Explanatory Statement

Accounting Standard AASB 2008-11 Amendments to Australian Accounting Standard – Business Combinations Among Not-for-Profit Entities

November 2008

EXPLANATORY STATEMENT

Standards Amended by AASB 2008-11

AASB 2008-11 makes amendments to AASB 3 Business Combinations (March 2008, as amended) as a result of a review by the Australian Accounting Standards Board (AASB) of the suitability of applying the requirements in that Standard for business combinations among not-for-profit entities.

Main Features

Application Date

This Standard is applicable to annual reporting periods beginning on or after 1 July 2009, with early adoption permitted for annual reporting periods beginning on or after 30 June 2007 but before 1 July 2009.  If an entity applies AASB 2008-11 to an annual reporting period beginning before 1 July 2009, it shall disclose that fact and apply AASB 127 Consolidated and Separate Financial Statements (as amended in March 2008) at the same time.

Main Requirements

Business Combinations among Not-for-Profit Entities

The effect of AASB 2008-11 is that the requirements of AASB 3 (March 2008, as amended) apply to business combinations among not-for-profit entities (other than restructures of local governments) that are not commonly controlled.

Restructures of Local Governments

The amendments specify the accounting requirements for restructures of local governments as follows:

(a)                 transferee local governments shall recognise assets and liabilities transferred from another local government, and any gain or loss;

(b)                transferee local governments shall recognise the assets transferred  initially either at the amounts at which the assets were recognised by the transferor local government as at the date of the transfer, or at their fair values; and

(c)                 assets and liabilities transferred during the reporting period shall be disclosed separately by class, any gain or loss shall be disclosed in the statement of comprehensive income and the transferor shall be identified.

Consultation Prior to Issuing AASB 2008-11

The AASB issued a revised AASB 3 Business Combinations in March 2008.  At that time, the Board decided that the requirements of AASB 3 (March 2008) should only be available for early adoption by for-profit entities, until further work was undertaken on the implications of applying the requirements of AASB 3 (March 2008) to not-for-profit entities.  Accordingly, the Board included in the Preface to AASB 3 (March 2008) the following statement:

Prior to the mandatory application date of this Standard, being 1 July 2009, the AASB will consider its suitability for combinations among not-for-profit entities.  In doing so, the AASB will have regard to the criteria being developed for judging when IFRSs should be modified for application by not-for-profit entities.  Those criteria will assist in clarifying whether this Standard should be amended to include an additional scope exclusion or other amendments and, if so, the extent of that exclusion or other amendments in an Australian not-for-profit context.  In light of this, not-for-profit entities cannot adopt this Standard prior to the mandatory application date.

The Board considered constituent views on applying the acquisition method to business combinations among not-for-profit entities in determining the suitability of AASB 3 to such combinations.  Constituents were provided with opportunity to comment on any not-for-profit or public sector specific issues in responding to ED 133 Request for Comment on IASB ED of Proposed Amendments to IFRS 3 Business Combinations – Combinations by Contract Alone or Involving Mutual Entities, as part of the Business Combinations phase II project.  Constituents were also given the opportunity to consider whether AASB 3 was appropriate for restructures of local governments or whether the requirements of AAS 27 were more appropriate in responding to the AASB’s ED 156 Proposal Arising from the Short-term Review of the Requirements in AAS 27, AAS 29 and AAS 31.  In addition, AASB staff consulted directly with a number of constituents that dealt with business combinations among not-for-profit entities.

A Regulation Impact Statement has not been prepared in connection with the issue of AASB 2008-11 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.