Explanatory Statement
Accounting Standard AASB 2012-3
Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities
June 2012
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2012-3
AASB 2012-3 makes amendments to Australian Accounting Standard AASB 132 Financial Instruments: Presentation. These amendments arise from the issuance of Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) by the International Accounting Standards Board in December 2011.
Main Features of AASB 2012-3
AASB 2012-3 adds application guidance to AASB 132 to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.
Application Date
This Standard applies to annual reporting periods beginning on or after 1 January 2014. Earlier application is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2014, provided that AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities is also applied.
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 submission to the IASB on ED/2011/1 and in finalising AASB 2012-3.
A Regulation Impact Statement (RIS) has not been prepared specifically in connection with the issuance of AASB 2012-3 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
The Accounting Standard AASB 2012-3, enacted in June 2012, was introduced to address inconsistencies in the application of the offsetting criteria under the existing Australian Accounting Standard AASB 132 Financial Instruments: Presentation. This standard was developed in response to the International Accounting Standards Board's issuance of Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) in December 2011. The primary objective of AASB 2012-3 is to provide additional application guidance to AASB 132, particularly clarifying the meaning of having a legally enforceable right of set-off and recognising that some gross settlement systems can be considered equivalent to net settlement. The Australian Accounting Standards Board (AASB) issued Exposure Draft ED 209 Offsetting Financial Assets and Financial Liabilities, which was generally well-received by Australian constituents, and took these comments into account when finalising the standard. AASB 2012-3 applies to annual reporting periods beginning on or after 1 January 2014, with earlier application permitted under specific conditions.
Scope and Application
AASB 2012-3, which amends Australian Accounting Standard AASB 132 Financial Instruments: Presentation, applies to entities that are required to comply with Australian Accounting Standards. The amendments are designed to address inconsistencies in the application of certain offsetting criteria within AASB 132, and they take into account the International Accounting Standards Board's Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) issued in December 2011. This standard is applicable to annual reporting periods beginning on or after 1 January 2014, although earlier application is permitted for periods starting from 1 January 2005, provided that AASB 2012-2, which relates to disclosures about offsetting financial assets and financial liabilities, is also applied. The amendments do not extend or restrict application through subordinate instruments, and they are intended to clarify existing requirements without diminishing or limiting any applicable human rights or freedoms. The AASB considered feedback from Australian constituents during the consultation process and determined that a Regulation Impact Statement was not necessary as the amendments do not significantly impact business or competition.
Key Provisions
The main operative sections of AASB 2012-3 are those that amend AASB 132 Financial Instruments: Presentation (section 1). These amendments, introduced to align Australian Accounting Standards with the International Accounting Standards Board's (IASB) amendments, specifically target the offsetting criteria for financial assets and financial liabilities. For example, section 4 of AASB 2012-3 clarifies the meaning of “currently has a legally enforceable right of set-off” and recognises that certain gross settlement systems may be considered equivalent to net settlement systems (section 6). The amendments aim to resolve inconsistencies in the application of AASB 132, providing clearer guidance to entities when determining whether financial assets and liabilities can be offset in the statement of financial position.
The obligations and requirements imposed by AASB 2012-3 on the parties it governs include ensuring compliance with the new criteria for offsetting financial assets and liabilities. Entities must now interpret and apply the clarified definitions and criteria for legally enforceable rights of set-off and the treatment of gross and net settlement systems (sections 4 and 6). Additionally, if entities choose to apply the amendments earlier than the required application date, they must also apply AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities (section 10). This ensures that any early application of the standard is accompanied by the necessary disclosure requirements, maintaining the integrity and comparability of financial reporting.
The AASB 2012-3 does not explicitly state offences, penalties, or specific civil or criminal consequences for breach. However, non-compliance with Australian Accounting Standards can result in broader regulatory scrutiny, financial reporting issues, and potential legal consequences under other related legislation, such as the Corporations Act 2001. The penalties for non-compliance with financial reporting requirements can include fines and other legal actions, depending on the severity and intent of the breach. It is important for entities to ensure adherence to these standards to avoid such repercussions.