Explanatory Statement
Accounting Standard AASB 2014-3
Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations
August 2014
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2014-3
AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations makes amendments to AASB 1 First-time Adoption of Australian Accounting Standards and AASB 11 Joint Arrangements.
These amendments arise from the issuance of International Financial Reporting Standard Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) by the International Accounting Standards Board (IASB) in May 2014, and the IASB’s editorial corrections process.
Main Features of AASB 2014-3
Main Requirements
AASB 2014-3 amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require:
(a) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and
(b) the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations.
This Standard also makes an editorial correction to AASB 11.
Application Date
AASB 2014-3 applies to annual reporting periods beginning on or after 1 January 2016. Earlier application is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2016, provided that AASB 11 is also applied to the same period.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 234 Accounting for Acquisitions of Interests in Joint Operations in December 2012 for comment by 22 March 2013.
Three submissions were received by the AASB in respect of the proposals in ED 234 and there was general support for adopting the proposals in Australian Accounting Standards. The AASB considered the comments it received in making its submission to the IASB and in finalising AASB 2014-3.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2014-3 as the amendments made are minor in nature.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2014-3
Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations
Overview of the Accounting Standard
The amendments in AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require:
(a) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and
(b) the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations.
This Standard also makes an editorial correction to AASB 11.
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
The Accounting Standard AASB 2014-3, Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations, was enacted in 2014. This legislation addresses the gap in accounting guidance for acquisitions of interests in joint operations that constitute a business, aligning Australian Accounting Standards with international practices. The Australian Accounting Standards Board (AASB) introduced this amendment in response to the International Accounting Standards Board's (IASB) issuance of the Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) in May 2014. The primary objective of AASB 2014-3 is to provide clearer accounting and disclosure requirements for such acquisitions, ensuring consistency with the broader framework of business combinations. The standard applies to annual reporting periods beginning on or after 1 January 2016, with earlier application permitted under certain conditions.
Scope and Application
AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations applies to entities involved in accounting for acquisitions of interests in joint operations, particularly those where the activity constitutes a business. It amends AASB 11 Joint Arrangements and AASB 1 First-time Adoption of Australian Accounting Standards to align with the International Financial Reporting Standard Accounting for Acquisitions of Interests in Joint Operations issued by the International Accounting Standards Board. The amendments require the acquirer of an interest in a joint operation, if the activity constitutes a business, to apply principles on business combinations accounting from AASB 3 and other relevant Australian Accounting Standards, with exceptions where these principles conflict with the guidance in AASB 11. The Standard also mandates disclosure of information required for business combinations as per AASB 3 and other applicable standards. It applies to annual reporting periods beginning on or after 1 January 2016, with earlier application permitted for periods starting from 1 January 2005, provided AASB 11 is also applied to the same period. There are no exclusions, exemptions, or thresholds specified in the text, and the Act does not extend or restrict application through subordinate instruments.
Key Provisions
The primary operative sections of AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations, are detailed in the main features of the Standard. Section (a) mandates that an acquirer of an interest in a joint operation that constitutes a business, as defined in AASB 3 Business Combinations, must apply all relevant business combinations accounting principles in AASB 3 and other Australian Accounting Standards, except where they conflict with the guidance in AASB 11. This requirement ensures that the accounting treatment for such acquisitions aligns with broader business combination principles, providing consistency and clarity in financial reporting. Section (b) requires the acquirer to disclose the information necessary as per AASB 3 and other applicable Australian Accounting Standards for business combinations. This includes detailed disclosures about the nature of the acquisition, the assets and liabilities involved, and any contingent considerations.
The obligations imposed by AASB 2014-3 on the parties involved, primarily acquirers of interests in joint operations, are to meticulously apply the relevant accounting principles and ensure comprehensive disclosures. Acquirers must conduct a thorough analysis to determine if the joint operation activity constitutes a business under AASB 3, and subsequently, apply the appropriate accounting treatment. This includes recognising and measuring the assets acquired, liabilities assumed, and any non-controlling interest in the joint operation. Additionally, entities must ensure that the disclosures made are clear, complete, and consistent with the requirements set out in AASB 3 and other applicable standards.
Breaches of the requirements set out in AASB 2014-3 can lead to significant consequences. While the Standard itself does not explicitly detail offences, penalties, or specific civil or criminal consequences for non-compliance, it is essential to note that failing to adhere to Australian Accounting Standards can result in financial misstatements. These misstatements could potentially lead to regulatory scrutiny, legal challenges, or penalties under other relevant legislation, such as the Corporations Act 2001. Inaccurate or incomplete financial reporting can also undermine the integrity of financial statements, leading to loss of investor confidence and potential reputational damage. The severity of the consequences often depends on the extent of the non-compliance and the resultant impact on the financial statements.