Explanatory Statement
Accounting Standard AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123
June 2007
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) Interpretations issued by the AASB corresponding to the Interpretations adopted by the IASB, as listed in AASB 1048 Interpretation and Application of Standards.
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 2007-6
AASB 2007-6 makes amendments to the following Australian Accounting Standards and Interpretations:
1. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards;
2. AASB 101 Presentation of Financial Statements;
3. AASB 107 Cash Flow Statements;
4. AASB 111 Construction Contracts;
5. AASB 116 Property, Plant and Equipment;
6. AASB 138 Intangible Assets;
7. Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities; and
8. Interpretation 12 Service Concession Arrangements.
These amendments arise from the issuance in June 2007 of a revised AASB 123 Borrowing Costs, which is the Australian equivalent to a revised IAS 23 Borrowing Costs.
Main Features of AASB 2007-6
Application Date
AASB 2007-6 is applicable to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided AASB 123 is also adopted for the same period. AASB 2007-6 is applied when AASB 123 is applied.
Main Requirements
The revision of AASB 123 necessitates consequential amendments to the pronouncements listed above. The amendments principally remove references to expensing borrowing costs on qualifying assets, as AASB 123 was revised to require such borrowing costs to be capitalised.
Consultation Prior to Issuing AASB 2007-6
The AASB issued Exposure Draft ED 149 Proposed Amendments to AASB 123 Borrowing Costs in May 2006, which invited comments from Australian constituents on proposed amendments to the Australian equivalent to IAS 23 Borrowing Costs. The AASB received eight submissions on ED 149.
A Regulatory Impact Statement has not been prepared in connection with the issue of AASB 2007-6 as the amendments made do not have a substantial direct or indirect impact on business or competition, are of a minor or machinery nature and clarify existing requirements.
Overview
The Accounting Standard AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123, enacted in June 2007, addresses the need for amendments to certain Australian Accounting Standards and Interpretations resulting from the revision of AASB 123, the Australian equivalent to IAS 23 Borrowing Costs. This amendment was necessitated by the International Accounting Standards Board's (IASB) issuance of a revised IAS 23, which required borrowing costs on qualifying assets to be capitalised rather than expensed. The Australian Accounting Standards Board (AASB) issued Exposure Draft ED 149 in May 2006 to gather feedback on the proposed changes, receiving eight submissions. The AASB decided to implement these amendments to align Australian accounting standards with international practices, ensuring consistency and clarity in financial reporting.
Scope and Application
AASB 2007-6 applies to entities that are required to comply with Australian Accounting Standards, including for-profit and not-for-profit entities, including public sector entities. It is applicable to annual reporting periods beginning on or after 1 January 2009, with early adoption permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided AASB 123 is also adopted for the same period. The amendments principally remove references to expensing borrowing costs on qualifying assets, as AASB 123 was revised to require such borrowing costs to be capitalised. The AASB issued Exposure Draft ED 149 Proposed Amendments to AASB 123 Borrowing Costs in May 2006, which invited comments from Australian constituents on proposed amendments to the Australian equivalent to IAS 23 Borrowing Costs. The AASB received eight submissions on ED 149. A Regulatory Impact Statement has not been prepared in connection with the issue of AASB 2007-6 as the amendments made do not have a substantial direct or indirect impact on business or competition, are of a minor or machinery nature and clarify existing requirements.
Key Provisions
The key sections of AASB 2007-6 (sections 1-4) establish the scope and application of the standard, detailing the amendments to various Australian Accounting Standards and Interpretations that result from the revision of AASB 123 Borrowing Costs. Specifically, section 1 specifies the application date for these amendments, which is for annual reporting periods beginning on or after 1 January 2009, with the option for early adoption for periods starting from 1 January 2005 but before 1 January 2009, provided AASB 123 is also adopted. Section 2 outlines the main requirements, which involve making consequential amendments to the listed standards and interpretations primarily to remove references to expensing borrowing costs on qualifying assets, as the revised AASB 123 now requires such borrowing costs to be capitalised. Section 3 details the consultation process that preceded the issuance of AASB 2007-6, including the release of Exposure Draft ED 149 in May 2006 and the eight submissions received from stakeholders. Section 4 explains that a Regulatory Impact Statement was not prepared because the amendments do not significantly affect business or competition and are of a minor or clarifying nature.
The obligations imposed by AASB 2007-6 on entities include the requirement to adopt the standard for applicable reporting periods and to make the necessary amendments to their accounting policies and practices to align with the new requirements. Entities must ensure that borrowing costs on qualifying assets are capitalised in accordance with the revised AASB 123, and they must update their financial statements to reflect these changes. This involves revisiting and potentially revising the relevant accounting entries and disclosures to ensure compliance with the amended standards.
Breach of the requirements set out in AASB 2007-6 can result in civil or criminal consequences, depending on the nature and extent of the non-compliance. Although the explanatory statement does not specify penalties, non-compliance with Australian Accounting Standards can lead to legal action, fines, or other penalties as prescribed by relevant legislation, such as the Corporations Act 2001. For listed entities, failure to comply with the accounting standards can also result in legal action by shareholders or regulatory sanctions by bodies such as the Australian Securities and Investments Commission (ASIC). Additionally, the financial statements may be deemed misleading or inaccurate, potentially impacting the entity's reputation and financial credibility.