Explanatory Statement
AASB 2005-7 Amendments to Australian Accounting Standards
June 2005
EXPLANATORY STATEMENT
Adoption of Australian equivalents to IFRSs
The Australian Accounting Standards Board (AASB) is implementing the directive of the Financial Reporting Council (FRC) to adopt the Standards of the International Accounting Standards Board (IASB), for application to reporting periods beginning on or after 1 January 2005.
The IASB defines International Financial Reporting Standards (IFRSs) as comprising:
(a) International Financial Reporting Standards;
(b) International Accounting Standards (IAS); and
(c) Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).
The Australian equivalents to IFRSs are:
(a) Accounting Standards issued by the AASB that are equivalent to Standards issued by the IASB, being AASBs 1 – 99 corresponding to the IFRS series and AASBs 101 – 199 corresponding to the IAS series; and
(b) Urgent Issues Group (UIG) Interpretations issued by the AASB corresponding to the Interpretations adopted by the IASB, as listed in AASB 1048 Interpretation and Application of Standards.
In implementing the FRC’s directive, the AASB is replacing relevant existing AASB Standards with Australian Standards equivalent to those of the IASB. The AASB has decided it will continue to issue sector-neutral Standards, that is, Standards applicable to both for-profit and not-for-profit entities, including public sector entities. Except for Standards that are specific to the not-for-profit or public sectors or that are of a purely domestic nature, the AASB uses the IASB Standards as the “foundation” Standards to which it adds material detailing the scope and applicability of a Standard in the Australian environment. Additions are made, where necessary, to broaden the content to cover sectors not addressed by an IASB Standard and domestic, regulatory or other issues.
On 15 July 2004, the AASB made the set of Australian Standards equivalent to IFRSs, together with several associated Australian Standards, effective for annual reporting periods beginning on or after 1 January 2005.
AASB 134 Interim Financial Reporting was issued at this time and is the Australian equivalent to IAS 34 Interim Financial Reporting.
Reasons for Issuing AASB 2005-7
AASB 2005-7 amends AASB 134 issued in July 2004. AASB 134 contains an Australian specific “Aus” paragraph (Aus21.1) commenting that comparative interim periods refer to the corresponding calendar periods. Concerns had been raised by constituents that when the current or immediately preceding annual reporting periods differ from twelve months, the preparation of a comparative interim report may become onerous, or that paragraph Aus21.1 might be inconsistent with paragraph 20 of AASB 134.
On the basis of these concerns, the AASB reconsidered paragraph Aus21.1 of AASB 134 and decided to delete it.
Main Features of this Standard
This Standard was made by the AASB on 9 June 2005 under section 334 of the Corporations Act 2001.
Application Date
The amendment made by AASB 2005-7 in relation to AASB 134 (July 2004) is applicable to interim reporting periods ending on or after 30 June 2005. Early adoption is permitted for interim reporting periods beginning on or after 1 January 2005.
Change from AASB 134
The change to AASB 134 is the deletion of paragraph Aus21.1 from AASB 134. This paragraph commented that comparative interim periods (current or annual reporting period-to-date) refer to the corresponding calendar periods.
Consultation prior to Issuing this Standard
The amendment made by AASB 2005-7 has been made in response to concerns raised by constituents and brought to the attention of the AASB. No further formal consultation was deemed necessary by the AASB prior to its decision to issue this Standard, amending AASB 134.
A Regulatory Impact Statement has not been prepared in connection with the revision of this Standard as the amendment it makes does not have a direct, or substantial indirect, effect on business or restrict competition, is of a minor or machinery nature and does not substantially alter existing arrangements.
Overview
The AASB 2005-7 Amendments to Australian Accounting Standards, enacted in June 2005, responds to concerns raised by stakeholders regarding the application of AASB 134 Interim Financial Reporting. This legislation was developed under the directive of the Financial Reporting Council (FRC) and implemented by the Australian Accounting Standards Board (AASB) to align Australian accounting standards with International Financial Reporting Standards (IFRSs). The AASB replaced existing standards with Australian equivalents to IFRSs, aiming to provide consistent and internationally recognised financial reporting practices. The policy objective was to ensure that Australian financial reporting standards facilitate transparency and comparability in financial reporting, aligning them with global standards while accommodating sector-specific and domestic considerations. The amendment specifically addresses the complexity and potential inconsistency in preparing comparative interim financial reports when the annual reporting periods differ from twelve months.
Scope and Application
The AASB 2005-7 Amendments to Australian Accounting Standards applies to entities subject to the Corporations Act 2001, specifically those that are required to prepare interim financial reports, including listed companies, large proprietary companies, public benefit entities, and other entities that are required to prepare consolidated financial statements in accordance with Australian Accounting Standards. The amendments apply to interim financial reporting periods ending on or after 30 June 2005, and early adoption is permitted for interim reporting periods beginning on or after 1 January 2005. The Act amends AASB 134 Interim Financial Reporting, removing an Australian-specific paragraph that caused confusion and potentially created inconsistencies. The AASB made this amendment in response to concerns raised by constituents and determined that further formal consultation was not necessary. The scope of the Act is limited to the specified amendment, and there are no exclusions or exemptions mentioned. The AASB may extend or restrict the application of this amendment through subordinate instruments.
Key Provisions
The Australian Accounting Standards Board (AASB) has introduced AASB 2005-7, which amends AASB 134 Interim Financial Reporting issued in July 2004. This amendment addresses the concerns raised by constituents regarding the applicability of comparative interim periods when the annual reporting periods are not exactly twelve months. Specifically, AASB 2005-7 removes paragraph Aus21.1 from AASB 134, which previously indicated that comparative interim periods refer to corresponding calendar periods. This change simplifies the preparation of interim reports when the annual periods differ from twelve months, thereby easing the burden on entities required to prepare such reports. The amendment is effective for interim reporting periods ending on or after 30 June 2005, with early adoption permitted for periods beginning on or after 1 January 2005.
The AASB, in implementing this amendment, continues to adhere to its policy of issuing sector-neutral Standards applicable to both for-profit and not-for-profit entities, including public sector entities. This approach ensures consistency and fairness across various sectors. The amendment reflects the AASB’s commitment to responding to stakeholder concerns and maintaining the relevance and practicality of accounting standards within the Australian context.
Entities subject to AASB 134 are required to comply with the amended standard by preparing interim financial reports that do not refer to corresponding calendar periods in their comparative interim reporting. This change aims to streamline the process of preparing interim financial reports, making it more manageable for entities with non-standard annual reporting periods. By removing the specific reference to calendar periods, the amendment alleviates potential complexities and ensures that interim reports are aligned with the actual reporting periods of the entities.
There are no specific offences, penalties, or civil/criminal consequences outlined in AASB 2005-7 for non-compliance with the amendment. However, entities that fail to comply with the requirements of AASB 134, including the amendment made by AASB 2005-7, may face regulatory scrutiny and potential repercussions under the Corporations Act 2001. Non-compliance could result in penalties under the Corporations Act, which may include fines or other legal consequences, depending on the nature and severity of the non-compliance. The AASB’s decision to issue this amendment was based on stakeholder feedback and aimed at improving the practicality and relevance of interim financial reporting in Australia.