Accounting Standard AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (Cth)
| AASB Standard | AASB 1060 March 2020 |
General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
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ISSN 1036-4803
Contents
PREFACE
ACCOUNTING STANDARD
AASB 1060 GENERAL PURPOSE FINANCIAL STATEMENTS – SIMPLIFIED DISCLOSURES FOR FOR-PROFIT AND NOT-FOR-PROFIT TIER 2 ENTITIES
from paragraph
OBJECTIVE 1
SCOPE 3
TIER 2 DISCLOSURES
Financial Statement Presentation 8
Statement of Financial Position 34
Statement of Profit or Loss and Other Comprehensive Income 48
Statement of Changes in Equity and Statement of Income and Retained Earnings 59
Statement of Cash Flows 64
Notes to the Financial Statements 90
Consolidated and Separate Financial Statements 104
Accounting Policies, Estimates and Errors 106
Basic Financial Instruments 111
Other Financial Instrument Issues – Hedging Disclosures 120
Inventories 123
Investments in Associates 125
Investments in Joint Ventures 129
Investment Property at Fair Value 132
Property, Plant and Equipment and Investment Property at Cost 134
Intangible Assets other than Goodwill 137
Business Combinations and Goodwill 142
Leases 144
Provisions and Contingencies 153
Revenue 157
Government Grants of For-Profit Entities 160
Borrowing Costs 161
Share-based Payment 164
Impairment of Assets 169
Employee Benefits 171
Income Tax 176
Foreign Currency Translation 179
Hyperinflation 183
Events after the End of the Reporting Period 185
Related Party Disclosures 189
Biological Assets 204
Transition to Australian Accounting Standards – Simplified Disclosures 206
Specific Disclosures for Not-For-Profit Entities and Public Sector Entities 214
COMMENCEMENT OF THE LEGISLATIVE INSTRUMENT 244
APPENDICES
A Defined terms
B Effective date
C Amendments to other Standards
IMPLEMENTATION GUIDANCE
BASIS FOR CONCLUSIONS
Australian Accounting Standard AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities is set out in paragraphs 1 – 244 and Appendices A – C. All the paragraphs have equal authority. AASB 1060 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Preface
Introduction
The Australian Accounting Standards Board (AASB) develops, issues and maintains Australian Accounting Standards, including Interpretations. The AASB is an Australian Government entity under the Australian Securities and Investments Commission Act 2001.
AASB 1057 Application of Australian Accounting Standards identifies the application of Standards to entities and financial statements. AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements.
Main features of this Standard
Main requirements
This Standard sets out a new, separate disclosure Standard to be applied by all entities that are reporting under Tier 2 of the Differential Reporting Framework in AASB 1053. This Standard has been developed based on a new methodology and principles to be used in determining the Tier 2 disclosures that are necessary for meeting user needs, to replace the current Reduced Disclosure Requirements (RDR) framework. The methodology and principles applied are outlined in the Basis for Conclusions to this Standard.
This Standard does not change:
which entities are permitted to apply Tier 2 reporting requirements; and
the recognition and measurement requirements of Tier 2, which are the same as for Tier 1.
The disclosures that are relevant to Tier 2 entities are set out in this separate Standard. Disclosure requirements set out in the body or appendix of other Standards will no longer be shaded or unshaded in relation to Tier 2 requirements.
While entities that comply with this Standard need to apply the recognition and measurement requirements in other Standards, they are exempt from the disclosure requirements in specified paragraphs in other Standards. Tier 2 entities are also not required to comply with other Standards that deal only with presentation and disclosure. Consequential amendments to the relevant Standards are set out in Appendix C.
While this Standard includes certain presentation requirements, these do not result in presentations or classifications that are different to those required for Tier 1 entities. The only exception is the option not to include a separate statement of changes in equity in certain circumstances, as set out in paragraph 26 of the Standard.
Application date
This Standard applies to annual periods beginning on or after 1 July 2021, with earlier application permitted.
Accounting Standard AASB 1060
The Australian Accounting Standards Board makes Accounting Standard AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities under section 334 of the Corporations Act 2001.
Kris Peach
Chair – AASB
Dated 6 March 2020
Accounting Standard AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
Objective
This Standard establishes disclosure requirements applicable to entities that are preparing general purpose financial statements and elect to apply the Tier 2 reporting requirements under AASB 1053 Application of Tiers of Australian Accounting Standards.
Except to the extent specifically addressed in this Standard, the definitions and presentation requirements of other Australian Accounting Standards continue to apply. Entities are permitted to refer to other Standards for guidance on the requirements in this Standard, including AASB 7 Financial Instruments: Disclosures, AASB 12 Disclosure of Interests in Other Entities, AASB 101 Presentation of Financial Statements, AASB 107 Statement of Cash Flows and AASB 124 Related Party Disclosures.
Scope
This Standard applies to all entities that elect to apply Tier 2: Australian Accounting Standards – Simplified Disclosures under AASB 1053, including those that present consolidated financial statements in accordance with AASB 10 Consolidated Financial Statements and those that present separate financial statements in accordance with AASB 127 Separate Financial Statements. However, this Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with AASB 134 Interim Financial Reporting.
Entities applying this Standard are required to apply all the recognition and measurement requirements in Australian Accounting Standards[1] and apply this Standard in relation to disclosure requirements only.
[1]The term ‘Australian Accounting Standards’ refers to Standards (including Interpretations) made by the AASB that apply to any reporting period beginning on or after 1 January 2005. In this context, the term encompasses Australian Accounting Standards – Simplified Disclosures, which some entities are permitted to apply in accordance with AASB 1053 Application of Tiers of Australian Accounting Standards in preparing general purpose financial statements.
This Standard uses terminology that is suitable for profit-oriented entities, including public sector business entities. If entities with not-for-profit activities in the private sector or the public sector apply this Standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves.
Similarly, entities that do not have equity as defined in AASB 132 Financial Instruments: Presentation (eg some mutual funds) and entities whose share capital is not equity (eg some co-operative entities) may need to adapt the financial statement presentation of members’ or unitholders’ interests.
AusCF paragraphs and footnotes included in this Standard apply only to:
(a) not-for-profit entities; and
(b) for-profit entities that are not applying the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards).
Such entities are referred to as ‘AusCF entities’. For AusCF entities, the term ‘reporting entity’ is defined in AASB 1057 Application of Australian Accounting Standards and Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity also applies. For-profit entities applying the Conceptual Framework for Financial Reporting (as set out in paragraph Aus1.1 of the Conceptual Framework) shall not apply AusCF paragraphs or footnotes.
Tier 2 disclosures
Financial Statement Presentation[2]
[2] Corresponding AASB Standard: AASB 101 Presentation of Financial Statements.
Scope
This section explains fair presentation of financial statements, what compliance with Australian Accounting Standards, including this Standard, requires and what a complete set of financial statements is. [IFRS for SMEs Standard paragraph 3.1]
Fair presentation
Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting:
(a) The application of the recognition and measurement requirements in Australian Accounting Standards and the disclosures in this Standard, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation of the financial position, financial performance and cash flows of Tier 2 entities.
(b) As explained in paragraph 13 of AASB 1053, this Standard does not apply to an entity with public accountability.
The additional disclosures referred to in (a) are necessary when compliance with the specific requirements in this Standard is insufficient to enable users to understand the effect of particular transactions, other events and conditions on the entity’s financial position and financial performance. [Based on IFRS for SMEs Standard paragraph 3.2]
AusCF9 Notwithstanding paragraph 9, in respect of AusCF entities, financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework for the Preparation and Presentation of Financial Statements:
(a) The application of the recognition and measurement requirements in Australian Accounting Standards and the disclosures in this Standard, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation of the financial position, financial performance and cash flows of Tier 2 entities.
(b) As explained in paragraph 13 of AASB 1053, this Standard does not apply to an entity with public accountability.
The additional disclosures referred to in (a) are necessary when compliance with the specific requirements in this Standard is insufficient to enable users to understand the effect of particular transactions, other events and conditions on the entity’s financial position and financial performance.
Compliance with Australian Accounting Standards – Simplified Disclosures
An entity whose financial statements comply with the recognition and measurement requirements in Australian Accounting Standards, the presentation requirements in those Standards as modified by this Standard, and the disclosure requirements in this Standard shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with Australian Accounting Standards – Simplified Disclosures unless they comply with all of these requirements. [Based on IFRS for SMEs Standard paragraph 3.3]
An entity shall disclose in the notes:
(a)the statutory basis or other reporting framework, if any, under which the financial statements are prepared; and
(b)whether, for the purposes of preparing the financial statements, it is a for-profit or not-for-profit entity.
Entities applying Australian Accounting Standards – Simplified Disclosures shall not depart from a requirement in an Australian Accounting Standard, including this Standard.
In the extremely rare circumstances when management concludes that compliance with a recognition and measurement requirement in an Australian Accounting Standard, or a presentation and disclosure requirement in this Standard, would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework for Financial Reporting, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing the following:
(a) the title of the Australian Accounting Standard in question, the nature of the requirement and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Conceptual Framework for Financial Reporting; and
(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.
[Based on IFRS for SMEs Standard paragraph 3.7]
AusCF13 Notwithstanding paragraph 13, in respect of AusCF entities, in the extremely rare circumstances when management concludes that compliance with a recognition and measurement requirement in an Australian Accounting Standard, or a presentation and disclosure requirement in this Standard, would be so misleading that it would conflict with the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing the following:
(a) the title of the Australian Accounting Standard in question, the nature of the requirement and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements; and
(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.
Going concern
When preparing financial statements, the management of an entity using Australian Accounting Standards – Simplified Disclosures shall make an assessment of the entity’s ability to continue as a going concern. An entity is a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the reporting date. [IFRS for SMEs Standard paragraph 3.8]
When management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. [IFRS for SMEs Standard paragraph 3.9]
Frequency of reporting
An entity shall present a complete set of financial statements (including comparative information – see paragraph 20) at least annually. When the end of an entity’s reporting period changes and the annual financial statements are presented for a period longer or shorter than one year, the entity shall disclose the following:
(a) that fact;
(b) the reason for using a longer or shorter period; and
(c) the fact that comparative amounts presented in the financial statements (including the related notes) are not entirely comparable.
[IFRS for SMEs Standard paragraph 3.10]
Consistency of presentation
An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
(a) it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors; or
(b) Australian Accounting Standards – Simplified Disclosures require a change in presentation.
[IFRS for SMEs Standard paragraph 3.11]
When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose the following:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and
(c) the reason for the reclassification.
[IFRS for SMEs Standard paragraph 3.12]
If it is impracticable to reclassify comparative amounts, an entity shall disclose why reclassification was not practicable. [IFRS for SMEs Standard paragraph 3.13]
Comparative information
Except when this Standard permits or requires otherwise, an entity shall disclose comparative information in respect of the previous comparable period for all amounts presented in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements. [IFRS for SMEs Standard paragraph 3.14]
Materiality and aggregation
An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial. [IFRS for SMEs Standard paragraph 3.15]
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. [Based on IFRS for SMEs Standard paragraph 3.16]
This Standard specifies information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure if the information resulting from that disclosure is not material. This is the case even if this Standard contains a list of specific requirements or describes them as minimum requirements.
Offsetting
An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Australian Accounting Standard.
Complete set of financial statements
A complete set of financial statements of an entity shall include all of the following:
(a) a statement of financial position as at the reporting date;
(b) either:
(i) a single statement of profit or loss and other comprehensive income for the reporting period displaying all items of income and expense recognised during the period including those items recognised in determining profit or loss (which is a subtotal in the statement of comprehensive income) and items of other comprehensive income; or
(ii) a separate statement of profit or loss and a separate statement of comprehensive income. If an entity chooses to present both a statement of profit or loss and a statement of comprehensive income, the statement of comprehensive income begins with profit or loss and then displays the items of other comprehensive income;
(c) a statement of changes in equity for the reporting period;
(d) a statement of cash flows for the reporting period; and
(e) notes, comprising significant accounting policies and other explanatory information.
[IFRS for SMEs Standard paragraph 3.17]
If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement of comprehensive income and statement of changes in equity (see paragraph 62). [IFRS for SMEs Standard paragraph 3.18]
If an entity has no items of other comprehensive income in any of the periods for which financial statements are presented, it may present only a statement of profit or loss or it may present a statement of comprehensive income in which the ‘bottom line’ is labelled ‘profit or loss’. [IFRS for SMEs Standard paragraph 3.19]
Because paragraph 20 requires comparative amounts in respect of the previous period for all amounts presented in the financial statements, a complete set of financial statements means that an entity shall present, as a minimum, two of each of the required financial statements and related notes. [IFRS for SMEs Standard paragraph 3.20]
In a complete set of financial statements, an entity shall present each financial statement with equal prominence. [IFRS for SMEs Standard paragraph 3.21]
An entity may use titles for the financial statements other than those used in this Standard as long as they are not misleading. [IFRS for SMEs Standard paragraph 3.22]
Identification of the financial statements
An entity shall clearly identify each of the financial statements and the notes and distinguish them from other information in the same document. In addition, an entity shall display the following information prominently and repeat it when necessary for an understanding of the information presented:
(a) the name of the reporting entity and any change in its name since the end of the preceding reporting period;
(b) whether the financial statements cover the individual entity or a group of entities;
(c) the date of the end of the reporting period and the period covered by the financial statements;
(d) the presentation currency, as defined in AASB 121 The Effects of Changes in Foreign Exchange Rates; and
(e) the level of rounding, if any, used in presenting amounts in the financial statements.
[IFRS for SMEs Standard paragraph 3.23]
An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements:
(a) the domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office); and
(b) a description of the nature of the entity’s operations and its principal activities.
[IFRS for SMEs Standard paragraph 3.24]
Presentation of information not required by this Standard
This Standard does not address presentation of segment information (AASB 8 Operating Segments), earnings per share (AASB 133 Earnings per Share), or interim financial reports (AASB 134). An entity making such disclosures shall apply the relevant Standards in preparing and presenting the information. [IFRS for SMEs Standard paragraph 3.25]
Statement of Financial Position[3]
[3] Corresponding AASB Standard: AASB 101 Presentation of Financial Statements.
Scope of this section
This section sets out the information that is to be presented in a statement of financial position and how to present it. The statement of financial position (sometimes called the balance sheet) presents an entity’s assets, liabilities and equity as of a specific date – the end of the reporting period. [IFRS for SMEs Standard paragraph 4.1]
Information to be presented in the statement of financial position
As a minimum, the statement of financial position shall include line items that present the following amounts:
(a) cash and cash equivalents;
(b) trade and other receivables;
(c) financial assets (excluding amounts shown under (a), (b), (i) and (j));
(d) inventories;
(e) property, plant and equipment;
(f) investment property;
(g) intangible assets;
(h) biological assets;
(i) investments in associates;
(j) investments in joint ventures;
(k) trade and other payables;
(l) financial liabilities (excluding amounts shown under (k) and (o));
(m) liabilities and assets for current tax;
(n) deferred tax liabilities and deferred tax assets (these shall always be classified as non-current);
(o) provisions;
(p) non-controlling interests, presented within equity separately from the equity attributable to the owners of the parent;
(q) equity attributable to the owners of the parent;
(r) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations; and
(s) liabilities included in disposal groups classified as held for sale in accordance with AASB 5.
[Based on IFRS for SMEs Standard paragraph 4.2]
An entity shall present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position. [IFRS for SMEs Standard paragraph 4.3]
Current/non-current distinction
An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position in accordance with paragraphs 38–41, except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, all assets and liabilities shall be presented in order of approximate liquidity (ascending or descending). [IFRS for SMEs Standard paragraph 4.4]
Current assets
An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in the entity’s normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting date; or
(d) the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
[IFRS for SMEs Standard paragraph 4.5]
An entity shall classify all other assets as non-current. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months. [IFRS for SMEs Standard paragraph 4.6]
Current liabilities
An entity shall classify a liability as current when:
(a) it expects to settle the liability in the entity’s normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the reporting date; or
(d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
[Based on IFRS for SMEs Standard paragraph 4.7]
An entity shall classify all other liabilities as non-current. [IFRS for SMEs Standard paragraph 4.8]
Sequencing of items and format of items in the statement of financial position
This Standard does not prescribe the sequence or format in which items are to be presented. Paragraph 35 simply provides a list of items that are sufficiently different in nature or function to warrant separate presentation in the statement of financial position. In addition:
(a) line items are included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity’s financial position; and
(b) the descriptions used and the sequencing of items or aggregation of similar items may be amended according to the nature of the entity and its transactions, to provide information that is relevant to an understanding of the entity’s financial position.
[IFRS for SMEs Standard paragraph 4.9]
The judgement on whether additional items are presented separately is based on an assessment of all of the following:
(a) the amounts, nature and liquidity of assets;
(b) the function of assets within the entity; and
(c) the amounts, nature and timing of liabilities.
[IFRS for SMEs Standard paragraph 4.10]
Information to be presented either in the statement of financial position or in the notes
An entity shall disclose, either in the statement of financial position or in the notes, further subclassifications of the line items presented, classified in a manner appropriate to the entity’s operation. This includes for example:
(a) property, plant and equipment in classifications appropriate to the entity;
(b) trade and other receivables showing separately amounts due from related parties, amounts due from other parties and contract assets from contracts with customers;
(c) inventories, showing separately amounts of inventories:
(i) held for sale in the ordinary course of business;
(ii) in the process of production for such sale; and
(iii) in the form of materials or supplies to be consumed in the production process or in the rendering of services.
(d) trade and other payables, showing separately amounts payable to trade suppliers, amounts payable to related parties, contract liabilities from contracts with customers and accruals;
(e) provisions for employee benefits and other provisions; and
(f) classes of equity, such as paid-in capital, share premium, retained earnings and items of income and expense that, as required by Australian Accounting Standards, are recognised in other comprehensive income and presented separately in equity.
[Based on IFRS for SMEs Standard paragraph 4.11]
An entity with share capital shall disclose the following, either in the statement of financial position or in the notes:
(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but not fully paid;
(iii) par value per share or that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the period. This reconciliation need not be presented for prior periods;
(v) the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;
(vi) shares in the entity held by the entity or by its subsidiaries or associates; and
(vii) shares reserved for issue under options and contracts for the sale of shares, including the terms and amounts; and
(b) a description of each reserve within equity.
[IFRS for SMEs Standard paragraph 4.12]
An entity without share capital, such as a partnership or trust, shall disclose information equivalent to that required by paragraph 45(a), showing changes during the period in each category of equity, and the rights, preferences and restrictions attaching to each category of equity. [IFRS for SMEs Standard paragraph 4.13]
If, at the reporting date, an entity has any assets classified as held for sale, or assets and liabilities that are included in a disposal group that is classified as held for sale, the entity shall disclose the following information:
(a) a description of the asset(s) or the group of assets and liabilities; and
(b) a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal.
[Based on IFRS for SMEs Standard paragraph 4.14]
Statement of Profit or Loss and Other Comprehensive Income[4]
[4] Corresponding AASB Standard: AASB 101 Presentation of Financial Statements.
Scope of this section
This section requires an entity to present its total comprehensive income for a period—ie its financial performance for the period—in one or two financial statements. It sets out the information that is to be presented in those statements or in the notes and how to present it. [Based on IFRS for SMEs Standard paragraph 5.1]
Presentation of total comprehensive income
An entity shall present its total comprehensive income for a period either:
(a) in a single statement of profit or loss and other comprehensive income, in which case the statement of comprehensive income presents all items of income and expense recognised in the period; or
(b) in two statements—a statement of profit or loss and a statement of comprehensive income—in which case the statement of profit or loss presents all items of income and expense recognised in the period except those that are recognised in total comprehensive income outside of profit or loss as permitted or required by other Australian Accounting Standards.
[IFRS for SMEs Standard paragraph 5.2]
A change from the single-statement approach to the two-statement approach, or vice versa, is a change in accounting policy to which AASB 108 applies. [IFRS for SMEs Standard paragraph 5.3]
Single-statement approach
Under the single-statement approach, the statement of profit or loss and other comprehensive income shall include all items of income and expense recognised in a period unless other Australian Accounting Standards require otherwise. Australian Accounting Standards provide different treatment for the following circumstances:
(a) the effects of corrections of errors and changes in accounting policies are presented as retrospective adjustments of prior periods instead of as part of profit or loss in the period in which they arise (see AASB 108); and
(b) items of other comprehensive income are recognised as part of total comprehensive income, outside of profit or loss, when they arise.
[Based on IFRS for SMEs Standard paragraph 5.4]
As a minimum, an entity shall include, in the statement(s) presenting profit or loss and other comprehensive income, line items that present the following amounts for the period:
(a) revenue;
(b) finance costs;
(c) share of the profit or loss of investments in associates and joint ventures accounted for using the equity method (see AASB 128 Investments in Associates and Joint Ventures);
(d) tax expense;
(e) a single amount for the total of:
(i) discontinued operations (see AASB 5 Non-current Assets Held for Sale and Discontinued Operations); and
(ii) the post-tax gain or loss attributable to an impairment, or reversal of an impairment, of the assets in the discontinued operation (see AASB 5), both at the time and subsequent to being classified as a discontinued operation and to the disposal of the net assets constituting the discontinued operation;
(f) profit or loss (if an entity has no items of other comprehensive income, this line need not be presented);
(g) each item of other comprehensive income (see paragraph 51(b)) classified by nature (excluding amounts in (h)). Such items shall be grouped into those that, in accordance with other Australian Accounting Standards:
(i) will not be reclassified subsequently to profit or loss; and
(ii) will be reclassified subsequently to profit or loss when specific conditions are met;
(h) share of the other comprehensive income of associates and joint ventures accounted for by the equity method; and
(i) total comprehensive income (if an entity has no items of other comprehensive income, it may use another term for this line such as profit or loss).
[Based on IFRS for SMEs Standard paragraph 5.5]
An entity shall disclose separately the following items in the statement(s) presenting profit or loss and other comprehensive income as allocations for the period:
(a) profit or loss for the period attributable to:
(i) non-controlling interests; and
(ii) owners of the parent; and
(b) total comprehensive income for the period attributable to:
(i) non-controlling interests; and
(ii) owners of the parent.
[IFRS for SMEs Standard paragraph 5.6]
Two-statement approach
Under the two-statement approach, the statement of profit or loss shall display, as a minimum, line items that present the amounts in paragraph 52(a)–52(f) for the period, with profit or loss as the last line. The statement of comprehensive income shall begin with profit or loss as its first line and shall display, as a minimum, line items that present the amounts in paragraph 52(g)–52(i) and paragraph 53 for the period. [IFRS for SMEs Standard paragraph 5.7]
Requirements applicable to both approaches
Under AASB 108, the effects of corrections of errors and changes in accounting policies are presented as retrospective adjustments of prior periods instead of as part of profit or loss in the period in which they arise. [IFRS for SMEs Standard paragraph 5.8]
An entity shall present additional line items, headings and subtotals in the statement(s) presenting profit or loss and other comprehensive income (and in the statement of profit or loss, if presented), when such presentation is relevant to an understanding of the entity’s financial performance. [IFRS for SMEs Standard paragraph 5.9]
An entity shall not present or describe any items of income and expense as ‘extraordinary items’ in the statement(s) presenting profit or loss and other comprehensive income (or in the statement of profit or loss, if presented) or in the notes. [IFRS for SMEs Standard paragraph 5.10]
Analysis of expenses
An entity shall present in the statement of profit or loss and other comprehensive income or in the notes an analysis of expenses using a classification based on either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant.
Analysis by nature of expense
(a) Under this method of classification, expenses are aggregated in the statement(s) of profit and loss and other comprehensive income according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs) and are not reallocated among various functions within the entity.
Analysis by function of expense
(b) Under this method of classification, expenses are aggregated according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. At a minimum, an entity discloses its cost of sales under this method separately from other expenses.
[Based on IFRS for SMEs Standard paragraph 5.11]
Statement of Changes in Equity and Statement of Income and Retained Earnings[5]
[5] Corresponding AASB Standard: AASB 101 Presentation of Financial Statements.
Scope of this section
This section sets out requirements for presenting the changes in an entity’s equity for a period, either in a statement of changes in equity or, if specified conditions are met and an entity chooses, in a statement of income and retained earnings. [IFRS for SMEs Standard paragraph 6.1]
Statement of changes in equity
Purpose
The statement of changes in equity presents an entity’s profit or loss for a reporting period, other comprehensive income for the period, the effects of changes in accounting policies and corrections of errors recognised in the period and the amounts of investments by, and dividends and other distributions to, owners in their capacity as owners during the period. [IFRS for SMEs Standard paragraph 6.2]
Information to be presented in the statement of changes in equity
The statement of changes in equity includes the following information:
(a) total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;
(b) for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with AASB 108; and
(c) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:
(i) profit or loss;
(ii) other comprehensive income; and
(iii) the amounts of investments by, and dividends and other distributions to, owners in their capacity as owners, showing separately issues of shares, treasury share transactions, dividends and other distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.
[IFRS for SMEs Standard paragraph 6.3]
Statement of income and retained earnings
Purpose
The statement of income and retained earnings presents an entity’s profit or loss and changes in retained earnings for a reporting period. Paragraph 26 permits an entity to present a statement of income and retained earnings in place of a statement of comprehensive income and a statement of changes in equity if the only changes to its equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy. [IFRS for SMEs Standard paragraph 6.4]
Information to be presented in the statement of income and retained earnings
An entity shall present, in the statement of income and retained earnings, the following items in addition to the information required by the section covering the Statement of Profit or Loss and Other Comprehensive Income:
(a) retained earnings at the beginning of the reporting period;
(b) dividends declared and paid or payable during the period;
(c) restatements of retained earnings for corrections of prior period errors;
(d) restatements of retained earnings for changes in accounting policy; and
(e) retained earnings at the end of the reporting period.
[IFRS for SMEs Standard paragraph 6.5]
Statement of Cash Flows[6]
[6] Corresponding AASB Standard: AASB 107 Statement of Cash Flows.
Scope of this section
This section sets out the information that is to be presented in a statement of cash flows and how to present it. The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period, showing separately changes from operating activities, investing activities and financing activities. [IFRS for SMEs Standard paragraph 7.1]
Cash equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. They are held to meet short-term cash commitments instead of for investment or other purposes. Consequently, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Bank overdrafts are normally considered financing activities similar to borrowings. However, if they are repayable on demand and form an integral part of an entity’s cash management, bank overdrafts are a component of cash and cash equivalents. [IFRS for SMEs Standard paragraph 7.2]
Information to be presented in the statement of cash flows
An entity shall present a statement of cash flows that presents cash flows for a reporting period classified by operating activities, investing activities and financing activities. [IFRS for SMEs Standard paragraph 7.3]
Operating activities
Operating activities are the principal revenue-producing activities of the entity. Consequently, cash flows from operating activities generally result from the transactions and other events and conditions that enter into the determination of profit or loss. Examples of cash flows from operating activities are:
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from royalties, fees, commissions and other revenue;
(c) cash payments to suppliers for goods and services;
(d) cash payments to and on behalf of employees;
(e) cash payments or refunds of income tax, unless they can be specifically identified with financing and investing activities; and
(f) cash receipts and payments from investments, loans and other contracts held for dealing or trading purposes, which are similar to inventory acquired specifically for resale.
Some transactions, such as the sale of an item of plant by a manufacturing entity, may give rise to a gain or loss that is included in profit or loss. However, the cash flows relating to such transactions are cash flows from investing activities. [IFRS for SMEs Standard paragraph 7.4]
Investing activities
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples of cash flows arising from investing activities are:
(a) cash payments to acquire property, plant and equipment (including self-constructed property, plant and equipment), intangible assets and other long-term assets;
(b) cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments classified as cash equivalents or held for dealing or trading);
(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments classified as cash equivalents or held for dealing or trading);
(e) cash advances and loans made to other parties;
(f) cash receipts from the repayment of advances and loans made to other parties;
(g) cash payments for futures contracts, forward contracts, option contracts and swap contracts, except when the contracts are held for dealing or trading, or the payments are classified as financing activities; and
(h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts, except when the contracts are held for dealing or trading, or the receipts are classified as financing activities.
When a contract is accounted for as a hedge (see AASB 9 Financial Instruments and AASB 139 Financial Instruments: Recognition and Measurement), an entity shall classify the cash flows of the contract in the same manner as the cash flows of the item being hedged. [IFRS for SMEs Standard paragraph 7.5]
Financing activities
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of an entity. Examples of cash flows arising from financing activities are:
(a) cash proceeds from issuing shares or other equity instruments;
(b) cash payments to owners to acquire or redeem the entity’s shares;
(c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term borrowings;
(d) cash repayments of amounts borrowed; and
(e) cash payments by a lessee for the reduction of the outstanding liability relating to a lease.
[IFRS for SMEs Standard paragraph 7.6]
Reporting cash flows from operating activities
An entity shall present cash flows from operating activities using either:
(a) the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments and items of income or expense associated with investing or financing cash flows; or
(b) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed.
[IFRS for SMEs Standard paragraph 7.7]
Indirect method
Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:
(a) changes during the period in inventories and operating receivables and payables;
(b) non-cash items such as depreciation, provisions, deferred tax, accrued income (expenses) not yet received (paid) in cash, unrealised foreign currency gains and losses, undistributed profits of associates and non-controlling interests; and
(c) all other items for which the cash effects relate to investing or financing.
[IFRS for SMEs Standard paragraph 7.8]
Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the revenues and expenses disclosed in the statement of comprehensive income and the changes during the period in inventories and operating receivables and payables.
Direct method
Under the direct method, net cash flow from operating activities is presented by disclosing information about major classes of gross cash receipts and gross cash payments. Such information may be obtained either:
(a) from the accounting records of the entity; or
(b) by adjusting sales, cost of sales and other items in the statement of comprehensive income (or the statement of profit or loss, if presented) for:
(i) changes during the period in inventories and operating receivables and payables;
(ii) other non-cash items; and
(iii) other items for which the cash effects are investing or financing cash flows.
[IFRS for SMEs Standard paragraph 7.9]
Reporting cash flows from investing and financing activities
An entity shall present separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities. [IFRS for SMEs Standard paragraph 7.10]
Reporting cash flows on a net basis
Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:
(a)cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity; and
(b)cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short.
Examples of cash receipts and payments referred to in paragraph 75(a) are:
(a) the acceptance and repayment of demand deposits of a bank;
(b) funds held for customers by an investment entity; and
(c) rents collected on behalf of, and paid over to, the owners of properties.
Examples of cash receipts and payments referred to in paragraph 75(b) are advances made for, and the repayment of:
(a)principal amounts relating to credit card customers;
(b)the purchase and sale of investments; and
(c)other short-term borrowings, for example, those which have a maturity period of three months or less.
Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:
(a)cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;
(b) the placement of deposits with and withdrawal of deposits from other financial institutions; and
(c) cash advances and loans made to customers and the repayment of those advances and loans.
Foreign currency cash flows
An entity shall record cash flows arising from transactions in a foreign currency in the entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow. Paragraph 40 in AASB 121 explains when an exchange rate that approximates the actual rate can be used. [IFRS for SMEs Standard paragraph 7.11]
The entity shall translate cash flows of a foreign subsidiary at the exchange rates between the entity’s functional currency and the foreign currency at the dates of the cash flows. [IFRS for SMEs Standard paragraph 7.12]
Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, to reconcile cash and cash equivalents at the beginning and the end of the period, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency must be presented in the statement of cash flows. Consequently, the entity shall remeasure cash and cash equivalents held during the reporting period (such as amounts of foreign currency held and foreign currency bank accounts) at period-end exchange rates. The entity shall present the resulting unrealised gain or loss separately from cash flows from operating, investing and financing activities. [IFRS for SMEs Standard paragraph 7.13]
Interest and dividends
An entity shall present separately cash flows from interest and dividends received and paid. The entity shall classify cash flows consistently from period to period as operating, investing or financing activities. [IFRS for SMEs Standard paragraph 7.14]
An entity may classify interest paid and interest and dividends received as operating cash flows because they are included in profit or loss. Alternatively, the entity may classify interest paid and interest and dividends received as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments. [IFRS for SMEs Standard paragraph 7.15]
An entity may classify dividends paid as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, the entity may classify dividends paid as a component of cash flows from operating activities because they are paid out of operating cash flows. [IFRS for SMEs Standard paragraph 7.16]
Income tax
An entity shall present separately cash flows arising from income tax and shall classify them as cash flows from operating activities unless they can be specifically identified with financing and investing activities. When tax cash flows are allocated over more than one class of activity, the entity shall disclose the total amount of taxes paid. [IFRS for SMEs Standard paragraph 7.17]
Non-cash transactions
An entity shall exclude from the statement of cash flows investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions elsewhere in the financial statements in a way that provides all the relevant information about those investing and financing activities. [IFRS for SMEs Standard paragraph 7.18]
Many investing and financing activities do not have a direct impact on current cash flows even though they affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows because these items do not involve cash flows in the current period. Examples of non-cash transactions are:
(a) the acquisition of assets either by assuming directly related liabilities or by means of a lease;
(b) the acquisition of an entity by means of an equity issue; and
(c) the conversion of debt to equity.
[IFRS for SMEs Standard paragraph 7.19]
Components of cash and cash equivalents
An entity shall present the components of cash and cash equivalents and shall present a reconciliation of the amounts presented in the statement of cash flows to the equivalent items presented in the statement of financial position. However, an entity is not required to present this reconciliation if the amount of cash and cash equivalents presented in the statement of cash flows is identical to the amount similarly described in the statement of financial position. [IFRS for SMEs Standard paragraph 7.20]
Other disclosures
An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the entity. Cash and cash equivalents held by an entity may not be available for use by the entity because of, among other reasons, foreign exchange controls or legal restrictions. [IFRS for SMEs Standard paragraph 7.21]
Notes to the Financial Statements[7]
[7] Corresponding AASB Standard: AASB 101 Presentation of Financial Statements.
Scope of this section
This section sets out the principles underlying information that is to be presented in the notes to the financial statements and how to present it. Notes contain information in addition to that presented in the statement of financial position, the statement of profit or loss and other comprehensive income (if presented), the statement of profit or loss and the statement of comprehensive income (if presented), the combined statement of income and retained earnings (if presented), the statement of changes in equity (if presented) and the statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements. In addition to the requirements of this section, nearly every other section of this Standard requires disclosures that are normally presented in the notes. [IFRS for SMEs Standard paragraph 8.1]
Structure of the notes
The notes shall:
(a) present information about the basis of preparation of the financial statements and the specific accounting policies used, in accordance with paragraphs 95–97;
(b) disclose the information required by this Standard that is not presented elsewhere in the financial statements; and
(c) provide information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them.
[IFRS for SMEs Standard paragraph 8.2]
An entity shall, as far as practicable, present the notes in a systematic manner. An entity shall cross-reference each item in the financial statements to any related information in the notes. [IFRS for SMEs Standard paragraph 8.3]
Examples of systematic ordering or grouping of the notes include:
(a) giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities;
(b)grouping together information about items measured similarly such as assets measured at fair value; or
(c)following the order of the line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position, such as:
(i) statement of compliance with Australian Accounting Standards – Simplified Disclosures (see paragraph 10);
(ii) significant accounting policies applied (see paragraph 95);
(iii) supporting information for items presented in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows, in the order in which each statement and each line item is presented; and
(iv) other disclosures, including:
(1)contingent liabilities (see paragraph 154) and unrecognised contractual commitments; and
(2)non-financial disclosures.
[Based on IFRS for SMEs Standard paragraph 8.4]
An entity may present notes providing information about the basis of preparation of the financial statements and specific accounting policies as a separate section of the financial statements.
Disclosure of accounting policies
An entity shall disclose the following in the significant accounting policies:
(a) the measurement basis (or bases) used in preparing the financial statements; and
(b) the other accounting policies used that are relevant to an understanding of the financial statements.
[IFRS for SMEs Standard paragraph 8.5]
Information about judgements
An entity shall disclose, in the significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 97), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. [IFRS for SMEs Standard paragraph 8.6]
Information about key sources of estimation uncertainty
An entity shall disclose in the notes information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
(a) their nature; and
(b) their carrying amount as at the end of the reporting period.
[IFRS for SMEs Standard paragraph 8.7]
Audit fees
An entity shall disclose fees to each auditor or reviewer, including any network firm, separately for:
(a) the audit or review of the financial statements; and
(b) all other services performed during the reporting period.
For paragraph 98, an entity shall describe the nature of other services.
Imputation credits
The term ‘imputation credits’ is used in paragraphs 101-103 to also mean ‘franking credits’. The disclosures required by paragraphs 101 and 103 shall be made separately in respect of any New Zealand imputation credits and any Australian imputation credits.
An entity shall disclose the amount of imputation credits available for use in subsequent reporting periods.
For the purposes of determining the amount required to be disclosed in accordance with paragraph 101, entities may have:
(a) imputation credits that will arise from the payment of the amount of the provision for income tax;
(b) imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c) imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
Where there are different classes of investors with different entitlements to imputation credits, disclosures shall be made about the nature of those entitlements for each class where this is relevant to an understanding of them.
Consolidated and Separate Financial Statements[8]
[8]Corresponding AASB Standards:
Disclosures in consolidated financial statements
The following disclosures shall be made in consolidated financial statements:
(a) the fact that the statements are consolidated financial statements;
(b) the basis for concluding that control exists when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power;
(c) any difference in the reporting date of the financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements; and
(d) the nature and extent of any significant restrictions (for example resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans.
[IFRS for SMEs Standard paragraph 9.23]
Disclosures in separate financial statements
When a parent, an investor in an associate or a venturer with an interest in a joint venture prepares separate financial statements, those separate financial statements shall disclose:
(a) that the statements are separate financial statements; and
(b) a description of the methods used to account for the investments in subsidiaries, joint ventures and associates,
and shall identify the consolidated financial statements or other primary financial statements to which they relate.
[IFRS for SMEs Standard paragraph 9.27]
Accounting Policies, Estimates and Errors[9]
[9] Corresponding AASB Standard: AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.
Disclosure of a change in accounting policy
Subject to paragraph 107, when initial application of an Australian Accounting Standard has an effect on the current period or any prior period, or might have an effect on future periods, an entity shall disclose the following:
(a)the nature of the change in accounting policy;
(b)for the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected;
(c)the amount of the adjustment relating to periods before those presented, to the extent practicable; and
(d)an explanation if it is impracticable to determine the amounts to be disclosed in (b) or (c).
Financial statements of subsequent periods need not repeat these disclosures.
[Based on IFRS for SMEs Standard paragraph 10.13]
Where an entity has selected a transition option under another Standard and there are specific transition disclosure requirements in that Standard, the entity shall apply the full transition disclosure requirements in that Standard instead of the requirements in paragraph 106.
When a voluntary change in accounting policy has an effect on the current period or any prior period, an entity shall disclose the following:
(a)the nature of the change in accounting policy;
(b)the reasons why applying the new accounting policy provides reliable and more relevant information;
(c)to the extent practicable, the amount of the adjustment for each financial statement line item affected, shown separately:
(i) for the current period;
(ii) for each prior period presented; and
(iii) in the aggregate for periods before those presented; and
(d)an explanation if it is impracticable to determine the amounts to be disclosed in (c).
Financial statements of subsequent periods need not repeat these disclosures.
[IFRS for SMEs Standard paragraph 10.14]
Disclosure of a change in estimate
An entity shall disclose the nature of any change in an accounting estimate and the effect of the change on assets, liabilities, income and expense for the current period. If it is practicable for the entity to estimate the effect of the change in one or more future periods, the entity shall disclose those estimates. [IFRS for SMEs Standard paragraph 10.18]
Disclosure of prior period errors
An entity shall disclose the following about prior period errors:
(a) the nature of the prior period error;
(b) for each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected;
(c) to the extent practicable, the amount of the correction at the beginning of the earliest prior period presented; and
(d) an explanation if it is not practicable to determine the amounts to be disclosed in (b) or (c).
Financial statements of subsequent periods need not repeat these disclosures.
[IFRS for SMEs Standard paragraph 10.23]
Basic Financial Instruments[10]
[10] Corresponding AASB Standards:
The disclosures required in this Section apply to all financial instruments within the scope of AASB 9. In addition, if the entity uses hedge accounting, it shall make the additional disclosures in paragraphs 120–122.
Disclosure of accounting policies for financial instruments
In accordance with paragraph 95, an entity shall disclose, in the significant accounting policies, the measurement basis (or bases) used for financial instruments and the other accounting policies used for financial instruments that are relevant to an understanding of the financial statements. [IFRS for SMEs Standard paragraph 11.40]
Statement of financial position—categories of financial assets and financial liabilities
An entity shall disclose the carrying amounts of each of the following categories of financial assets and financial liabilities at the reporting date, in total, either in the statement of financial position or in the notes:
(a) financial assets measured at fair value through profit or loss;
(b) financial assets measured at amortised cost;
(c) financial liabilities measured at fair value through profit or loss;
(d) financial liabilities measured at amortised cost; and
(e) financial assets measured at fair value through other comprehensive income, showing separately:
(i) financial assets that are measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of AASB 9; and
(ii) investments in equity instruments designated as such upon initial recognition in accordance with paragraph 5.7.5 of AASB 9.
[Based on IFRS for SMEs Standard paragraph 11.41]
An entity shall disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance. For example, for long-term debt such information would normally include the terms and conditions of the debt instrument (such as interest rate, maturity, repayment schedule, and restrictions that the debt instrument imposes on the entity). [IFRS for SMEs Standard paragraph 11.42]
For all financial assets and financial liabilities measured at fair value, the entity shall disclose the basis for determining fair value, for example, quoted market price in an active market or a valuation technique. When a valuation technique is used, the entity shall disclose the assumptions applied in determining fair value for each class of financial assets or financial liabilities. For example, if applicable, an entity discloses information about the assumptions relating to prepayment rates, rates of estimated credit losses, and interest rates or discount rates. [IFRS for SMEs Standard paragraph 11.43]
Derecognition
If an entity has transferred financial assets to another party in a transaction that does not qualify for derecognition (see paragraph 3.2.15 of AASB 9), the entity shall disclose the following for each class of such financial assets:
(a) the nature of the assets;
(b) the nature of the risks and rewards of ownership to which the entity remains exposed; and
(c) the carrying amounts of the assets and of any associated liabilities that the entity continues to recognise.
[IFRS for SMEs Standard paragraph 11.45]
Collateral
When an entity has pledged financial assets as collateral for liabilities or contingent liabilities, it shall disclose the following:
(a) the carrying amount of the financial assets pledged as collateral; and
(b) the terms and conditions relating to its pledge.
[IFRS for SMEs Standard paragraph 11.46]
Defaults and breaches on loans payable
For loans payable recognised at the reporting date for which there is a breach of terms or a default of principal, interest, sinking fund or redemption terms that have not been remedied by the reporting date, an entity shall disclose the following:
(a) details of that breach or default;
(b) the carrying amount of the related loans payable at the reporting date; and
(c) whether the breach or default was remedied, or the terms of the loans payable were renegotiated, before the financial statements were authorised for issue.
[IFRS for SMEs Standard paragraph 11.47]
Items of income, expense, gains or losses
An entity shall disclose the following items of income, expense, gains or losses:
(a) income, expense, gains or losses, including changes in fair value, recognised on:
(i) financial assets measured at fair value through profit or loss;
(ii) financial liabilities measured at fair value through profit or loss;
(iii) financial assets measured at amortised cost;
(iv) financial liabilities measured at amortised cost;
(v) investments in equity instruments designated at fair value through other comprehensive income in accordance with paragraph 5.7.5 of AASB 9; and
(vi) financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of AASB 9, showing separately the amount of gain or loss recognised in other comprehensive income during the period and the amount reclassified upon derecognition from accumulated other comprehensive income to profit or loss for the period;
(b) total interest income and total interest expense (calculated using the effective interest method) for financial assets or financial liabilities that are not measured at fair value through profit or loss; and
(c) the amount of any impairment loss for each class of financial asset.
[Based on IFRS for SMEs Standard paragraph 11.48]
Other Financial Instrument Issues – Hedging Disclosures[11]
[11] Corresponding AASB Standards:
An entity shall disclose the following separately for each category of risk exposures that it decides to hedge and for which hedge accounting is applied:
(a) a description of the hedge;
(b) a description of the financial instruments designated as hedging instruments and their fair values at the reporting date; and
(c) the nature of the risks being hedged, including a description of the hedged item.
[Based on IFRS for SMEs Standard paragraph 12.27]
For fair value hedges, the entity shall disclose the following:
(a) the amount of the change in fair value of the hedging instrument recognised in profit or loss for the period; and
(b) the amount of the change in fair value of the hedged item recognised in profit or loss for the period.
[Based on IFRS for SMEs Standard paragraph 12.28]
For cash flow hedges and hedges of a net investment in a foreign operation, an entity shall disclose the following:
(a) the periods when the cash flows are expected to occur and when they are expected to affect profit or loss;
(b) a description of any forecast transaction for which hedge accounting had previously been used, but which is no longer expected to occur;
(c) the amount of the change in fair value of the hedging instrument that was recognised in other comprehensive income during the period;
(d) the amount that was reclassified to profit or loss for the period; and
(e) the amount of any excess of the cumulative change in fair value of the hedging instrument over the cumulative change in the fair value of the expected cash flows that was recognised in profit or loss for the period.
[Based on IFRS for SMEs Standard paragraph 12.29]
Inventories[12]
[12] Corresponding AASB Standard: AASB 102 Inventories.
An entity shall disclose the following:
(a) the accounting policies adopted in measuring inventories, including the cost formula used;
(b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;
(c) the amount of inventories recognised as an expense during the period;
(d) impairment losses recognised or reversed in profit or loss in accordance with AASB 102 Inventories; and
(e) the total carrying amount of inventories pledged as security for liabilities.
[IFRS for SMEs Standard paragraph 13.22]
Not-for-profit entities shall disclose the basis on which any loss of service potential of inventories held for distribution is assessed, or the bases when more than one basis is used, in addition to the information required by paragraph 123.
Investments in Associates[13]
[13] Corresponding AASB Standards:
An entity shall disclose the following:
(a) its accounting policy for investments in associates;
(b) the carrying amount of investments in associates (see paragraph 35(i)); and
(c) the fair value of investments in associates accounted for using the equity method for which there are published price quotations.
[IFRS for SMEs Standard paragraph 14.12]
For investments in associates accounted for by the cost model, an investor shall disclose the amount of dividends and other distributions recognised as income. [IFRS for SMEs Standard paragraph 14.13]
For investments in associates accounted for by the equity method, an investor shall disclose separately its share of the profit or loss of such associates and its share of any discontinued operations of such associates. [IFRS for SMEs Standard paragraph 14.14]
For investments in associates accounted for in accordance with AASB 9, an investor shall make the disclosures required by paragraphs 113–115. [Based on IFRS for SMEs Standard paragraph 14.15]
Investments in Joint Ventures[14]
[14] Corresponding AASB Standards:
An entity shall disclose the following:
(a) the accounting policy it uses for recognising its interests in joint ventures;
(b) the carrying amount of investments in joint ventures (see paragraph 35(j));
(c) the fair value of investments in joint ventures accounted for using the equity method for which there are published price quotations; and
(d) the aggregate amount of its commitments relating to joint ventures, including its share in the capital commitments that have been incurred jointly with other venturers, as well as its share of the capital commitments of the joint ventures themselves.
[IFRS for SMEs Standard paragraph 15.19]
For joint ventures accounted for in accordance with the equity method, the venturer shall also make the disclosures required by paragraph 14.14 for equity method investments. [IFRS for SMEs Standard paragraph 15.20]
For joint ventures accounted for in accordance with AASB 9, the venturer shall make the disclosures required by paragraphs 113–115. [Based on IFRS for SMEs Standard paragraph 15.21]
Investment Property at Fair Value[15]
[15] Corresponding AASB Standard: AASB 140 Investment Property.
An entity shall disclose the following for all investment property accounted for at fair value through profit or loss (paragraph 33 of AASB 140 Investment Property):
(a) the methods and significant assumptions applied in determining the fair value of investment property;
(b) the extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and class of the investment property being valued. If there has been no such valuation, that fact shall be disclosed;
BC58The offsetting prohibition in paragraph BC56(b) is included in Section 2 Concepts and Pervasive Principles of the IFRS for SMEs Standard (paragraph 2.52). As this section has been otherwise excluded from this Standard on the basis that it does not include any disclosures, the prohibition had to be separately added to this Standard.
BC59Permitting the options in the presentation of the cash flow statement from AASB 107 ensures that there are no differences in presentation to full AAS and avoids any possible issues, for example for the consolidation of subsidiaries that report under Tier 2 by parent entities that report under Tier 1 (full AAS).
BC60Retaining the exemption from disclosing key management personnel compensation in paragraph BC56(e) for entities that obtain key management personnel services from another entity avoids having potentially more onerous disclosure requirements than for Tier 1 entities. While arguably the exemption in paragraph 17A of AASB 124 (paragraph 195 in this Standard) only provides relief from disclosing the breakdown of key management personnel compensation that is otherwise required to be disclosed by AASB 124 paragraph 17, the Board noted that the fees paid to a management entity that must be disclosed under paragraph 18A of AASB 124 (paragraph 196 in this Standard) may also cover other services, and that the fees many not specifically identify the amount relating to key management personnel services.
BC61To avoid any potential R&M differences, the Board further decided to replace the definition of materiality in the IFRS for SMEs Standard with the recently updated definition of material from AASB 101 and added paragraph 23 which clarifies the application of materiality (based on paragraph 31 in AASB 101). The Board also replaced the guidance on the presentation of information in the notes (structure of notes, paragraph 93 in this standard and paragraph 8.4 in the IFRS for SMEs Standard) with the revised guidance from paragraphs 114 and 116 of AASB 101 that was introduced via amendments to AASB 101 in 2015 and added additional guidance to paragraph 40 confirming that the terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification (from paragraph 69(d) of AASB 101). This will further ensure that there are no presentation differences to full AAS.
BC62Consistent with the basic approach of minimising differences to the disclosures in the IFRS for SMEs Standard, the Board decided to retain paragraph 3.18 of the IFRS for SMEs Standard which includes an option of not presenting a statement of changes in equity if the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy (paragraph 26 in this Standard).
BC63In relation to the replacement of AASB 12, the Board noted that the investment entity exemption from consolidation creates a R&M difference to the IFRS for SMEs Standard. However, based on the principles listed in paragraph BC41, the Board did not consider that additional disclosures would be warranted in relation to this exemption. The Board noted that the IASB discussed the investment entity exception in the context of the 2020 Request for Information Comprehensive Review of the IFRS for SMEs Standard and concluded that few entities eligible to apply the IFRS for SMEs Standard would be investment entities. The Board also expects the exemption to have limited practical impact, since the majority of investment entities will be publicly accountable and therefore not able to apply this Standard .
BC64In responding to stakeholders’ concerns that an investment entity preparing separate financial statements could not comply with paragraph 105 of this Standard because the paragraph requires the entity to identify the consolidated financial statements or other primary financial statements to which the separate financial statements relate, the Board noted that separate financial statements are defined in AASB 127 Separate Financial Statements as financial statements that are presented in addition to consolidated financial statements or to financial statements that apply equity-accounting to investments in associates or joint ventures (consistent with the definition of separate financial statements in the IFRS for SMEs Standard). Therefore, the financial statements prepared by investment entities would not be separate financial statements under that definition and as a result paragraph 105 would not apply.
Judgements made in adding, removing or adapting the disclosures in the IFRS for SMEs Standard
BC65The Board has exercised a number of significant judgements while adding, removing and amending disclosures from the certain sections of the IFRS for SMEs Standard.
BC66In considering the R&M differences between AASB 16 Leases and Section 20 Leases in the IFRS for SMEs Standard, the Board noted that the accounting for all leases held by lessees under AASB 16 is broadly similar to the the accounting for finance leases in the IFRS for SMEs Standard. As a consequence, the Board considered that the disclosures for finance leases should be used as a basis, and only be adapted for different terminology used in AASB 16 (eg referring to variable lease payments instead of contingent rent).
BC67The Board also decided in principle to adapt the current disclosures for operating leases to apply to short-term leases and leases of low value assets that have not been recognised as right-of-use assets per the exemption in paragraph 6 of AASB 16. However, the Board noted that the disclosures in the IFRS for SMEs Standard about operating lease commitments are more extensive than what is required under paragraphs 55 and 60 of AASB 16. AASB 16 is a recent Standard that was finalised after the IFRS for SMEs Standard was developed. As noted in paragraph BC40, the Board considered that where the IASB has removed disclosures from full IFRS after the IFRS for SMEs Standard was finalised, similar reductions in disclosures should also be carried over to the new Tier 2 Standard. Therefore, the Board decided to replace the disclosures in the IFRS for SMEs Standard with the relevant disclosures from AASB 16.
BC68In considering the R&M differences between AASB 15 and Section 23 Revenue in the IFRS for SMEs Standard, the Board noted that while the differences may affect the amount and timing of the revenue recognised, under both AASB 15 and Section 23, revenue is either recognised at a point in time or over time. On that basis, the Board decided to adapt the disclosures in the IFRS for SMEs Standard to reflect the different terminology used in AASB 15 but without adding unnecessary details. For example, the requirement to disclose specified categories of revenue has been replaced with a requirement to disaggregate revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The reference to “methods used to determine the stage of completion” has been changed to “methods used to recognise revenue for performance obligations that are satisfied over time”.
BC69In considering the difference between AASB 123 Borrowing Costs and Section 25 Borrowing Costs in the IFRS for SMEs Standard, the Board noted that the IFRS for SMEs Standard does not permit the capitalisation of borrowing costs and therefore does not require any additional disclosures. As this is an R&M difference, the Board decided to require disclosure of the amount of capitalised borrowing costs on the grounds that total interest is an important element for a user to understand liquidity and solvency of an entity, and that information about these amounts capitalised would therefore be relevant. The Board further considered that the benefits of this disclosure would exceed the cost, noting that it is was also required for RDR entities.
BC70Based on the principle to avoid differences to the IFRS for SMEs Standard as far as possible, the Board decided to retain certain disclosures even though they were not required for RDR entities. These include:
(a)in relation to the section covering employee benefits, disclosures about termination benefits which are over and above what is required under full IFRS/AAS (paragraphs 173(d),(g), 174-175);
(b)disclosures about the entity’s domicile and other general information (paragraph 32), the qualitative factors that make up goodwill (paragraph 142(g)), adjusting events that occurred after the end of the reporting period (paragraph 185) and parent-subsidiary relationships where an entity applies the exemption from providing related party disclosures for government-related entities (paragraph 200);
(c)disclosures about hedging (paragraphs 121 and 122), investments in associates (paragraph 126) and leasing (paragraphs 144(b), 147(d) and 148(b)) where some disclosures were added but many others removed as a result of applying the principles in paragraph BC41; and
(d)a number of disclosures in relation to the section covering transition to Australian Accounting Standards – Simplified Disclosures – see paragraph BC100 for details.
BC71While acknowledging stakeholders concerns about the potential increase in disclosures, the Board noted that the small increases will be more than offset with the reduction in disclosures in other areas. On this basis, the Board agreed to retain the disclosures from IFRS for SMEs Standard, which have been demonstrated to be appropriate for small and medium sized entities without public accountability. However, consistent with the principles in paragraph BC40, the Board agreed to remove disclosures about specific components of capitalised defined benefit cost, group plans and other long-term benefits from the disclosures proposed in ED 295 as these disclosures had been included in full IFRS when the IFRS for SMEs Standard was first issued, but had since been removed from full IFRS.
BC72In relation to the adjusting events after the end of the reporting period, the Board noted that paragraph 185 specifically refers to an update of ‘related disclosures’, which is different to the equivelant requirements in AASB 110 Events after the Reporting Period, where paragraph 8 requires the adjustment of amounts recognised in the financial statements and paragraphs 19 and 20 deal with disclosure-related adjustments. While RDR entities were not required to comply with paragraphs 19 and 20 of AASB 110, the Board noted that paragraph 185 refers only to disclosures that relate to amounts recognised in the financial statements and is therefore narrower than the requirements in paragraphs 19 and 20 of AASB 110. On that basis, the Board did not consider the requirements to be particularly onerous and decided to retain them consistent with the principle of consistency with the IFRS for SMEs Standard.
BC73In considering differences between AASB 138 Intangible Assets and Section 18 Intangible Assets other than Goodwill in the IFRS for SMEs Standard, the Board noted that the IFRS for SMEs Standard does not permit the revaluation of intangible assets and therefore does not require relevant disclosures. The Board decided that these disclosures would be relevant and should be added, using the disclosures for property plant and equipment from paragraph 17.33 of the IFRS for SMEs Standard as a basis. The Board also decided to add a requirement to disclose the reason for an intangible asset having an indefinite useful life based on AASB 140 Investment Property paragraph 122(a), as this option is not available under the IFRS for SMEs Standard.
BC74However, the IFRS for SMEs Standard also requires for revalued property, plant and equipment the disclosure of the carrying amount of the assets that would have been recognised under the cost model (paragraph 17.33(d) in the IFRS for SMEs Standard). The Board noted that the option to use the revaluation model for property, plant and equipment was only introduced into the IFRS for SMEs Standard as part of the amendments made in 2015. While the Basis for Conclusions to the amendments explain the reasons for permitting this option[56], they do not discuss the associated disclosures that were added in the process. When the Board discussed this particular disclosure requirement in the context of the original RDR disclosures in ED 192 Revised Differential Reporting Framework, it noted that the revaluation model provides more relevant information than the cost model, and that it would appear illogical and irrelevant to provide comparative information about the cost model[57]. The Board therefore concluded that the cost of this disclosure would outweigh the benefits. These arguments are still valid and on that basis the Board decided not to include this particular disclosure from the IFRS from SMEs Standard.
[56]2015 Amendments to the IFRS for SMEs, paragraph BC210-BC212
[57] ED192 – Appendix C Analysis of Disclosure Requirements: Proposed Disclosures under RDR: AASB 116 Property, Plant and Equipment and IFRS for SMEs Section 17 Property, Plant and Equipment
Audit fees
BC75Stakeholders were generally supportive of adding the requirement to disclose the fees paid to each auditor and reviewer, including any network firm, from AASB 1054 to AASB 1060 (paragraphs 98 and 99). The Board considered that the disclosure of audit fees is a public policy issue (see paragraph BC42) and requiring this disclosure will assist in improving auditor independence and accountability, thereby increasing users’ confidence in the quality of companies’ financial reports. The Board noted that the term ‘network firm’ is defined in APES 110 Code of Ethics for Professional Accountants issued by Accounting and Professional Ethical Standards Board (APESB) (November 2018 incorporating all amendments to April 2018) and that preparers and auditors may refer to APES 110 for guidance.
Maturity Analysis
BC76A number of respondents to ED 295 and roundtable participants noted an inconsistency in disclosures about the maturity of financial liabilities. While paragraph 144(b) (paragraph 20.13(b) in the IFRS for SMEs Standard) requires disclosure of a quantitative maturity analysis for future lease payments of lessees in fixed time periods, paragraph 114 (paragraph 11.42 in the IFRS for SMEs Standard) only has a general requirement for other financial liabilities to disclose terms and conditions “such as … maturity, repayment schedule …”.
BC77The Board acknowledged that information about the maturity of an entity’s financial liabilities is important as the users of financial statements of entities that do not have public accountability are particularly interested in information about short-term cash flows, obligations and commitments, and liquidity. However, as stakeholder feedback on this issue was mixed, the Board decided to retain the disclosures consistent with the IFRS for SMEs Standard. Noting that the IFRS for SMEs disclosures, in particular the leasing disclosures, are currently being reviewed by the IASB, the Board decided to flag the inconsistency in the disclosures to the IASB instead.
BC78However, The Board also noted that while paragraph 114 only has general disclosure requirements, these still require disclosure of the terms and conditions of the debt instrument and make specific reference to the instruments’ maturity and repayment schedule. The Board therefore expects entities to provide this information in some form.
Tax reconciliation
BC79Consistent with the disclosures in the IFRS for SMEs Standard, ED 295 only required disclosure of a narrative explanation of any significant differences between the tax expense (income) and accounting profit multiplied by the applicable tax rate without requiring a numerical reconciliation. Stakeholder feedback on this proposed reduction in disclosures was mixed. Amongst others, the Australian Taxation Office noted that the audited tax reconciliation is an important source of information for its risk identification and assessment purposes.
BC80After considering the stakeholders’ feedback, the Board decided to require disclosure of a numerical tax reconciliation (paragraph 178(c)) on the basis that this is a public policy issue. The Board further noted that there has been significant interest in the income tax disclosures not only by regulators but also by the public in general, as part of the focus on possible tax avoidance in particular by multi-national entities.
Individually material items of income and expenses
BC81Some respondents to ED 295 were concerned about the absence of a specific requirement to disclose individually material items of income and expenses and noted that this disclosure is currently explicitly required for both RDR GPFS and SPFS. While the Board acknowledged these concerns, it noted that entities applying this Standard are still expected to disclose information that is not presented elsewhere but that is relevant to an understanding of the financial statement in accordance with paragraph 91(c). This would include information about individually material items of income and expense where information about these items is necessary to assess the entity’s financial performance.
BC82However, the Board, also agreed to monitor entities’ disclosure practices and may revisit this issue should it become apparent that entities do not provide sufficient disclosures in this regard.
Imputation credits
BC83In response to stakeholders’ feedback, the Board decided to add in paragraphs 100–103 the disclosure of imputation credits from paragraphs 12–15 in AASB 1054. The Board noted that, although the disclosure of imputation credits was not required under the current RDR framework, it was mandatory for entities preparing SPFS under Part 2M.3 of the Corporations Act2001 and therefore it should not be onerous to provide for the majority of entities transitioning from SPFS to the new Tier 2 GPFS.
BC84The Board noted that Australia and New Zealand are among a limited number of jurisdictions that have an imputation tax regime and information about imputation credits provides useful information as the credits have the characteristics of an asset to equity investors. Moreover, published research demonstrates that the franking status of dividends increases the association between dividends and future earnings and therefore provides useful information about an entity’s future earnings potential and short-term cash flows.[58] Requiring the disclosure will ensure that information about the entity’s imputation credits will not be lost when entities transition from SPFS to this Standard.
[58]Coulton, J., C. Ruddock and S. Taylor, 2014, The Informativeness of Dividends and Associated Tax Credits, Journal of Business Finance and Accounting, Vol. 41, pp. 1309-1336
Specific transition disclosure requirements in another Standard
BC85The Board noted that other Australian Accounting Standards may provide transition options for entities on initial application and that these options may be accompanied by specific transition disclosure requirements. Examples of such transition options can be found in AASB 15, AASB 16, AASB 1058 Income of Not-for-Profit Entities or AASB 1059 Service Concession Arrangements: Grantors. The Board decided that where this is the case, the entity shall apply the relevant specific transition disclosures that are required under that Standard for the selected transition option instead of the disclosures for a change in accounting policy specified in paragraph 106 of this Standard.
BC86This is because even though the specific transition option under another Standard may require additional disclosures compared to what would be required under paragraph 106, the Board noted that the targeted disclosures of the selected transition option provide more relevant information about the transitional impact than the general accounting policy change disclosures required under paragraph 106.
BC87For example, where an entity adopts AASB 16 using the simplified transition approach and does not restate comparative information, AASB 16 paragraph C12 requires disclosure of an explanation of the differences between operating lease commitments disclosed under AASB 117 Leases at the end of the previous annual reporting period to the lease liabilities recognised in the statement of financial position at the date of initial application under AASB 16, together with the weighted average lessee’s incremental borrowing rate applied to the lease liabilities recognised at the date of initial application. In addition, the entity must also disclose whether it has used any of the specified practical expedients when adopting AASB 16. This provides more relevant information than a disclosure of the adjustments recognised for each financial statement line item affected by the new accounting policy in paragraph 106(b) for the current and each prior period presented.
AASB Standards and Interpretations not covered in AASB 1060
BC88There are a number of Standards that the Board decided not to address in this Standard for the following reasons:
(a)AASB 14 Regulatory Deferral Accounts as it would only be relevant for entities that have recognised regulatory deferral account balances under their current accounting policy (eg where the entity prepared SPFS without complying with the R&M of full AAS). None of the respondents to ED 295 identified any entities that intend to apply AASB 14 on transition to GPFS. The Board’s decision also is consistent with IASB’s view that it should not incorporate the requirements of IFRS 14 as part of the current comprehensive review of the IFRS for SMEs Standard[59];
[59] IASB Request for Information Comprehensive Review of the IFRS for SMEs Standard – N1
(b)AASB 4 Insurance Contracts, AASB 17 Insurance Contracts, AASB 1023 General Insurance Contracts, AASB 1038 Life Insurance Contarcts and AASB 1056 Superannuation Entities are not addressed in this Standard as the majority of the entities applying these Standards would have public accountability by holding assets in a fiduciary capacity.
The Board acknowledged that AASB 4 and AASB 17 would also be applicable to entities such as ‘captive insurers’ which may not be publicly accountable and hence would be eligible to apply this Standard. These entities will have to provide the full disclosures of AASB 4 or AASB 17, as the disclosures in these standards have not been replaced by AASB 1060. However, the Board was of the view that ‘captive insurers’ deal only with insurance contracts within their own group and as a result are likely to have relatively simple insurance arrangements. They would therefore not be unduly impacted by the full disclosure requirements under these Standards.
In relation to AASB 1056, the Board concluded that superannuation entities are currently divided between Tier 1 entities and non-reporting entities (including Small Australian Prudential Regulation Authority (APRA) Funds (SAFs) and Self-Managed Superannuation Funds (SMSFs)). Accordingly, Tier 2 disclosures were not developed for these entities. The Board further noted that there is currently no legislative requirements for superannuation entities to prepare financial statements in accordance with AAS. Until such time as the legislation is changed, superannaution entities could therefore continue preparing SPFS and thus AASB 1056 has been excluded from this Standard.
(c)AASB 8 Operating Segments and AASB 133 Earnings per Share require disclosure of segment information and of earnings per share data only for entities which have debt or equity instruments that are traded, or are in the process of being issued for trading in a public market. These entities would have public accountability and, accordingly, the Board decided that these Standards are not applicable for Tier 2 entities. Instead, consistent with the IFRS for SMEs Standard, paragraph 33 refers back to these Standards and provides that an entity disclosing segment information or earnings per share must comply with AASB 8 or AASB 133 respectively in full.
(d)AASB 134 Interim Financial Reporting is applicable for the specific purpose of preparing interim financial reports and AASB 1039 Concise Financial Reports is applicable for the specific purpose of preparing concise reports under the Corporations Act 2001. AASB 1060 is intended to be used in the preparation of annual GPFS. Accordingly, the Board considered that AASB 134 and AASB 1039 are not relevant in relation to this disclosure Standard.
(e)The majority of the disclosures from AASB 1054 are now covered in AASB 1060: paragraphs 7 and 8 of AASB 1054 are covered in paragraphs 10–11 of AASB 1060, paragraphs 10 and 11 of AASB 1054 are covered in paragraphs 98 and 99 of AASB 1060 as discussed in paragraph BC75 and paragraphs 12–15 of AASB 1054 are covered in paragraphs 100–103 of AASB 1060 as discussed in paragraphsBC83–BC84. Paragraph 9 of AASB 1054 will no longer be relevant as it refers to SPFS and paragraph 16 of AASB 1054 does not provide information about short-term cash flows, obligations, commitment, contingencies, liquidity or solvency and is therefore not required.
(f)AASB 1057 and AASB 1053 do not include any R&M or disclosure requirements and as a result have not been included in this Standard.
BC89In assessing whether disclosure requirements of a particular AASB Interpretation would need to be added to AASB 1060, the Board has considered the following:
(a)If the Basis for Conclusions in the IFRS for SMEs Standard confirmed that particular interpretations had been incorporated in the IFRS for SMEs Standard, no further action was required.
(b)No action was required for interprations that have been superseded or do not have any disclosure requirements.
BC90The Board further considered whether disclosure requirements from AASB Interpretations would need to be added to AASB 1060 but concluded this was not necessary for the following reasons:for the following reasons:
(a)AASB Interpretation 1019 The Superannuation Contributions Surcharge and AASB Interpretation 1047 Professional Indemnity Claims Liabilities in Medical Defence Organisations are not relevant for Tier 2 entities, as entities applying these interpretations would have public accountability by holding assets in a fiduciary capacity.
(b)The disclosures in AASB Interpretation 1052 Tax Consolidation Accounting Disclosure were excluded for RDR entities on the basis of cost-benefit considerations. In addition, as the interpretation is not creating any R&M differences to IAS 12, and therefore also not to the IFRS for SMEs Standard, the Board concluded that additional disclosures will not be required.
(c)The disclosure paragraphs in AASB Interpretation 23 Uncertainty over Income Tax Treatments do not introduce new disclosures, but refer to disclosures in the AASB 112 that are captured in paragraphs 96, 97 and 154 of AASB 1060.
(d)Two of the three disclosure paragraphs in AASB Interpretation 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds were already excluded for Tier 2 entities on the basis of cost-benefit considerations. However, as there are also no R&M differences to the IFRS for SMEs Standard, the Board concluded that no additional disclosures would be required.
Not-for-profit private sector entities and public sector entities
BC91As explained in paragraph BC51, the Board decided that AASB 1060 should be equally applicable to both for-profit and NFP private sector entities and any public sector entities that are eligible to report under Tier 2 based on the requirements in AASB 1053. The Board therefore also considered any NFP private sector and public sector entity differences in AAS and to what extent, if any, additional disclosures would be required for such Tier 2 entities.
BC92In summary, the Board decided to:
(a)include additional disclosures for AASB 1, AASB 16, AASB 102 and AASB 123 to address R&M differences that are specific to NFP entities; and
(b)include additional disclosures for AASB 1004, AASB 1050, AASB 1051, AASB 1055, AASB 1058 and AASB 1059 which are only applicable for NFP private sector and/or public sector entities.
Consistent with the conclusions in paragraph BC53, the proposed disclosures reflect the fact that the relevant transactions and circumstances covered are unique to NFP private sector and/or public sector entities and that users would require information on non-financial accountability and stewardship, even if the broad principles in paragraph BC41 would not indicate such a need.
BC93As a general rule, the Board considered that previous decisions made under the current RDR framework in relation to the cost vs the benefits of these disclosures in relation to Tier 2 NFP entities remain relevant.
Drafting conventions and future maintenance
BC94While ED 295 used the numbering from the IFRS for SMEs Standard, the Board agreed to use consecutive paragraph numbers in this Standard consistent with the approach used in other AAS. To show the linkage to the IFRS for SMEs disclosures and allow easy comparison, equivalent IFRS for SMEs paragraph numbers are added at the end of each paragraph where applicable. Where paragraphs from the IFRS for SMEs Standard have been amended, the words ‘based on’ are used.
BC95The Board further decided that the analysis tables developed for ED 295 (See Detailed comparison of R&M requirements in IFRS for SMEs Standard and full IFRS and analysis of impact on disclosures – For for-profit private sector entities with no public accountability and Analysis of NFP modifications paragraphs in AAS and NFP specific AASB Standards for detailed analysis) will include all the edits and mark-ups and will be used as an ongoing document for future reference. They will be a record of the rationale behind certain decisions and judgements and would facilitate any future amendments.
BC96The Board also acknowledged that a review of the disclosures will need to take place any time the IFRS for SMEs Standard is updated, a new Australian Accounting Standard or Interpretation is issued or amendments are made to existing Australian Accounting Standards or Interpretations.
Transitional requirements
BC97The Board considered whether specific transitional requirements needed to be added to AASB 1053 in relation to AASB 1060, but has concluded that this is not necessary for the following reasons:
(a)adjustments to recognised amounts will only arise where an entity did not previously report either under Tier 1 or Tier 2 (RDR); and
(b)the principles of transitioning to full R&M requirements are the same, regardless of the level of disclosures to be provided.
BC98Therefore, the Board concluded that the transition requirements in paragraph 18A of AASB 1053 can be retained without further changes (except some changes required by AASB 2020-2 to clarify the scope of the paragraph for certain entities required to consolidate for the first time). However, the Board decided to add an explanatory paragraph 18C to AASB 1053 which confirms the different disclosures that apply to Tier 2 entities that apply this Standard.
BC99The Board acknowledged that the adoption of this new Tier 2 Standard as such will not result in any adjustments to recognised amounts unless an entity has not previously complied with all R&M requirements of AAS and is preparing GPFS for the first time. Separate transition relief has been provided in Appendix E of AASB 1053 Application of Tiers of Australian Accounting Standards for entities moving from SPFS to Tier 2 GPFS when adopting the requirements of AASB 2020-2. Further discussion of the Board’s consideration on this matter is available in AASB 2020-2 paragraphs BC122−BC144.
BC100The Board also decided to retain the requirements to explain how the adoption of AAS has affected the entity’s financial position, financial performance and cash flows, and to disclose a description of each change in accounting policy, a reconciliation of the profit and loss for the latest period before adoption, and information about any errors noted in the context of the adoption (paragraphs 208, 210(c), 211 and 212 of this Standard) even though they were not previously required for RDR entities, to keep differences to the IFRS for SMEs Standard at a minimum.
Effective date
BC101In proposing the effective date in ED 295, the Board had noted that the revised Conceptual Framework as issued by the IASB in March 2018 is effective for annual periods beginning on or after 1 January 2020 and that the regulations in relation to doubling of thresholds for large proprietary companies are applicable to financial years beginning on or after 1 July 2019.
BC102With these factors in mind and in order to provide an option for large proprietary companies to early adopt AASB 1060, the Board had proposed that AASB 1060 should be ready for adoption latest by 30 June 2020, to be effective for annual periods beginning on or after 1 July 2020.
BC103However, respondents to ED 295 and ED 297 expressed mixed views on the proposed effective date, with many recommending the Board defer the effective date of both standards by one to two years. After considering the arguments provided by stakeholders and various options, the Board ultimately decided to defer the effective date of both standards by one year to financial years beginning on or after 1 July 2021, with early adoption permitted.
BC104Further discussion of the Board’s consideration on this matter is available in AASB 2020-2 paragraphs BC145−BC153.
AASB 10 Consolidated Financial Statements;
AASB 12 Disclosure of Interests in Other Entities; and
AASB 127 Separate Financial Statements.
AASB 7 Financial Instruments: Disclosures;
AASB 9 Financial Instruments; and
AASB 139 Financial Instruments: Recognition and Measurement.
AASB 7 Financial Instruments: Disclosures;
AASB 9 Financial Instruments; and
AASB 139 Financial Instruments: Recognition and Measurement.
AASB 12 Disclosure of Interests in Other Entities; and
AASB 128 Investments in Associates and Joint Ventures.
AASB 11 Joint Arrangements;
AASB 128 Investments in Associates and Joint Ventures; and
AASB 12 Disclosure of Interests in Other Entities.
AASB 116 Property, Plant and Equipment: and
AASB 140 Investment Property.
AASB 102 Inventories;
AASB 116 Property, Plant, and Equipment;
AASB 136 Impairment of Assets; and
AASB 138 Intangible Assets.
(i) less than 10 percent of the total sample use Tier 2 disclosures; and
(ii) of those large proprietary companies sampled that prepare GPFS, around 20 percent use Tier 2 disclosures.
A subsequent analysis of financial reports of for-profit non-disclosing entities lodging financial statements with ASIC in 2018 confirmed that 71 percent of these entities were still lodging SPFS with ASIC, 13 percent lodged Tier 2 GPFS and 16 percent Tier 1.
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