Explanatory Statement

Accounting Standard AASB 1048 Interpretation and Application
of Standards

September 2008

EXPLANATORY STATEMENT

Reasons for Issuing AASB 1048

Australian Accounting Standards that apply to annual reporting periods beginning on or after 1 January 2005 include Australian equivalents to International Financial Reporting Standards (IFRSs).  IFRSs comprise Accounting Standards and Interpretations.  IFRSs are issued by the International Accounting Standards Board (IASB), and their adoption in Australia is in accordance with a strategic direction made by the Financial Reporting Council (FRC).

This Standard clarifies that all Australian Interpretations have the same authoritative status.  Those that are equivalent to the IASB Interpretations must be applied to achieve compliance with IFRSs.  Australian Interpretations issued by the AASB comprise both AASB and UIG Interpretations.  UIG Interpretations were developed by the Urgent Issues Group, a former committee of the AASB.

Need for a Service Standard

In the Australian context, Australian Interpretations do not have the same legal status as Standards (delegated legislation) and are treated as ‘external documents’ by the Acts Interpretation Act 1901 (and also by the Legislative Instruments Act 2003).  Although references in one Standard to a second Standard are ambulatory (automatically moving forward to refer to the most recently-issued version of the second Standard), references in a Standard to external documents are stationary (being fixed in time to refer to the contents of the external document when the Standard was issued).  A simple reference to an Australian Interpretation in an AASB Standard can only refer to the Interpretation that existed when the Standard was issued.  It cannot refer to any revised version of the Interpretation that may exist at a later reporting date.  However, an AASB Standard can refer to a second AASB Standard and, when the first Standard is applied at a later reporting date, the reference will be to the then-current version of the second Standard, even if it has been re-issued since the first Standard was issued.

The service Standard approach involves issuing an AASB Standard – this Standard – that lists the Australian Interpretations, and referring to that Standard in every other AASB Standard where necessary to refer to an Interpretation.  This enables references to the Interpretations in all other AASB Standards to be updated by re-issuing the service Standard.

This approach preserves the status of Australian Interpretations as ‘external documents’ referred to in a Standard, with the contents fixed in time to that existing when the Standard takes effect.  It does not treat the Interpretations as delegated legislation or confer ambulatory status on the reference.  In each AASB Standard where there is a need to refer to an Australian equivalent of an IASB Interpretation, the reference will be to this Standard, phrased as “Interpretation [number] [title] identified in AASB 1048 as corresponding to IFRIC [or SIC] [number]”.  This reference, being to another AASB Standard, is ambulatory and will refer to the Standard, AASB 1048, that is in force from time to time.  AASB 1048 itself will contain the direct references to the external documents and will be re-issued to keep all references to Interpretations in the other Standards up to date.

This approach to clarifying the status of Australian Interpretations ensures there is no difference between the status in the hierarchy accorded to Interpretations in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors compared with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Main Features of this Standard

This Standard (issued in September 2008) supersedes the previous version of AASB 1048, issued in September 2007.  At its November 2007 meeting, the AASB approved Interpretation 1003 Petroleum Resource Rent Tax, at the August 2008 meeting Interpretation 15 Agreements for the Construction of Real Estate and Interpretation 16 Hedges of a Net Investment in a Foreign Operation were approved.  These interpretations are now referred to in the Standard.  Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities was revised to reflect changes made to Accounting Standard AASB 1004 Contributions in December 2007.  The revised Interpretation 1038 is now referred to in AASB 1048 (this Standard).  Interpretation 2 Members’ Shares in Co-operative Entities and Similar Instrument was revised as a result of Accounting Standard AASB 2008-2 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation (March 2008), whilst Interpretation 9 Reassessment of Embedded Derivatives and Interpretation 107 Introduction of the Euro were both revised as a result of Accounting Standard AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 (March 2008).  These interpretations are now referred to in the Standard.

Application Date

This Standard is applicable to annual reporting periods ending on or after 30 September 2008 (see paragraph 3).  To be consistent with the position for AASB Standards equivalent to IFRSs, early adoption of this Standard is not permitted for annual reporting periods beginning before 1 January 2005.  However, early adoption is otherwise permitted as specified in paragraphs 4, 10 and 12.

Main Requirements

This Standard identifies the Australian Interpretations and classifies them into two groups:  those that correspond to an IASB Interpretation and those that do not.  Entities are required to apply each relevant Australian Interpretation in preparing financial reports that are within the scope of the Standard.  Australian Interpretations are issued by and may be purchased from the AASB.  They are also available on the AASB’s website at www.aasb.gov.au.

In respect of the first group (Table 1), it is necessary for those Australian Interpretations, where relevant, to be applied in order for an entity to be able to make an explicit and unreserved statement of compliance with IFRSs.  The IASB defines IFRSs to include the IFRIC and SIC Interpretations.

In the second group (Table 2), this Standard lists the other Australian Interpretations, that do not correspond to the IASB Interpretations, to assist financial report preparers and users to identify the other authoritative pronouncements necessary for compliance in the Australian context.

The Standard will be re-issued when necessary to keep the Tables up to date.

Changes from AASB 1048 (September 2007)

The main differences between AASB 1048 (as issued in September 2007) and this version issued in September 2008 are the addition of five Interpretations based on IFRIC Interpretations to Table 1 in paragraph 9 of the Standard, and the addition of two Australian Interpretations that do not correspond to an IASB Interpretation to Table 2 in paragraph 11 of the Standard, as set out in the following tables. 

In addition to the above, as a consequence of the making of AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 (September 2007) and AASB 2007-10 Further Amendments to Australian Accounting Standards arising from AASB 101 (December 2007), editorial changes have been made to nearly all the Interpretations.  The amended Interpretations are also included in Tables 1 and 2 of the Standard.

Consultation Prior to Issuing this Standard

Public consultation was sought as part of the process in developing submissions on Draft Interpretations D21 Real Estate Sales and D22 Hedges of a Net Investment in a Foreign Operation issued by the IFRIC for public comment.  IFRIC Interpretations 15 and 16 contain essentially the same requirements as were proposed in D21 and D22 respectively.  Revised Interpretation 2 incorporates consequential amendments as a result of amendments made to AASB 132 Financial Instruments: Presentation in March 2008 which followed consideration of submissions received on Exposure Draft ED 150 Proposed Amendments to AASB 132 Financial Instruments: Presentation and AASB 101 Presentation of Financial Statements: Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation.  Revised Interpretations 9 and 107 incorporate amendments that arose from the issuance of a revised AASB 3 Business Combinations and an amended AASB 127 Consolidated and Separate Financial Statements in March 2008, which followed consideration of the submissions received on Exposure Draft ED 139 Proposed Amendments to AASB 3 Business Combinations and Exposure Draft ED 141 Proposed Amendments to AASB 127 Consolidated and Separate Financial Statements.

In developing AASB Interpretation 1003 public consultation was sought as part of the process and constituents’ comments were taken into consideration.  AASB Interpretation 1038 was revised as a result of amendments made to AASB 1004 which followed consideration of submissions received on Exposure Draft ED 156 Proposals Arising from the Short-term Review of the Requirements in AAS 27, AAS 29 and AAS 31.

A Regulatory Impact Statement has not been prepared in connection with the issue of this Standard as the amendments made do not have a substantial direct or indirect impact on business or competition, are of a minor or machinery nature or clarify existing requirements.