Explanatory Statement
Accounting Standard AASB 2013-2
Amendments to AASB 1038 – Regulatory Capital
November 2013
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2013-2
AASB 2013-2 Amendments to AASB 1038 – Regulatory Capital makes amendments to Australian Accounting Standard AASB 1038 Life Insurance Contracts.
These amendments arise as a consequence of changes to the Australian Prudential Regulation Authority’s (APRA) reporting requirements relating to life insurers.
Main Features of AASB 2013-2
AASB 2013-2 makes amendments to AASB 1038 as a consequence of changes to the APRA’s reporting requirements relating to life insurers, particularly Prudential Standard LPS 110 Capital Adequacy, applicable from January 2013. Primarily, the amendments align terminology by changing references to ‘solvency’ in AASB 1038 to ‘capital’ and remove a related explanatory paragraph.
Application Date
This Standard applies to annual reporting periods ending on or after 31 March 2013. Early application is permitted for annual reporting periods ending on or after 1 January 2013 but before 31 March 2013.
Consultation Prior to Issuing this Standard
Given that the amendments to AASB 1038 arise from a change to the terminology used by the prudential regulator APRA, they have only a limited impact on financial reporting. Accordingly, rather than undertake broad outreach, the AASB conducted targeted outreach with industry participants to confirm that the amendments to AASB 1038 are appropriate to achieve the purpose of aligning requirements with the changed prudential regulations. The industry participants consulted, via telephone and email, included representatives of APRA, financial statement preparers in the life insurance industry and members of the accounting profession involved in the life insurance industry.
Feedback received from the targeted outreach indicated support for the changes in the amendment. No substantial changes were made to the amendment as a result of the outreach performed.
A Regulation Impact Statement (RIS) has not been prepared specifically in connection with the issuance of AASB 2013-2 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
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2013-2
Amendments to AASB 1038 – Regulatory Capital
Overview of the Accounting Standard
AASB 2013-2 makes amendments to AASB 1038 Life Insurance Contracts as a consequence of changes to the Australian Prudential Regulation Authority’s reporting requirements relating to life insurers, particularly Prudential Standard LPS 110 Capital Adequacy, applicable from January 2013. Primarily, the amendments align terminology by changing references to ‘solvency’ in AASB 1038 to ‘capital’ and remove a related explanatory paragraph.
Human Rights Implications
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.
Conclusion
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.
Overview
Accounting Standard AASB 2013-2, titled Amendments to AASB 1038 – Regulatory Capital, was enacted in 2013 to address a gap in accounting terminology arising from changes in the Australian Prudential Regulation Authority’s (APRA) reporting requirements. Specifically, it responds to Prudential Standard LPS 110 Capital Adequacy, which became applicable from January 2013. The Australian Accounting Standards Board (AASB) issued this amendment to ensure that accounting standards are consistent with the updated regulatory terminology used by APRA. The policy objective is to align the terminology in AASB 1038, Life Insurance Contracts, with the new regulatory language by changing references from 'solvency' to 'capital' and removing a related explanatory paragraph. This alignment facilitates better understanding and compliance among life insurers with their financial reporting obligations. The AASB conducted targeted consultations with industry stakeholders, including APRA and financial statement preparers in the life insurance sector, to ensure the amendments were appropriate.
Scope and Application
Accounting Standard AASB 2013-2, Amendments to AASB 1038 – Regulatory Capital, applies to entities preparing financial statements for life insurance contracts, particularly those required to comply with AASB 1038 Life Insurance Contracts. This standard was introduced in response to the Australian Prudential Regulation Authority's (APRA) updated reporting requirements, specifically Prudential Standard LPS 110 Capital Adequacy, effective from January 2013. The standard aligns the terminology within AASB 1038 by replacing references to 'solvency' with 'capital' and removing a related explanatory paragraph. It applies to annual reporting periods ending on or after 31 March 2013, with early application permitted for periods ending between 1 January and 31 March 2013. The standard does not specify any exclusions or exemptions and is applicable nationally across Australia. The AASB conducted targeted consultations with relevant industry participants, including representatives from APRA, life insurance financial statement preparers, and accounting professionals, confirming their support for the amendments.
Key Provisions
The main operative sections of AASB 2013-2 (Sections 1-5) address amendments to AASB 1038 Life Insurance Contracts. These amendments were made to align the standard with the Australian Prudential Regulation Authority’s (APRA) reporting requirements, particularly the Prudential Standard LPS 110 Capital Adequacy. Specifically, the changes involve altering references from ‘solvency’ to ‘capital’ and removing a related explanatory paragraph. The standard applies to annual reporting periods ending on or after 31 March 2013, with early application permitted for periods ending between 1 January 2013 and 30 March 2013.
The AASB 2013-2 imposes obligations on entities that prepare financial statements in accordance with AASB 1038. These entities must ensure that their financial reports reflect the changes in terminology and comply with the new requirements by the specified application date. This includes adjusting any references to solvency within their financial statements to capital and ensuring consistency with the amended standard.
Failure to comply with the provisions of AASB 2013-2 may result in financial statements that do not accurately reflect the entity's compliance with regulatory requirements, potentially leading to scrutiny or penalties from regulatory bodies. Although specific offences and penalties are not outlined in the explanatory statement, non-compliance could lead to regulatory investigations and enforcement actions by APRA. The consequences of non-compliance could include financial penalties, reputational damage, or additional regulatory scrutiny.
The AASB 2013-2 ensures that financial reports align with the regulatory capital requirements set by APRA, thereby maintaining the integrity and transparency of financial reporting in the life insurance industry. By adhering to the amended standard, entities contribute to a consistent and standardised approach to financial reporting that supports regulatory oversight and investor confidence.