Explanatory Statement
Accounting Standard AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project
July 2008
EXPLANATORY STATEMENT
Standards Amended by AASB 2008-6
This Standard makes amendments to Australian Accounting Standards AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards and AASB 5 Non-current Assets Held for Sale and Discontinued Operations. These amendments are additional to those in AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project.
The amendments result from proposals that were included in Exposure Draft ED 159 Proposed Improvements to Australian Accounting Standards issued in October 2007 and follow the issuance of the IASB Standard Improvements to IFRSs in May 2008. The IASB’s annual improvements project provides a vehicle for making non-urgent but necessary amendments to Standards.
Main Features of this Standard
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 1 January 2005 but before 1 July 2009. However, an entity shall not apply the amendments for annual reporting periods beginning before 1 July 2009 unless it also applies AASB 127 Consolidated and Separate Financial Statements (as amended by AASB 2008-5 in July 2008).
An entity applies the amendments prospectively from the date at which it first applied AASB 5, subject to the transitional provisions in paragraph 45 of AASB 127.
Main Requirements
This Standard amends AASB 1 and AASB 5 to include requirements relating to a sale plan involving the loss of control of a subsidiary. The amendments require all the assets and liabilities of such a subsidiary to be classified as held for sale and clarify the disclosures required when the subsidiary is part of a disposal group that meets the definition of a discontinued operation.
Consultation Prior to Issuing AASB 2008-6
The AASB issued Exposure Draft ED 159 Proposed Improvements to Australian Accounting Standards in October 2007, which invited comments from Australian constituents on proposed amendments to Australian equivalents to IFRSs and consequential amendments to other Australian Accounting Standards arising from the IASB’s annual improvements project. Nine submissions were received. The submissions indicated broad support for adopting the changes, although a number of constituents noted that some of the improvements proposed by the IASB would potentially change practice.
A Regulation Impact Statement has not been prepared in connection with the issue of AASB 2008-5 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 Accounting Standard AASB 2008-6, issued in July 2008, amends Australian Accounting Standards AASB 1 and AASB 5. This Standard was introduced to address the need for non-urgent but necessary adjustments to existing standards, following the International Accounting Standards Board's annual improvements project. The objective of these amendments is to align Australian standards with international practices, ensuring consistency and clarity in financial reporting. The Australian Accounting Standards Board, responsible for developing and issuing accounting standards, enacted this legislation to maintain the integrity and comparability of financial statements. The amendments respond to feedback from stakeholders and aim to clarify requirements, particularly regarding the classification of assets and liabilities when a subsidiary is held for sale and part of a disposal group.
Scope and Application
The AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project applies to entities subject to Australian Accounting Standards and pertains specifically to annual reporting periods beginning on or after 1 July 2009. Early adoption is permitted for annual reporting periods commencing between 1 January 2005 and 30 June 2009, provided that the amendments are applied in conjunction with AASB 127 Consolidated and Separate Financial Statements as amended by AASB 2008-5. The amendments are designed to align Australian Accounting Standards with the International Accounting Standards Board's annual improvements project, ensuring that Australian standards reflect the latest best practices in accounting. These amendments are intended to clarify the classification and disclosure requirements for subsidiaries that are to be sold, particularly when such a sale involves the loss of control. The application of these amendments is prospective, meaning they are applied from the date an entity first applied AASB 5, subject to the transitional provisions outlined in AASB 127.
Key Provisions
The main operative sections of AASB 2008-6 (paragraphs referenced) are significant as they amend AASB 1 (First-time Adoption of Australian Equivalents to International Financial Reporting Standards) and AASB 5 (Non-current Assets Held for Sale and Discontinued Operations). These amendments are designed to incorporate necessary changes proposed by the International Accounting Standards Board (IASB) through its annual improvements project. Specifically, the amendments address the classification and disclosure requirements for a subsidiary that is part of a disposal group meeting the definition of a discontinued operation, ensuring that all assets and liabilities of such a subsidiary are classified as held for sale. This Standard applies to annual reporting periods beginning on or after 1 July 2009, although early adoption is allowed for periods starting from 1 January 2005. Entities must apply the amendments prospectively from the date they first applied AASB 5, subject to specific transitional provisions.
The obligations imposed by AASB 2008-6 include ensuring that entities prepare and present financial statements in compliance with the amended standards. This means that entities must classify the assets and liabilities of a subsidiary involved in a disposal group as held for sale if it meets the criteria for discontinued operations. Additionally, entities must provide the necessary disclosures to meet the transparency and comparability requirements of the accounting standards. For entities that choose to apply the amendments before the mandatory date, they must also ensure compliance with AASB 127 (Consolidated and Separate Financial Statements) as amended by AASB 2008-5.
Failure to comply with the provisions of AASB 2008-6 can result in significant consequences. While the Explanatory Statement does not detail specific offences or penalties, non-compliance with Australian Accounting Standards generally can lead to civil or criminal liabilities under relevant legislation. For instance, entities may face penalties for providing misleading or deceptive financial reports, which could result in fines or other legal actions. Additionally, directors and officers may be held personally liable for breaches, potentially facing fines, disqualification from managing corporations, or other sanctions. The precise penalties would depend on the specific circumstances and the relevant legislative framework under which the breaches occurred.