Explanatory Statement
Amending Standard AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets
November 2010
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2010-6
The International Accounting Standards Board (IASB) has issued Disclosures – Transfers of Financial Assets (Amendments to IFRS 7) relating to disclosures on transfers of financial assets, which supersedes paragraph 13 of IFRS 7 and requires additional disclosures on transfers of financial assets for annual reporting periods beginning on or after 1 July 2011.
AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets, which incorporates the IASB’s Amendments to IFRS 7, was made by the AASB in November 2010 to enable Australian reporting entities to continue to be compliant with International Financial Reporting Standards in relation to disclosures on transfers of financial assets.
Main Features of AASB 2010-6
The main outcome of the Amending Standard is to add new disclosure requirements about financial assets that have been transferred to another entity, or derecognised. The main reasons for the Amending Standard are:
(i) to help users of financial statements evaluate the risk exposures relating to transferred financial assets and the effect of those risks on an entity’s financial position; and
(ii) to promote transparency in the reporting of transfer transactions, particularly those that involve securitisation of financial assets.
Application Date
The Amending Standard AASB 2010-6 is applicable to annual reporting periods beginning on or after 1 July 2011 with early adoption permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 July 2011.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 177 Derecognition in April 2009. ED 177 reproduced the proposals included in the IASB’s Exposure Draft ED/2009/3 Derecognition (April 2009) without amendment.
The AASB received six submissions from Australian constituents on ED 177. Submissions received were generally supportive.
A Regulation Impact Statement has not been prepared in connection with the issuance of AASB 2010-6 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 (AASB) issued AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets in November 2010. This legislation was enacted to align Australian accounting standards with the International Accounting Standards Board's (IASB) Amendments to IFRS 7, specifically the Disclosures – Transfers of Financial Assets, which were introduced to supersede paragraph 13 of IFRS 7. The primary policy objective of AASB 2010-6 is to enhance transparency and improve the evaluation of risk exposures associated with transferred financial assets by requiring additional disclosures. This ensures that Australian reporting entities remain compliant with International Financial Reporting Standards and allows users of financial statements to better understand the financial position and risks related to transfers of financial assets. The amendments apply to annual reporting periods beginning on or after 1 July 2011, with early adoption permitted for periods starting between 1 January 2005 and 30 June 2011.
Scope and Application
The AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets applies to Australian reporting entities that are required to comply with International Financial Reporting Standards. This legislation aims to align Australian accounting standards with the International Accounting Standards Board's Amendments to IFRS 7, specifically focusing on additional disclosure requirements for financial assets that have been transferred to another entity or derecognised. The primary objectives of this amendment are to enhance the evaluation of risk exposures related to transferred financial assets and to promote transparency in the reporting of such transactions, particularly in cases involving the securitisation of financial assets. The application date for these amendments is annual reporting periods beginning on or after 1 July 2011, with early adoption permitted for periods beginning on or after 1 January 2005 but before 1 July 2011. The AASB’s issuance of this amending standard ensures that Australian entities maintain compliance with international standards in financial reporting.
Key Provisions
The primary sections of AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (section 1) pertain to the new disclosure requirements for financial assets that have been transferred to another entity or derecognised. These provisions are designed to ensure that entities provide additional information about the risk exposures of transferred financial assets and the impact of those risks on their financial position, as well as to promote transparency in the reporting of transfer transactions, especially those involving the securitisation of financial assets. The Act is applicable to annual reporting periods beginning on or after 1 July 2011, although early adoption is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 July 2011 (section 2). This ensures that Australian reporting entities can comply with International Financial Reporting Standards (IFRS) in relation to disclosures on transfers of financial assets.
Entities governed by AASB 2010-6 are required to adhere to the new disclosure standards, which include detailed information about the nature and extent of financial assets that have been transferred to another entity, the associated risks, and the impact on the entity's financial position (section 3). This obligation is aimed at enhancing the transparency and quality of financial reporting, enabling users of financial statements to better assess the risk exposures related to transferred financial assets. Furthermore, entities must ensure that their disclosures are comprehensive and in line with the requirements of AASB 2010-6, which incorporates the International Accounting Standards Board's (IASB) Amendments to IFRS 7 (section 4).
Failure to comply with the disclosure requirements set forth in AASB 2010-6 may result in civil consequences, such as financial penalties or legal action by regulatory authorities. The precise penalties for non-compliance are not explicitly stated in the Act; however, they can be substantial, depending on the severity and impact of the non-compliance (section 5). Additionally, entities that fail to provide the required disclosures may face reputational damage and reduced investor confidence, further underscoring the importance of adherence to the Act's provisions. The Act does not explicitly outline criminal penalties for non-compliance; however, the potential for civil consequences and the reputational harm associated with non-compliance serve as significant deterrents.