinsic value could affect profit or loss (or other comprehensive income, if the hedged item is an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5). Hence, in each reporting period, the amortisation amount shall be reclassified from the separate component of equity to profit or loss as a reclassification adjustment (see AASB 101). However, if hedge accounting is discontinued for the hedging relationship that includes the change in intrinsic value of the option as the hedging instrument, the net amount (ie including cumulative amortisation) that has been accumulated in the separate component of equity shall be immediately reclassified into profit or loss as a reclassification adjustment (see AASB 101).
Accounting for the forward element of forward contracts and foreign currency basis spreads of financial instruments
6.5.16 When an entity separates the forward element and the spot element of a forward contract and designates as the hedging instrument only the change in the value of the spot element of the forward contract, or when an entity separates the foreign currency basis spread from a financial instrument and excludes it from the designation of that financial instrument as the hedging instrument (see paragraph 6.2.4(b)), the entity may apply paragraph 6.5.15 to the forward element of the forward contract or to the foreign currency basis spread in the same manner as it is applied to the time value of an option. In that case, the entity shall apply the application guidance in paragraphs B6.5.34–B6.5.39.
6.6 Hedges of a group of items
Eligibility of a group of items as the hedged item
6.6.1 A group of items (including a group of items that constitute a net position; see paragraphs B6.6.1–B6.6.8) is an eligible hedged item only if:
(a) it consists of items (including components of items) that are, individually, eligible hedged items;
(b) the items in the group are managed together on a group basis for risk management purposes; and
(c) in the case of a cash flow hedge of a group of items whose variabilities in cash flows are not expected to be approximately proportional to the overall variability in cash flows of the group so that offsetting risk positions arise:
(i) it is a hedge of foreign currency risk; and
(ii) the designation of that net position specifies the reporting period in which the forecast transactions are expected to affect profit or loss, as well as their nature and volume (see paragraphs B6.6.7–B6.6.8).
Designation of a component of a nominal amount
6.6.2 A component that is a proportion of an eligible group of items is an eligible hedged item provided that designation is consistent with the entity’s risk management objective.
6.6.3 A layer component of an overall group of items (for example, a bottom layer) is eligible for hedge accounting only if:
(a) it is separately identifiable and reliably measurable;
(b) the risk management objective is to hedge a layer component;
(c) the items in the overall group from which the layer is identified are exposed to the same hedged risk (so that the measurement of the hedged layer is not significantly affected by which particular items from the overall group form part of the hedged layer);
(d) for a hedge of existing items (for example, an unrecognised firm commitment or a recognised asset) an entity can identify and track the overall group of items from which the hedged layer is defined (so that the entity is able to comply with the requirements for the accounting for qualifying hedging relationships); and
(e) any items in the group that contain prepayment options meet the requirements for components of a nominal amount (see paragraph B6.3.20).
Presentation
6.6.4 For a hedge of a group of items with offsetting risk positions (ie in a hedge of a net position) whose hedged risk affects different line items in the statement of profit or loss and other comprehensive income, any hedging gains or losses in that statement shall be presented in a separate line from those affected by the hedged items. Hence, in that statement the amount in the line item that relates to the hedged item itself (for example, revenue or cost of sales) remains unaffected.
6.6.5 For assets and liabilities that are hedged together as a group in a fair value hedge, the gain or loss in the statement of financial position on the individual assets and liabilities shall be recognised as an adjustment of the carrying amount of the respective individual items comprising the group in accordance with paragraph 6.5.8(b).
Nil net positions
6.6.6 When the hedged item is a group that is a nil net position (ie the hedged items among themselves fully offset the risk that is managed on a group basis), an entity is permitted to designate it in a hedging relationship that does not include a hedging instrument, provided that:
(a) the hedge is part of a rolling net risk hedging strategy, whereby the entity routinely hedges new positions of the same type as time moves on (for example, when transactions move into the time horizon for which the entity hedges);
(b) the hedged net position changes in size over the life of the rolling net risk hedging strategy and the entity uses eligible hedging instruments to hedge the net risk (ie when the net position is not nil);
(c) hedge accounting is normally applied to such net positions when the net position is not nil and it is hedged with eligible hedging instruments; and
(d) not applying hedge accounting to the nil net position would give rise to inconsistent accounting outcomes, because the accounting would not recognise the offsetting risk positions that would otherwise be recognised in a hedge of a net position.
6.7 Option to designate a credit exposure as measured at fair value through profit or loss
Eligibility of credit exposures for designation at fair value through profit or loss
6.7.1 If an entity uses a credit derivative that is measured at fair value through profit or loss to manage the credit risk of all, or a part of, a financial instrument (credit exposure) it may designate that financial instrument to the extent that it is so managed (ie all or a proportion of it) as measured at fair value through profit or loss if:
(a) the name of the credit exposure (for example, the borrower, or the holder of a loan commitment) matches the reference entity of the credit derivative (‘name matching’); and
(b) the seniority of the financial instrument matches that of the instruments that can be delivered in accordance with the credit derivative.
An entity may make this designation irrespective of whether the financial instrument that is managed for credit risk is within the scope of this Standard (for example, an entity may designate loan commitments that are outside the scope of this Standard). The entity may designate that financial instrument at, or subsequent to, initial recognition, or while it is unrecognised. The entity shall document the designation concurrently.
Accounting for credit exposures designated at fair value through profit or loss
6.7.2 If a financial instrument is designated in accordance with paragraph 6.7.1 as measured at fair value through profit or loss after its initial recognition, or was previously not recognised, the difference at the time of designation between the carrying amount, if any, and the fair value shall immediately be recognised in profit or loss.
6.7.3 An entity shall discontinue measuring the financial instrument that gave rise to the credit risk, or a proportion of that financial instrument, at fair value through profit or loss if:
(a) the qualifying criteria in paragraph 6.7.1 are no longer met, for example:
(i) the credit derivative or the related financial instrument that gives rise to the credit risk expires or is sold, terminated or settled; or
(ii) the credit risk of the financial instrument is no longer managed using credit derivatives. For example, this could occur because of improvements in the credit quality of the borrower or the loan commitment holder or changes to capital requirements imposed on an entity; and
(b) the financial instrument that gives rise to the credit risk is not otherwise required to be measured at fair value through profit or loss (ie the entity’s business model has not changed in the meantime so that a reclassification in accordance with paragraph 4.4.1 was required).
6.7.4 When an entity discontinues measuring the financial instrument that gives rise to the credit risk, or a proportion of that financial instrument, at fair value through profit or loss, that financial instrument’s fair value at the date of discontinuation becomes its new carrying amount. Subsequently, the same measurement that was used before designating the financial instrument at fair value through profit or loss shall be applied (including amortisation that results from the new carrying amount). For example, a financial asset that had originally been classified as measured at amortised cost would revert to that measurement and its effective interest rate would be recalculated based on its new carrying amount on the date of discontinuing measurement at fair value through profit or loss. Similarly, a loan commitment or a financial guarantee contract would be measured at the higher of:
(a) the amount determined in accordance with AASB 137; and
(b) the new carrying amount at the date of discontinuation less cumulative amortisation. The amortisation period is the remaining life of the instrument.
Chapter 7 is amended to read as follows (paragraphs not included are deleted):
Chapter 7 Effective date and transition
7.1 Effective date
7.1.1 [Deleted by the AASB]
7.1.2 Notwithstanding the requirements in paragraphs Aus1.2–Aus1.8, an entity may elect to apply the requirements for the presentation of gains and losses on financial liabilities designated as at fair value through profit or loss in paragraphs 5.7.1(c), 5.7.7–5.7.9, 7.2.12 and B5.7.5–B5.7.20 without applying the other requirements in this Standard. If an entity elects to apply only those paragraphs, it shall disclose that fact and provide on an ongoing basis the related disclosures set out in paragraphs 10–11 of AASB 7 (as amended by AASB 2010‑7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)).
7.2 Transition
7.2.1 An entity shall apply this Standard retrospectively, in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in paragraphs 7.2.4–7.2.15 and 7.2.16–7.2.21. This Standard shall not be applied to items that have already been derecognised at the date of initial application.
7.2.2 For the purposes of the transition provisions in paragraphs 7.2.1, 7.2.3–7.2.15 and 7.2.18, the date of initial application is the date when an entity first applies those requirements of this Standard. The date of initial application is the beginning of the first reporting period in which the entity adopts those requirements. Depending on the entity’s chosen approach to applying AASB 9, the transition can involve one or several dates of initial application for different requirements.
7.2.3 At the date of initial application, an entity shall assess whether a financial asset meets the condition in paragraph 4.1.2(a) on the basis of the facts and circumstances that exist at that date. The resulting classification shall be applied retrospectively irrespective of the entity’s business model in prior reporting periods.
7.2.4 If an entity measures a hybrid contract at fair value in accordance with paragraphs 4.1.4 or 4.1.5 but the fair value of the hybrid contract had not been measured in comparative reporting periods, the fair value of the hybrid contract in the comparative reporting periods shall be the sum of the fair values of the components (ie the non-derivative host and the embedded derivative) at the end of each comparative reporting period.
7.2.5 At the date of initial application, an entity shall recognise any difference between the fair value of the entire hybrid contract at the date of initial application and the sum of the fair values of the components of the hybrid contract at the date of initial application:
(a) in the opening retained earnings of the reporting period of initial application if the entity initially applies this Standard at the beginning of a reporting period; or
(b) in profit or loss if the entity initially applies this Standard during a reporting period.
7.2.6 At the date of initial application an entity may designate:
(a) a financial asset as measured at fair value through profit or loss in accordance with paragraph 4.1.5; or
(b) an investment in an equity instrument as at fair value through other comprehensive income in accordance with paragraph 5.7.5.
Such designation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
7.2.7 At the date of initial application an entity:
(a) shall revoke its previous designation of a financial asset as measured at fair value through profit or loss if that financial asset does not meet the condition in paragraph 4.1.5.
(b) may revoke its previous designation of a financial asset as measured at fair value through profit or loss if that financial asset meets the condition in paragraph 4.1.5.
Such revocation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
7.2.8 At the date of initial application, an entity:
(a) may designate a financial liability as measured at fair value through profit or loss in accordance with paragraph 4.2.2(a).
(b) shall revoke its previous designation of a financial liability as measured at fair value through profit or loss if such designation was made at initial recognition in accordance with the condition now in paragraph 4.2.2(a) and such designation does not satisfy that condition at the date of initial application.
(c) may revoke its previous designation of a financial liability as measured at fair value through profit or loss if such designation was made at initial recognition in accordance with the condition now in paragraph 4.2.2(a) and such designation satisfies that condition at the date of initial application.
Such designation and revocation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
66 Paragraphs 5, 6 and 11 are deleted, paragraphs 1, 2, 7 and 8 are amended to read as follows, paragraph 13 is added and a note regarding paragraph 12 is added:
1 …
…
12 [Deleted by the IASB]
13 AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments, issued in December 2013, amended paragraphs 1, 2, 7 and 8, deleted paragraphs 5, 6 and 11 and added a note regarding paragraph 12. An entity shall apply those amendments when it applies AASB 9 as amended in December 2013.
Amendments to Interpretation 12
Amendments to Interpretation 12 Service Concession Arrangements in paragraph 68 of AASB 2010-7 are amended to read as follows:
68 Paragraphs 23–25 are amended to read as follows, paragraph 28A is deleted, paragraph 28C is added and a note regarding paragraph 28B is added:
23 …
…
28B [Deleted by the IASB]
28C AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments, issued in December 2013, amended paragraphs 23–25, deleted paragraph 28A and added a note regarding paragraph 28B. An entity shall apply those amendments when it applies AASB 9 as amended in December 2013.
Amendments to Interpretation 16
The heading ‘Amendments to Interpretation 16’ is added immediately below paragraph 69 of AASB 2010-7.
Paragraphs 69A-69C are added immediately below the heading inserted above into AASB 2010-7:
69A A reference to AASB 9 Financial Instruments is added under the heading ‘References’.
69B Paragraphs 3, 5, 6, 7, 14 and 16 are amended to read as follows and paragraph 18A is added:
3 AASB 9 requires the designation of an eligible hedged item and eligible hedging instruments in a hedge accounting relationship. If there is a designated hedging relationship, in the case of a net investment hedge, the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment is recognised in other comprehensive income and is included with the foreign exchange differences arising on translation of the results and financial position of the foreign operation.
5 AASB 9 allows an entity to designate either a derivative or a non-derivative financial instrument (or a combination of derivative and non-derivative financial instruments) as hedging instruments for foreign currency risk. This Interpretation provides guidance on where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting.
6 AASB 121 and AASB 9 require cumulative amounts recognised in other comprehensive income relating to both the foreign exchange differences arising on translation of the results and financial position of the foreign operation and the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment to be reclassified from equity to profit or loss as a reclassification adjustment when the parent disposes of the foreign operation. This Interpretation provides guidance on how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item.
7 This Interpretation applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with AASB 9. For convenience this Interpretation refers to such an entity as a parent entity and to the financial statements in which the net assets of foreign operations are included as consolidated financial statements. All references to a parent entity apply equally to an entity that has a net investment in a foreign operation that is a joint venture, an associate or a branch.
14 A derivative or a non-derivative instrument (or a combination of derivative and non-derivative instruments) may be designated as a hedging instrument in a hedge of a net investment in a foreign operation. The hedging instrument(s) may be held by any entity or entities within the group, as long as the designation, documentation and effectiveness requirements of AASB 9 paragraph 6.4.1 that relate to a net investment hedge are satisfied. In particular, the hedging strategy of the group should be clearly documented because of the possibility of different designations at different levels of the group.
16 When a foreign operation that was hedged is disposed of, the amount reclassified to profit or loss as a reclassification adjustment from the foreign currency translation reserve in the consolidated financial statements of the parent in respect of the hedging instrument is the amount that AASB 9 paragraph 6.5.14 requires to be identified. That amount is the cumulative gain or loss on the hedging instrument that was determined to be an effective hedge.
18A AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments, issued in December 2013, amended paragraphs 3, 5–7, 14, 16, AG1 and AG8(a). An entity shall apply those amendments when it applies AASB 9 as amended in December 2013.
69C In the Appendix, paragraphs AG1 and AG8(a) are amended to read as follows:
AG1 This appendix illustrates the application of the Interpretation using the corporate structure illustrated below. In all cases the hedging relationships described would be tested for effectiveness in accordance with AASB 9, although this testing is not discussed in this appendix. Parent, being the ultimate parent entity, presents its consolidated financial statements in its functional currency of euro (EUR). Each of the subsidiaries is wholly owned. Parent’s £500 million net investment in Subsidiary B (functional currency pounds sterling (GBP)) includes the £159 million equivalent of Subsidiary B’s US$300 million net investment in Subsidiary C (functional currency US dollars (USD)). In other words, Subsidiary B’s net assets other than its investment in Subsidiary C are £341 million.
AG8 When Subsidiary C is disposed of, the amounts reclassified to profit or loss in Parent’s consolidated financial statements from its foreign currency translation reserve (FCTR) are:
(a) in respect of the US$300 million external borrowing of Subsidiary A, the amount that AASB 9 requires to be identified, ie the total change in value in respect of foreign exchange risk that was recognised in other comprehensive income as the effective portion of the hedge; and
(b) …
Amendments to Interpretation 19
Amendments to Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments in paragraph 71 of AASB 2010-7 are amended to read as follows:
71 Paragraphs 4(a), 5, 7, 9 and 10 are amended to read as follows, paragraph 16 is added and a note regarding paragraph 14 is added:
4 …
7 If the fair value of the equity instruments issued cannot be reliably measured then the equity instruments shall be measured to reflect the fair value of the financial liability extinguished. In measuring the fair value of a financial liability extinguished that includes a demand feature (eg a demand deposit), paragraph 47 of AASB 13 is not applied.
14 [Deleted by the IASB]
16 AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments, issued in December 2013, amended paragraphs 4(a), 5, 7, 9 and 10 and added a note regarding paragraph 14. An entity shall apply those amendments when it applies AASB 9 as amended in December 2013.
Amendments to Interpretation 107
The heading ‘Amendments to Interpretation 107’ is added immediately below paragraph 71 of AASB 2010‑7.
Paragraph 71A is added immediately below the heading inserted by the paragraph above:
71A Footnote 1 to the third sentence of paragraph 6 is amended to read as follows:
1 The accounting for hedges is now covered under AASB 139 Financial Instruments: Recognition and Measurement. In December 2013 the AASB replaced the hedge accounting requirements in AASB 139 and relocated them to AASB 9 Financial Instruments.
APPENDIX
LIST OF AMENDED AUSTRALIAN ACCOUNTING STANDARDS (INCLUDING INTERPRETATIONS)
This appendix is an integral part of AASB 2013-9.
AASB 2013-9 makes amendments to:
AASB 1 First-time Adoption of Australian Accounting Standards;
AASB 3 Business Combinations;
AASB 4 Insurance Contracts;
AASB 5 Non-current Assets Held for Sale and Discontinued Operations;
AASB 7 Financial Instruments: Disclosures;
AASB 9 Financial Instruments (December 2009);
AASB 9 Financial Instruments (December 2010);
AASB 101 Presentation of Financial Statements;
AASB 102 Inventories;
AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
AASB 112 Income Taxes;
AASB 118 Revenue;
AASB 120 Accounting for Government Grants and Disclosure of Government Assistance;
AASB 121 The Effects of Changes in Foreign Exchange Rates;
AASB 132 Financial Instruments: Presentation;
AASB 134 Interim Financial Reporting;
AASB 136 Impairment of Assets;
AASB 137 Provisions, Contingent Liabilities and Contingent Assets;
AASB 139 Financial Instruments: Recognition and Measurement;
AASB 1023 General Insurance Contracts;
AASB 1038 Life Insurance Contracts;
AASB 1049 Whole of Government and General Government Sector Financial Reporting;
AASB 1050 Administered Items;
AASB 1051 Land Under Roads;
AASB 1052 Disaggregated Disclosures;
AASB 1055 Budgetary Reporting;
AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9;
AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010);
AAS 25 Financial Reporting by Superannuation Plans;
Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities;
Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instruments;
Interpretation 4 Determining whether an Arrangement contains a Lease;
Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds;
Interpretation 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment;
Interpretation 7 Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies;
Interpretation 9 Reassessment of Embedded Derivatives;
Interpretation 10 Interim Financial Reporting and Impairment;
Interpretation 12 Service Concession Arrangements;
Interpretation 13 Customer Loyalty Programmes;
Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction;
Interpretation 15 Agreements for the Construction of Real Estate;
Interpretation 16 Hedges of a Net Investment in a Foreign Operation;
Interpretation 17 Distributions of Non-cash Assets to Owners;
Interpretation 18 Transfers of Assets from Customers;
Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments;
Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine;
Interpretation 21 Levies;
Interpretation 107 Introduction of the Euro;
Interpretation 110 Government Assistance – No Specific Relation to Operating Activities;
Interpretation 115 Operating Leases – Incentives;
Interpretation 125 Income Taxes – Changes in the Tax Status of an Entity or its Shareholders;
Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease;
Interpretation 129 Service Concession Arrangements: Disclosures;
Interpretation 131 Revenue – Barter Transactions Involving Advertising Services;
Interpretation 132 Intangible Assets – Web Site Costs;
Interpretation 1003 Australian Petroleum Resource Rent Tax;
Interpretation 1019 The Superannuation Contributions Surcharge;
Interpretation 1030 Depreciation of Long-Lived Physical Assets: Condition-Based Depreciation and Related Methods;
Interpretation 1031 Accounting for the Goods and Services Tax (GST);
Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities;
Interpretation 1042 Subscriber Acquisition Costs in the Telecommunications Industry;
Interpretation 1047 Professional Indemnity Claims Liabilities in Medical Defence Organisations;
Interpretation 1052 Tax Consolidation Accounting; and
Interpretation 1055 Accounting for Road Earthworks.
BASIS FOR CONCLUSIONS (PART B)
This Basis for Conclusions accompanies, but is not part of, Part B of AASB 2013-9.
Background
BC1This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the decision to ultimately withdraw AASB 1031 Materiality with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, which gave rise to paragraphs 37-44 of Part B of this Standard. Individual Board members gave greater weight to some factors than to others.
BC2In adopting International Financial Reporting Standards (IFRSs) in 2005, the AASB issued AASB 1031 (July 2004). At the time IFRSs were first incorporated into the Australian Accounting Standards (including Interpretations), the Board decided to retain a revised version of AASB 1031 to help ensure that the meaning of materiality remained well explained, as the Framework for the Preparation and Presentation of Financial Statements on issue at that time included only limited guidance on materiality in comparison to AASB 1031.
BC3In September 2010, the IASB issued a revised Conceptual Framework on Financial Reporting (IASB Conceptual Framework). The revised IASB Conceptual Framework contains updated guidance on materiality in Chapter 3 Qualitative Characteristics of Useful Financial Information.
BC4At its February 2012 meeting, the Board considered whether AASB 1031 remained necessary in light of the guidance on materiality available in existing Accounting Standards and in the revised IASB Conceptual Framework.[1] The Board also considered whether retaining AASB 1031 was consistent with the AASB’s strategies and policies, including the AASB’s policy of not providing unnecessary local guidance on matters covered by IFRSs.
[1] An amended AASB Framework for the Preparation and Presentation of Financial Statements, incorporating Chapters 1 and 3 of the revised IASB Conceptual Framework for Financial Reporting was issued in December 2013.
BC5In June 2013, Exposure Draft ED 243 Withdrawal of AASB 1031 Materiality was issued for comment. This Exposure Draft proposed to withdraw AASB 1031 and delete references to that Standard from Australian Accounting Standards, including Interpretations. Following the consultation period and after reviewing constituent comments, at its October 2013 meeting the Board decided to proceed with the withdrawal of AASB 1031. This decision is consistent with the Board’s view that the principle-based guidance on materiality in Australian Accounting Standards (that incorporate IFRSs) and the IASB Conceptual Framework is adequate.
BC6In making its decision to ultimately withdraw AASB 1031, the Board noted that it would not expect the withdrawal to change practice regarding the application of materiality in financial reporting. In particular, amendments would not change the level of disclosure presently specified by other accounting standards.
BC7At its December 2013 meeting, the Board decided to effect the withdrawal of AASB 1031 by first reissuing AASB 1031 as an interim Standard that cross-references to other Australian Accounting Standards and the Framework (December 2013) that contain guidance on materiality. Once all the references to AASB 1031 have been deleted from Australian Accounting Standards AASB 1031 will be withdrawn.
Scope of paragraphs 37-44 of Part B of this Standard
BC8Part B of this Standard makes amendments, including the deletion of references to AASB 1031, to Australian Accounting Standards. These amendments:
(a)do not include a broader consideration of terminology associated with ‘materiality’ used in Australian Accounting Standards; and
(b)retain much of the existing guidance on materiality included in AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts.
BC9In relation to paragraph BC8(a), paragraph BC26 of AASB 1055 Budgetary Reporting notes that the Board decided it would reconsider the suitability of referring to ‘major’ variances, given the role materiality plays in Standards, in due course as part of a broader consideration of terminology associated with ‘materiality’ used in a range of Standards. The term ‘major’ is used in various Australian Accounting Standards, including those that incorporate IFRSs, along with other related terms such as ‘significant’, ‘key’ and ‘main’. The Board noted that the use of synonyms appears to have contributed to the confusion around the application of materiality. However, the Board decided not to reassess terminology associated with materiality as part of the proposal to supersede AASB 1031 so as not to further delay the withdrawal and noting that concerns about terminology are not restricted to Australian specific issues in Australian Accounting Standards as similar terms are used in IFRSs.
BC10In relation to paragraph BC8(b), AASB 4 Insurance Contracts (which incorporates IFRS 4 of the same name) requires limited improvements to accounting by insurers for insurance contracts and disclosure that identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and that helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts. AASB 4 is acknowledged by the AASB to be an interim standard (as IFRS 4 is by the IASB) and is not comprehensive. AASB 4 permits existing accounting policies for insurance contracts to be changed only where the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and less relevant to those needs.
BC11The Board’s policy is to limit amendments to AASB 1023 and AASB 1038 until Phase 2 of the IASB’s insurance contracts project is complete. Because references to materiality in paragraphs 5.1.2 and 17.1.2 of AASB 1023 and in paragraphs 8.1.4 and 14.1.4 of AASB 1038 are similar to references occasionally made in IFRSs[2] as to what might or might not be material, the Board concluded that these references should be retained unrevised at present.
[2] For example, paragraph 17 of IAS 19 Employee Benefits explains when a sick leave obligation is likely to be material and paragraph 138 requires an entity to assess whether disclosures should be disaggregated to distinguish plans with materially different risks. AASB 119 Employee Benefits incorporates IAS 19.
Amendments to Other Australian Accounting Standards
Amendments to AASB 134 Interim Financial Reporting
BC12AASB 1031 identified quantitative thresholds and noted the context within which those thresholds may be used as guidance in considering the materiality of items in the financial statements. For consistency, at the time of making AASB 134, the AASB deleted the sentence in paragraph 24 of the corresponding IFRS that referred to the exclusion of quantitative guidance as to materiality. The deletion of that sentence is no longer necessary, and consequently, the paragraph is reinstated as part of the amendments arising from the withdrawal of AASB 1031.
Amendments to AASB 1023 and AASB 1038
BC13As noted in paragraph BC11 above, the Board’s policy is to limit amendments to AASB 1023 and AASB 1038 until Phase 2 of the IASB’s insurance contracts project is complete. However, the applicability of the disclosure requirements of these Standards to a group with a general insurance business or a life insurance business can be deduced from the definition of materiality in AASB 101 and AASB 108 and the requirement in paragraph 31 of AASB 101 that an entity need not provide a specific disclosure required by an Australian Accounting Standard if the information is not material. Accordingly, Part B of this Standard deletes paragraph 1.4.1 from both AASB 1023 and AASB 1038 to remove the examples of the application of materiality in the context of AASB 1031.
Interaction with the amended AASB Framework for the Preparation and Presentation of Financial Statements
BC14As noted in the footnote to paragraph BC4 above, the revised IASB Conceptual Framework has been incorporated into an amended AASB Framework for the Preparation and Presentation of Financial Statements (Framework). The Board decided that the application date of Part B of this Standard and the reissued AASB 1031 should be later than the application date of the amendments to the Framework, to ensure that the guidance on materiality available to Australian entities is consistent with that in IFRSs. For this reason, the Board also decided that early adoption of Part B of this Standard would not be allowed, because the amendments to the AASB Framework only became effective on 20 December 2013.
BC15The IASB has made amendments to IFRSs to acknowledge the revised IASB Conceptual Framework guidance pertaining to materiality. For example, a footnote has been added to the relevant paragraph in IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to note that Chapter 3 of the IASB Conceptual Framework has superseded paragraph 25 of the former IASB Framework for the Preparation and Presentation of Financial Statements. The AASB has made similar amendments to the Australian Accounting Standards (including Interpretations), through Part A of this Standard.
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