Explanatory Statement
Accounting Standard AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9
December 2009
EXPLANATORY STATEMENT
Standards Amended by AASB 2009-11
This Standard makes amendments to the following Australian Accounting Standards:
- AASB 1 First-time Adoption of Australian Accounting Standards;
- AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards;
- AASB 3 Business Combinations;
- AASB 4 Insurance Contracts;
- AASB 5 Non-current Assets Held for Sale and Discontinued Operations;
- AASB 7 Financial Instruments: Disclosures;
- AASB 101 Presentation of Financial Statements;
- AASB 102 Inventories;
- AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
- AASB 112 Income Taxes;
- AASB 118 Revenue;
- AASB 121 The Effects of Changes in Foreign Exchange Rates;
- AASB 127 Consolidated and Separate Financial Statements;
- AASB 128 Investments in Associates;
- AASB 131 Interests in Joint Ventures;
- AASB 132 Financial Instruments: Presentation;
- AASB 136 Impairment of Assets;
- AASB 139 Financial Instruments: Recognition and Measurement;
- AASB 1023 General Insurance Contracts;
- AASB 1038 Life Insurance Contracts;
- Interpretation 10 Interim Financial Reporting and Impairment; and
- Interpretation 12 Service Concession Arrangements.
These amendments arise from the issuance of AASB 9 Financial Instruments in December 2009.
Main Features of this Standard
Application Date
This Standard applies to annual reporting periods beginning on or after 1 January 2013. This Standard shall be applied when AASB 9 is applied. This Standard may be applied to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2013 provided AASB 9 is also applied for the same period. When an entity applies this Standard to such an annual reporting period, it shall disclose that fact.
Main Requirements
This Standard gives effect to consequential changes arising from the issuance of AASB 9. The Preface to AASB 9 summarises the main requirements of that Standard.
Consultation Prior to Issuing AASB 2009-11
The AASB issued Exposure Draft ED 184 Financial Instruments: Classification and Measurement in July 2009. ED 184 reproduced the proposals included in the IASB’s Exposure Draft ED/2009/7 Financial Instruments: Classification and Measurement without amendment.
The AASB invited comments from Australian constituents on the proposals regarding the classification and measurement of financial instruments, as well as the consequential amendments to other Australian Accounting Standards that would result from the issuance of AASB 9. The AASB received nine written submissions from Australian constituents. Submissions received were generally supportive. However, a number of constituents expressed concerns regarding the proposal to recognise dividends in other comprehensive income when an entity elected to present fair value changes for an investment in an equity instrument in other comprehensive income and the proposal to remove of the cost exemption for investments in equity instruments where the fair value could not be measured reliably.
In its submission to the IASB, the AASB noted the concerns expressed by constituents. The IASB addressed the concerns by allowing dividends that are ‘returns on investment’, for investments in equity instruments that are not held for trading, to be recognised in profit or loss. The IASB also clarified that, in certain circumstances, cost may be representative of fair value.
A Regulation Impact Statement has not been prepared in connection with the issue of AASB 2009-11 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.
Overview
Accounting Standard AASB 2009-11, enacted in December 2009, was introduced to address the need for amendments to various Australian Accounting Standards arising from the issuance of AASB 9 Financial Instruments. The standard was enacted by the Australian Accounting Standards Board (AASB), an independent statutory body established by the Australian Securities and Investments Commission (ASIC) to develop and issue accounting standards. The amendments made by AASB 2009-11 ensure consistency and alignment with the new financial instruments standard, while also addressing concerns raised by stakeholders during the consultation process. The primary objective of AASB 2009-11 is to implement the consequential changes resulting from AASB 9, thereby ensuring that the Australian Accounting Standards remain coherent and in line with international standards.
Scope and Application
The AASB 2009-11 amendments to Australian Accounting Standards arising from AASB 9, which were issued in December 2009, apply to various accounting standards including AASB 1, AASB 3, AASB 4, and others listed in the explanatory statement. These amendments are intended to effect consequential changes that arise from the issuance of AASB 9, which pertains to financial instruments. The amendments apply to annual reporting periods beginning on or after 1 January 2013, and may be applied to periods ending after 31 December 2009 that begin before 1 January 2013, provided AASB 9 is also applied for the same period. The scope of the legislation encompasses entities that must adhere to Australian Accounting Standards and prepare financial reports in accordance with these standards. The amendments clarify certain aspects of the classification and measurement of financial instruments and other related accounting issues, addressing concerns raised during consultations with Australian constituents regarding the recognition of dividends and the cost exemption for investments in equity instruments.
Key Provisions
The AASB 2009-11 amendments to Australian Accounting Standards, outlined in the Explanatory Statement, are designed to incorporate the changes introduced by AASB 9 Financial Instruments. These amendments primarily affect a range of Australian Accounting Standards, including AASB 1, AASB 3, AASB 4, AASB 5, AASB 7, AASB 101, AASB 102, AASB 108, AASB 112, AASB 118, AASB 121, AASB 127, AASB 128, AASB 131, AASB 132, AASB 136, AASB 139, AASB 1023, AASB 1038, and Interpretations 10 and 12. The application date for these amendments is for annual reporting periods beginning on or after 1 January 2013 (Section 1). Entities have the option to apply these amendments to earlier periods, provided AASB 9 is also applied for the same period, and must disclose this application (Section 2).
The main requirement of AASB 2009-11 is to implement the consequential changes arising from AASB 9, which focuses on the classification and measurement of financial instruments. The core provisions of AASB 9 are summarised in its Preface, and these are reflected in the amendments made by AASB 2009-11 (Section 3). The amendments address the classification and measurement of financial instruments and also include necessary changes to other Australian Accounting Standards to ensure consistency and compliance with the new standards set out in AASB 9.
Entities governed by these amendments must ensure that they comply with the new requirements by applying the amended standards in their financial reporting. This includes adjusting their accounting policies and practices to reflect the changes in classification and measurement of financial instruments, as well as making any necessary disclosures in their financial statements. The amendments require entities to align their financial reporting with the new standards, ensuring that financial instruments are appropriately classified and measured in accordance with AASB 9.
Failure to comply with the provisions of AASB 2009-11 may result in financial statements that do not accurately reflect the entity's financial position and performance. This could lead to misleading financial reporting, which may have serious consequences, including regulatory scrutiny, loss of investor confidence, and potential legal action. While specific penalties for non-compliance are not detailed in the Explanatory Statement, entities could face financial penalties, reputational damage, and other legal repercussions under relevant Australian accounting and corporate laws. It is therefore crucial for entities to ensure full compliance with these amendments to maintain accurate and reliable financial reporting.