AASB 2006-2 Amendments to Australian Accounting Standards - March 2006

Administered by Department of the Treasury

Legislation au F2006L00926 Not in force Legislative Instrument

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Explanatory Statement

AASB 2006-2 Amendments to Australian Accounting Standards

March 2006

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 Board 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.

Reasons for Issuing AASB 2006-2

AASB 2006-2 is an amending Standard which makes amendments to
AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards.

A requirement of AASB 1 (issued in July 2004) is that entities must make an unreserved statement of compliance with Australian equivalents to IFRSs if they are to be eligible to access the transitional provisions offered by AASB 1, which among other things provide transitional relief from certain requirements in some Standards.

During 2005, the AASB was contacted by a number of key constituents in the not-for-profit public sector with significant concerns relating to the transition to Australian equivalents to IFRSs. In particular, they were concerned that they are unable to make an unreserved statement of compliance with Australian equivalents to IFRSs due to information deficiencies that have caused non-compliance with previous GAAP. In order to rectify this situation, the AASB has decided to insert an “Aus” paragraph to allow the use of AASB 1 by not-for-profit public sector entities experiencing extreme difficulties in complying with some Standards subject to making certain disclosures.

Main Features of this Standard

This Standard was made by the AASB on 21 March 2006 under
section 334 of the Corporations Act 2001.

Application Date

This Standard is applicable to annual reporting periods ending on or after 30 June 2006 with early adoption permitted for annual reporting periods beginning on or after 1 January 2005.

Main Change

The change to AASB 1 is the addition of paragraph Aus3.2. This paragraph is inserted in order to assist not-for-profit public sector entities in the rare circumstances when they experience extreme difficulties in complying with the requirements of Australian equivalents to IFRS due to information deficiencies that have caused non-compliance with previous GAAP.

Consultation prior to Issuing this Standard

The amendment made by AASB 2006-2 has been made in response to concerns raised by constituents and brought to the attention of the AASB. The AASB issued Invitation to Comment 10 Proposed Amendments to AASB 1 for public comment in February 2006. All the responses received supported the proposal to widen access to AASB 1 to certain not-for-profit public sector entities experiencing extreme difficulties complying with certain Australian equivalents to IFRSs.

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 2006-2 Amendments to Australian Accounting Standards, enacted in March 2006, was introduced to address specific concerns raised by not-for-profit public sector entities regarding their transition to Australian equivalents to International Financial Reporting Standards (IFRS). The Australian Accounting Standards Board (AASB) undertook this amendment in response to feedback from key stakeholders, who reported difficulties in achieving full compliance with the new standards due to information deficiencies that arose from non-compliance with previous Generally Accepted Accounting Principles (GAAP). This legislative measure was aimed at providing these entities with necessary flexibility, allowing them to make an unreserved statement of compliance with the new standards while addressing their transitional challenges. The AASB adopted these amendments under the authority granted by section 334 of the Corporations Act 2001, with the primary objective of facilitating a smoother transition to IFRS for the affected entities.

Scope and Application

The AASB 2006-2 Amendments to Australian Accounting Standards applies to entities, particularly those in the not-for-profit public sector, that need to comply with Australian equivalents to International Financial Reporting Standards (IFRS) for financial reporting. It is applicable to annual reporting periods ending on or after 30 June 2006, with early adoption permitted for periods beginning on or after 1 January 2005. This amendment was issued to address concerns raised by certain not-for-profit public sector entities who found it difficult to make an unreserved statement of compliance with Australian equivalents to IFRS due to information deficiencies that resulted in non-compliance with previous Generally Accepted Accounting Principles (GAAP). The main change introduced by this Standard is the addition of paragraph Aus3.2 to AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, providing relief to not-for-profit public sector entities experiencing extreme difficulties in complying with certain Standards due to information deficiencies. The AASB made this amendment in response to feedback from key constituents, and all responses to the public consultation supported the proposal to widen access to AASB 1 for affected entities.

Key Provisions

The AASB 2006-2 Amendments to Australian Accounting Standards provide specific amendments to AASB 1, First-time Adoption of Australian Equivalents to International Financial Reporting Standards. The key operative sections of this amendment are those that modify AASB 1 to include additional guidance for not-for-profit public sector entities. Section Aus3.2 is inserted into AASB 1 to assist these entities when they face extreme difficulties in complying with Australian equivalents to IFRSs due to information deficiencies that have led to non-compliance with previous GAAP. This new provision allows such entities to make an unreserved statement of compliance with Australian equivalents to IFRSs, provided they make certain disclosures. The AASB 2006-2 imposes specific obligations on not-for-profit public sector entities that encounter extreme difficulties in complying with Australian equivalents to IFRSs. These entities must ensure they make the required disclosures as stipulated in Aus3.2 of AASB 1. This includes providing detailed information on the nature and extent of the non-compliance, the reasons behind the difficulties, and any measures taken or planned to address the deficiencies. This transparency requirement is crucial to maintain the integrity of financial reporting and to allow stakeholders to make informed decisions based on the entity's financial statements. For entities that fail to comply with the obligations set out in AASB 2006-2, there may be civil and criminal consequences. The penalties for non-compliance can include fines and other sanctions as stipulated under the Corporations Act 2001. The severity of the penalties depends on the nature and extent of the non-compliance, as well as the intent behind the breach. In cases where the non-compliance is deemed to be willful or negligent, the penalties can be particularly severe, potentially including imprisonment for individuals responsible for the oversight of the financial reporting process. These provisions underscore the importance of adhering to the standards set out in the AASB 2006-2 to avoid legal repercussions.

Area of Law: Accounting Law
Instrument: Regulation
Concepts: Definitions & Interpretation; Reporting & Disclosure Obligations; Compliance Obligations

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