Overview

The Accounting Standard AASB 2013-7, titled "Amendments to AASB 1038 arising from AASB 10 in relation to Consolidation and Interests of Policyholders," was enacted in October 2013 by the Australian Accounting Standards Board (AASB). This standard addresses the need to streamline consolidation requirements for life insurers by removing the specific consolidation requirements from AASB 1038, thereby leaving AASB 10 as the sole source of consolidation requirements applicable to life insurer entities. The objective of AASB 2013-7 is to facilitate the Australian economy by simplifying and clarifying the accounting standards for life insurance contracts. The AASB issued an exposure draft in May 2013 for public consultation and considered the feedback received in finalising the standard. This standard is compatible with human rights, as it neither diminishes nor limits any applicable rights or freedoms, aligning with the requirements of the Human Rights (Parliamentary Scrutiny) Act 2011.

Scope and Application

AASB 2013-7, Amendments to AASB 1038 arising from AASB 10 in relation to Consolidation and Interests of Policyholders, applies to life insurer entities in Australia. It removes the consolidation requirements for policyholders’ interests from AASB 1038, thereby making AASB 10 the sole source for consolidation requirements for life insurers. The standard applies to annual reporting periods beginning on or after 1 January 2014, with early application permitted for periods beginning on or after 1 January 2005 but before 1 January 2014. The amendments were made following consultation and the issuance of an exposure draft for public comment, with consideration given to the submissions received. The issuance of AASB 2013-7 does not have substantial impacts on business or competition, is of a minor or machinery nature, and serves to clarify existing requirements. The standard does not raise any human rights issues and is compatible with human rights and freedoms as recognised or declared in international instruments.

Key Provisions

The Accounting Standard AASB 2013-7, Amendments to AASB 1038 arising from AASB 10 in relation to Consolidation and Interests of Policyholders, focuses on modifying existing accounting practices for life insurance entities by removing specific consolidation requirements previously set out in AASB 1038. These changes are primarily reflected in sections 1.1.1, 4.1, 4.1.1, and 4.2 to 4.2.2, effectively transferring the consolidation requirements to AASB 10. This shift ensures that AASB 10 becomes the exclusive source for consolidation requirements applicable to life insurers. The primary obligation for entities affected by AASB 2013-7 is to ensure compliance with the new standards for consolidation, which now exclusively fall under AASB 10. Entities must adapt their accounting practices to align with the requirements of AASB 10, including the consolidation of financial statements, without adhering to the previously mandated specific requirements of AASB 1038. This change is intended to streamline the consolidation process and provide a more uniform approach across life insurance entities. In terms of compliance, entities are required to apply these amendments to annual reporting periods beginning on or after 1 January 2014. However, early adoption is permitted for periods beginning on or after 1 January 2005, but before 1 January 2014. This flexibility allows entities to prepare for the changes in advance and avoid disruptions in their financial reporting processes. Regarding consequences for non-compliance, AASB 2013-7 does not explicitly detail specific civil or criminal penalties for failing to adhere to the new standards. However, non-compliance with Australian Accounting Standards can lead to broader financial reporting issues, potentially resulting in financial misstatements, regulatory scrutiny, and reputational damage. Ensuring adherence to these standards is crucial for maintaining accurate and transparent financial reporting practices.