Explanatory Statement
Accounting Standard AASB 2012-4
Amendments to Australian Accounting Standards – Government Loans
June 2012
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2012-4
AASB 2012-4 makes amendments to Australian Accounting Standard AASB 1 First-time Adoption of Australian Accounting Standards.
These amendments arise primarily from the issuance of Government Loans (Amendments to IFRS 1) by the International Accounting Standards Board in March 2012.
Main Features of AASB 2012-4
AASB 2012-4 adds an exception to the retrospective application of Australian Accounting Standards to require that first-time adopters apply the requirements in AASB 139 Financial Instruments: Recognition and Measurement (or AASB 9 Financial Instruments) and AASB 120 Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans existing at the date of transition to Australian Accounting Standards. This means that first-time adopters would not recognise the corresponding benefit of the government loan received at a below-market rate of interest as a government grant. However, entities may choose to apply the requirements of AASB 139 (or AASB 9) and AASB 120 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for that loan. These amendments give first-time adopters the same relief as existing preparers of Australian-Accounting-Standards financial statements.
Application Date
This Standard applies to annual reporting periods beginning on or after 1 January 2013. Earlier application is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2013.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 221 Government Loans (proposed amendments to AASB 1). ED 221 reproduced the proposals included in the IASB’s Exposure Draft ED/2011/5 Government Loans (proposed amendments to IFRS 1) (October 2011) without amendment. The AASB considered the comments it received in making its submission to the IASB on ED/2011/5 and in finalising AASB 2012-4.
A Regulation Impact Statement (RIS) has not been prepared specifically in connection with the issuance of AASB 2012-4 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 2012-4, enacted in June 2012, was introduced by the Australian Accounting Standards Board (AASB) to amend Australian Accounting Standard AASB 1 First-time Adoption of Australian Accounting Standards. This amendment responds to the issuance of Government Loans (Amendments to IFRS 1) by the International Accounting Standards Board in March 2012, aiming to address a gap in the retrospective application of certain accounting standards to government loans. Specifically, AASB 2012-4 provides an exception for first-time adopters of Australian Accounting Standards, allowing them to apply the requirements of AASB 139 Financial Instruments: Recognition and Measurement or AASB 9 Financial Instruments and AASB 120 Accounting for Government Grants and Disclosure of Government Assistance to existing government loans prospectively. This means that first-time adopters would not recognise the benefit of below-market interest rates on government loans as a government grant. However, entities have the option to apply these standards retrospectively if they have obtained the necessary information at the time of initially accounting for the loan. The objective of this amendment is to facilitate the Australian economy and ensure consistency with international standards without diminishing any human rights or freedoms.
Scope and Application
The AASB 2012-4 Accounting Standard is applicable to entities that are first-time adopters of Australian Accounting Standards, particularly those that have government loans existing at the date of transition to these standards. The amendments introduced by AASB 2012-4 provide an exception to the retrospective application of accounting standards for such loans, requiring that entities apply the requirements in AASB 139 and AASB 120 prospectively. However, entities have the option to apply these requirements retrospectively if the necessary information was obtained at the time of initially accounting for the loan. This standard applies to annual reporting periods beginning on or after 1 January 2013, with earlier application permitted for periods starting between 1 January 2005 and 1 January 2013. The scope of AASB 2012-4 is specifically tailored to address the treatment of government loans within the context of first-time adoption of Australian Accounting Standards, and it does not extend to other types of financial instruments or transactions. The standard is compatible with human rights as recognised in international instruments, and it is issued to facilitate the Australian economy without diminishing any applicable human rights or freedoms.
Key Provisions
AASB 2012-4 (sections 2 and 3) amends Australian Accounting Standard AASB 1, focusing on first-time adoption of Australian Accounting Standards, particularly in relation to government loans. The amendments are primarily derived from the International Accounting Standards Board's issuance of Government Loans (Amendments to IFRS 1) in March 2012. The key change introduced by AASB 2012-4 is that first-time adopters of Australian Accounting Standards must apply the requirements of AASB 139 Financial Instruments: Recognition and Measurement (or AASB 9 Financial Instruments) and AASB 120 Accounting for Government Grants and Disclosure of Government Assistance to government loans on a prospective basis. This means that such entities will not recognise the benefit of a government loan received at a below-market rate of interest as a government grant. However, if the necessary information was available at the time of initial accounting for the loan, entities may opt to apply these requirements retrospectively.
The obligations imposed by AASB 2012-4 are primarily on first-time adopters of Australian Accounting Standards. These entities must ensure that their financial reporting concerning government loans aligns with the amended standards, specifically by applying AASB 139 (or AASB 9) and AASB 120 prospectively. This requirement aims to provide clarity and consistency in the accounting treatment of government loans for first-time adopters, ensuring they do not recognise benefits of below-market rate loans as government grants unless they have the necessary data to apply the standards retrospectively.
There are no specific offences, penalties, or civil/criminal consequences outlined in AASB 2012-4 for failing to comply with the provisions of this amendment. However, non-compliance could result in financial statements that do not accurately reflect the entity's financial position or performance, potentially leading to misleading information for stakeholders. It is important for first-time adopters to adhere to the requirements to maintain the integrity and reliability of financial reporting under Australian Accounting Standards.