Explanatory Statement
Accounting Standard AASB 2008-4 Amendments to Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities
June 2008
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2008-4
This Standard makes amendments to Australian Accounting Standard AASB 124 Related Party Disclosures. These amendments arise from Exposure Draft ED 162 Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities.
As a result of the amendments to section 300A of the Corporations Act 2001 and Regulation 2M.3.03 in 2007, disclosing entities that are companies are required to report remuneration information in the directors’ report in accordance with the Corporations Act and Regulation 2M.3.03. The same remuneration information is required in the financial statements in accordance with AASB 124 Related Party Disclosures paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and Aus25.7.2.
Corporations Act Regulation 2M.6.04 permitted listed companies to avoid making the same disclosures twice. The Corporations Amendment Regulations 2007 (No. 2) has removed that regulation.
This Standard amends AASB 124 to relieve disclosing entities that are companies from complying with the paragraphs in AASB 124 that have been included in the Corporations Act and Regulation 2M.3.03 to avoid each disclosing entity that is a company having to disclose this information twice – in its directors’ report and in its financial statements.
Main Features of AASB 2008-4
Application Date
This Standard is applicable to annual reporting periods ending on or after 30 June 2008, subject to such an annual reporting period not beginning before 30 June 2007.
This Standard may be applied to annual reporting periods beginning on or after 30 June 2007 that end before 30 June 2008.
Main Requirements
This Standard excludes disclosing entities that are companies from the application of AASB 124 paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and Aus25.7.2, as the requirements for these entities are now incorporated into the Corporations law. However, AASB 124 paragraphs Aus25.7 and Aus25.7.3 to Aus25.9.3 still apply to disclosing entities that are companies.
Consultation Prior to Issuing AASB 2008-4
The AASB issued Exposure Draft ED 162 Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities in April 2008.
Ten submissions were received in respect of the proposals in the ED. These submissions:
(a) supported the proposals to exclude disclosing entities that are companies from the application of AASB 124 paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and 25.7.2; and
(b) indicated that they would prefer that all KMP disclosure requirements be transferred to the Corporations Act.
The AASB, on behalf of its constituents and in response to the submissions received on ED 162, has requested that Treasury seek to address transferring all KMP disclosure requirements to the Corporations Act relating to all types of disclosing entities.
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.
Overview
The Australian Accounting Standards Board issued AASB 2008-4 Amendments to Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities in June 2008. The purpose of this amendment is to address the redundancy in disclosure requirements that arose from changes in the Corporations Act 2001 and Corporations Regulations 2001. Previously, disclosing entities, specifically companies, were required to report remuneration information both in their directors' reports under the Corporations Act and in their financial statements under AASB 124 Related Party Disclosures. To eliminate the need for duplicate disclosures, AASB 2008-4 amends AASB 124 to exempt companies from certain paragraphs that have been incorporated into the Corporations Act, thus ensuring compliance with both legislative and accounting standards without redundancy.
The Australian Accounting Standards Board sought feedback on Exposure Draft ED 162 Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities, released in April 2008, and received ten submissions. The submissions generally supported the amendment to exclude companies from specific disclosure requirements of AASB 124, while also suggesting a broader transfer of key management personnel disclosure requirements to the Corporations Act for all types of disclosing entities. In response, the AASB has requested Treasury to consider this broader transfer. The amendment is applicable to annual reporting periods ending on or after 30 June 2008, and the AASB did not prepare a Regulatory Impact Statement due to the minor nature of the amendments.
Scope and Application
The AASB 2008-4 Accounting Standard amends Australian Accounting Standard AASB 124 Related Party Disclosures, specifically affecting disclosing entities that are companies. This amendment responds to changes in the Corporations Act 2001 and Corporations Regulations 2001, which now require these entities to report certain remuneration information in their directors’ reports. The primary aim of this standard is to prevent these companies from having to disclose the same information twice by excluding them from specific paragraphs of AASB 124 that have been incorporated into the Corporations Act. This standard applies to annual reporting periods ending on or after 30 June 2008 and can be applied to periods starting from 30 June 2007. It excludes certain disclosure requirements under AASB 124 for companies, while other paragraphs of AASB 124 still apply. The changes reflect the consultation feedback that supported the proposals and acknowledged the need to avoid duplicate disclosures.
Key Provisions
AASB 2008-4 amends Australian Accounting Standard AASB 124 Related Party Disclosures, particularly in relation to disclosures by disclosing entities that are companies. The primary objective of these amendments is to streamline the disclosure requirements for key management personnel (KMP) by removing redundancy and aligning the accounting standards with the Corporations Act 2001. Specifically, sections Aus25.2 to Aus25.6, Aus25.7.1 and Aus25.7.2 of AASB 124 are excluded for disclosing entities that are companies, as these entities are already required to report such information under the Corporations Act and related regulations (section 2). This amendment ensures that companies do not need to duplicate their KMP disclosures in both the directors’ report and the financial statements.
Disclosing entities that are companies are obligated to adhere to the new provisions by ensuring their financial statements comply with the amended AASB 124, specifically excluding certain paragraphs related to KMP disclosures. They must ensure that the required information is disclosed in accordance with the Corporations Act and relevant regulations (section 2). This includes reporting remuneration information in the directors’ report, which aligns with the requirements of the Corporations Act and ASIC Regulation 2M.3.03, and ensuring that any remaining KMP disclosures in the financial statements adhere to paragraphs Aus25.7 to Aus25.9.3 of AASB 124 (section 2).
Failure to comply with the amended AASB 124, particularly in terms of omitting required KMP disclosures or not aligning with the Corporations Act, may result in legal consequences. While the explanatory statement does not specify exact penalties, non-compliance with the Corporations Act can lead to civil penalties for individuals and companies. For companies, penalties can include fines and, in severe cases, prosecution. Additionally, inaccurate or misleading financial statements can result in disciplinary actions from the Australian Securities and Investments Commission (ASIC) and may lead to reputational damage and loss of investor confidence.