Explanatory Statement
Accounting Standard AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 Employee Benefits (September 2011)
September 2011
EXPLANATORY STATEMENT
Standards Amended by AASB 2011-10
The Standard makes amendments to the following Australian Accounting Standards and Interpretations:
- AASB 1 First-time Adoption of Australian Accounting Standards
- AASB 8 Operating Segments
- AASB 101 Presentation of Financial Statements
- AASB 124 Related Party Disclosures
- AASB 134 Interim Financial Reporting
- AASB 1049 Whole of Government and General Government Sector Financial Reporting
- AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13
- Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
These amendments arise from the issuance of AASB 119 Employee Benefits in September 2011.
Main Features of AASB 2011-10
Main Requirements
These amendments are a consequence of revised AASB 119 Employee Benefits (September 2011). The main changes in AASB 119 (September 2011) relate to the accounting for defined benefit plans and are to:
- eliminate the option to defer the recognition of gains and losses (the ‘corridor method’);
- require remeasurements to be presented in other comprehensive income; and
- enhance the disclosure requirements relating to defined benefit plans.
Application Date
AASB 2011-10 applies to annual reporting periods beginning on or after 1 January 2013. Early adoption is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2013 provided AASB 119 (September 2011) is applied for the same period. If an entity applies AASB 2011-10 to such an annual reporting period, it shall disclose that fact.
Consultation Prior to Issuing AASB 2011-10
The AASB issued Exposure Draft ED 195 Defined Benefit Plans (proposed amendments to AASB 119) in May 2010. ED 195 reproduced the proposals included in the IASB’s Exposure Draft ED/2010/3 Defined Benefit Plans –Proposed amendments to IAS 19 (April 2010) without amendment.
The AASB received nine submissions from Australian constituents on ED 195. Submissions received were generally supportive and were used as input into the AASB’s submission to the IASB. The IASB considered the comments it received in finalising IAS 19, relevant parts of which are incorporated into AASB 2011-10.
A Regulation Impact Statement has not been prepared in connection with the issuance of AASB 2011-10 as the amendments made do not have a substantial direct or indirect impact on business or competition.
Overview
Accounting Standard AASB 2011-10, enacted in 2011, amends several Australian Accounting Standards and Interpretations to address the issues arising from the implementation of AASB 119 Employee Benefits. This legislation, issued by the Australian Accounting Standards Board (AASB), aims to streamline and enhance the accounting practices for defined benefit plans, particularly by eliminating the option to defer recognition of gains and losses, mandating remeasurements to be presented in other comprehensive income, and augmenting the disclosure requirements. The amendments are designed to take effect for annual reporting periods commencing on or after 1 January 2013, although early adoption is permitted under certain conditions. This regulatory change is a response to the need for clearer and more consistent financial reporting in the context of employee benefits, ensuring that financial statements provide a more accurate reflection of an entity's financial position.
Scope and Application
The AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 Employee Benefits applies to entities that prepare financial statements in accordance with Australian Accounting Standards. This includes public sector entities, for-profit and not-for-profit organisations, and other entities that are required to comply with these standards. The amendments are designed to align Australian standards with international standards and are applicable to annual reporting periods beginning on or after 1 January 2013, with early adoption permitted for periods beginning on or after 1 January 2005 but before 1 January 2013. These amendments are made to ensure that entities adequately reflect the accounting for defined benefit plans in their financial statements, including the elimination of the corridor method for recognising gains and losses, the requirement to present remeasurements in other comprehensive income, and enhanced disclosure requirements. There are no specific exclusions or thresholds outlined in the explanatory statement, though the amendments are intended to apply broadly across various industries and types of entities subject to Australian Accounting Standards.
Key Provisions
The main operative sections of AASB 2011-10 are Sections 3 and 4, which detail the amendments to the various Australian Accounting Standards and Interpretations (Section 3) and the application date of these amendments (Section 4). The Act amends AASB 1, AASB 8, AASB 101, AASB 124, AASB 134, AASB 1049 and AASB 2011-8 in line with the revised AASB 119 Employee Benefits. These amendments are designed to eliminate the option to defer the recognition of gains and losses, require remeasurements to be presented in other comprehensive income, and enhance the disclosure requirements relating to defined benefit plans. The application date for these amendments is for annual reporting periods beginning on or after 1 January 2013, with early adoption permitted for periods beginning on or after 1 January 2005 but before 1 January 2013 (Section 4).
The Act imposes several obligations and requirements on the parties or entities it governs. Firstly, entities must apply the amendments to AASB 1, AASB 8, AASB 101, AASB 124, AASB 134, AASB 1049 and AASB 2011-8 in accordance with AASB 2011-10. This includes eliminating the option to defer the recognition of gains and losses, presenting remeasurements in other comprehensive income, and enhancing disclosure requirements for defined benefit plans (Section 3). Entities that choose to adopt the amendments early must disclose this fact (Section 4).
There are no specific offences, penalties, or consequences for breach detailed in the Act. However, the failure to comply with the requirements of AASB 2011-10 could potentially lead to misstatements in financial reporting, which could have various consequences under other legislation such as the Corporations Act 2001. For example, directors could be held personally liable for misleading or deceptive conduct, and the entity could face fines or other penalties. However, these potential consequences are not specific to AASB 2011-10 and would depend on the circumstances of the non-compliance.