Explanatory Statement

Accounting Standard AASB 2009-1 Amendments to Australian Accounting Standards – Borrowing Costs of
Not-for-Profit Public Sector Entities

April 2009

EXPLANATORY STATEMENT

Standards Amended by AASB 2009-1

This Standard makes amendments to the following Australian Accounting Standards:

1. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards;
2. AASB 111 Construction Contracts; and
3. AASB 123 Borrowing Costs (2007, as amended).

The amendments effected through this Standard arise from the Australian Accounting Standards Board’s (AASB’s) short-term review of the requirement in AASB 123 to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.  Following that review, the AASB decided to reintroduce the option for not-for-profit public sector entities to expense those borrowing costs pending the outcome of:

(a)                 the work of the New Zealand Financial Reporting Standards Board (FRSB) on the relationship between depreciated replacement cost and borrowing costs, in which the AASB agreed to participate;

(b)                 the AASB and FRSB work on developing a Process for Modifying, or Introducing Additional Requirements to, IFRSs for PBE/NFP; and

(c)                 the International Public Sector Accounting Standard Board’s (IPSASB’s) Borrowing Costs project.

Main Features of this Standard

Application Date

This Standard is applicable to annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009, with early adoption permitted for annual reporting periods beginning on or after 1 January 2009 that end before 30 April 2009 provided AASB 123 is also adopted for the same period.  This Standard is required to be applied when AASB 123 is applied.

Main Requirements

In respect of not-for-profit public sector entities, this Standard amends AASB 123 by reintroducing the option to expense borrowing costs in the period in which they are incurred and thereby allow, subject to the requirements in AASB 1049 Whole of Government and General Government Sector Financial Reporting, an entity to choose whether it expenses or capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset.  Consequential disclosures about the accounting policy adopted are also specified.

As a consequence of reintroducing the option, this Standard also amends AASB 111 to specify that costs which may be attributable to contract activity in general and can be allocated to specific contracts include borrowing costs only when the contractor capitalises borrowing costs in accordance with AASB 123.

Consultation Prior to Issuing AASB 2009-1

The AASB issued AASB 2009-1 after a due process, which included the issue of ED 176 Proposed Amendments to Australian Accounting Standards – Borrowing Costs of Not-for-Profit Public Sector Entities in February 2009.  The AASB received six submissions on ED 176.  In general, those submissions were supportive of ED 176. 

A Regulation Impact Statement has not been prepared in connection with the issue of AASB 2009-1 as the amendments only apply to not-for-profit public sector entities and, as such, do not have a substantial direct or indirect impact on business or competition.