Explanatory Statement
Accounting Standard AASB 2012-2
Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities
June 2012
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2012-2
AASB 2012-2 makes amendments to Australian Accounting Standards AASB 7 Financial Instruments: Disclosures and AASB 132 Financial Instruments: Presentation.
These amendments arise from the issuance of Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) by the International Accounting Standards Board in December 2011.
Main Features of AASB 2012-2
AASB 2012-2 amends the required disclosures in AASB 7 to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position.
This Standard also amends AASB 132 to refer to the additional disclosures added to AASB 7 by this Standard.
A subsequent Standard will establish reduced disclosure requirements for entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements in relation to the disclosures added to AASB 7 by this Standard.
Application Date
This Standard applies to annual reporting periods beginning on or after 1 January 2013 and interim periods within those annual reporting periods.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 209 Offsetting Financial Assets and Financial Liabilities (proposed amendments to AASB 7 and AASB 132 and proposal relating to Tier 2 disclosure requirements). ED 209 reproduced the proposals included in the IASB’s Exposure Draft ED/2011/1 Offsetting Financial Assets and Financial Liabilities (January 2011) without amendment.
The AASB received six submissions from Australian constituents on ED 209. Submissions received were generally supportive of the proposals. The AASB considered the comments it received in making its submissions to the IASB on ED/2011/1 and in finalising AASB 2012-2.
A Regulation Impact Statement (RIS) has not been prepared specifically in connection with the issuance of AASB 2012-2 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.
Statement of Compatibility with Human Rights
This Standard is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
This Standard is issued by the AASB in furtherance of the objective of facilitating the Australian economy. It does not diminish or limit any of the applicable human rights or freedoms, and thus does not raise any human rights issues.
Overview
Accounting Standard AASB 2012-2, issued in June 2012, was enacted to amend Australian Accounting Standards AASB 7 and AASB 132, addressing the need for enhanced disclosures concerning the offsetting of financial assets and liabilities. This standard was introduced to align Australian accounting practices with the international amendments issued by the International Accounting Standards Board, specifically the Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) from December 2011. The objective of AASB 2012-2 is to provide users of financial statements with sufficient information to evaluate the impact of netting arrangements and rights of set-off on an entity's financial position. The standard was developed following consultations with Australian stakeholders and is compatible with human rights as recognised in international instruments, without diminishing any applicable rights or freedoms. It applies to annual reporting periods commencing on or after 1 January 2013.
Scope and Application
AASB 2012-2 applies to entities that are required to prepare financial statements in accordance with Australian Accounting Standards, specifically targeting the disclosures concerning financial assets and financial liabilities. This encompasses a broad range of entities, including companies, not-for-profit organisations, and government entities that must comply with Australian Accounting Standards for their financial reporting. The amendments made by AASB 2012-2 to AASB 7 and AASB 132 are designed to enhance the transparency of financial statements by requiring additional disclosures about netting arrangements and rights of set-off, ensuring that users of financial statements can better understand the implications of such arrangements on the financial position of the reporting entity. The standard applies to annual reporting periods beginning on or after 1 January 2013, and interim periods within those annual reporting periods, thus mandating the inclusion of specified disclosures in the financial statements of entities meeting these criteria.
Key Provisions
AASB 2012-2 amends Australian Accounting Standards AASB 7 and AASB 132 (sections 1, 2). The primary change introduced by AASB 2012-2 is the requirement for additional disclosures regarding offsetting financial assets and financial liabilities (section 3). These amendments aim to provide users of financial statements with a clearer understanding of how such netting arrangements and associated rights of set-off impact the entity’s financial position (section 4). The Standard also updates AASB 132 to reflect the changes made to AASB 7, ensuring consistency across the Standards (section 5).
Entities subject to these Standards must ensure that their financial statements include the required disclosures about offsetting arrangements, including details of any rights of set-off and the effect of these arrangements on their financial position (sections 6, 7). The amendments necessitate that entities provide a comprehensive evaluation of how these arrangements alter their financial statements, which includes disclosing the gross amounts of financial assets and financial liabilities, as well as the amounts after offsetting (section 8). Entities must adhere to these requirements from the start of their annual reporting periods beginning on or after 1 January 2013 (section 9).
Failure to comply with the disclosure requirements set out in AASB 2012-2 could result in financial statements that do not meet the disclosure standards expected under Australian Accounting Standards. Although the Standard does not specify particular penalties for non-compliance, entities may face scrutiny and potential legal repercussions if their financial statements are found to be misleading or incomplete due to insufficient disclosures. This could potentially lead to regulatory action or legal proceedings if the misstatements are deemed significant (sections 10, 11).