Explanatory Statement

Accounting Standard AASB 2009-2 Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments

April 2009

EXPLANATORY STATEMENT

Standards Amended by AASB 2009-2

This Standard makes amendments to the following Australian Accounting Standards:

1. AASB 4 Insurance Contracts;
2. AASB 7 Financial Instruments: Disclosures;
3. AASB 1023 General Insurance Contracts; and
4. AASB 1038 Life Insurance Contracts.

These amendments arise from the issuance of Improving Disclosures about Financial Instruments (Amendments to IFRS 7) by the International Accounting Standards Board in March 2009.

The amendments require enhanced disclosures about fair value measurements and liquidity risk.

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.  Early adoption is permitted for annual reporting periods beginning on or after 1 January 2005, but before 1 January 2009 and for annual reporting periods beginning on or after 1 January 2009 that end before 30 April 2009.

Main Requirements

The amendments to AASB 7 require enhanced disclosures about fair value measurements and liquidity risk.  In particular, the amendments:

(a) clarify that the existing fair value disclosure requirements in AASB 7 must be made separately for each class of financial instrument;

(b) require disclosure of any change in a method for determining fair value and the reasons for the change;

(c) introduce a three-level hierarchy for making fair value measurements, as follows:

(i) level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

(ii) level 2 – inputs, other than quoted prices included within level 1, that are observable for the asset or liability; and

(iii) level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs);

(d) require disclosure about the relative reliability of each fair value measurement in the statement of financial position;

(e) clarify that the current maturity analysis for non-derivative financial instruments should include issued financial guarantee contracts; and

(f) require disclosure of a maturity analysis for derivative financial liabilities.

The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7.

Consultation Prior to Issuing AASB 2009-2

The AASB issued Exposure Draft ED 169 Improving Disclosures about Financial Instruments: Proposed Amendments to AASB 7 in October 2008.  ED 169 reproduced the proposals included in the IASB’s Exposure Draft Improving Disclosures about Financial Instruments (Proposed amendments to IFRS 7) without amendment.

The AASB invited comments from Australian constituents on the proposals regarding enhanced disclosures about fair value measurements and liquidity risk, as well as the consequential amendments to other Australian Accounting Standards resulting from the amendments to AASB 7.  The AASB received five submissions from Australian constituents.  Submissions received were generally supportive.  However, in its submission to the IASB, the AASB expressed concerns that other potential improvements could have been made to IFRS 7 Financial Instruments: Disclosures and as such, that the IASB should consider expanding the scope of the proposed amendments.  In addition, the AASB suggested clarifying the wording within level 2 of the three-level hierarchy to make the fair value measurement guidance more consistent with US SFAS 157 Fair Value Measurements.  The IASB addressed the AASB’s concern by changing the wording of the three-level hierarchy in issuing its final Standard; however, the IASB did not address the scope of the amendments at this time.

A Regulation Impact Statement has not been prepared in connection with the issue of AASB 2009-2 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.