Explanatory Statement
Accounting Standard AASB 2014-7
Amendments to Australian Accounting Standards arising from AASB 9
December 2014
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2014-7
The International Accounting Standards Board (IASB) has issued IFRS 9 Financial Instruments, which includes an Appendix C that sets out amendments to other IFRSs that are a consequence of the issuance of IFRS 9. Except for amendments to existing versions of AASB 9 Financial Instruments (which are incorporated into AASB 2014-8 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) – Application of AASB 9 (December 2009) and AASB 9 (December 2010)), Appendix C of IFRS 9 has been incorporated into AASB 2014-7 Amendments to Australian Accounting Standards arising from AASB 9. The AASB needs to issue AASB 2014-7 (together with AASB 9 Financial Instruments (December 2014) and AASB 2014-8) to enable Australian reporting entities to continue to be compliant with International Financial Reporting Standards in relation to accounting for Financial Instruments.
Main Features of AASB 2014-7
Main Requirements
AASB 2014-7 makes amendments to Australian Accounting Standards and Interpretations, which arise from the issuance of AASB 9 in December 2014.
AASB 9 Financial Instruments requires that entities recognise impairment losses on financial assets on an expected basis rather than an incurred basis and introduces a fair value through other comprehensive income (FVOCI) category for non-equity financial assets.
The consequential amendments arising from AASB 9 also amend the existing disclosures set out in AASB 7 Financial Instruments: Disclosures in relation to impairment and classification and measurement of financial assets.
Application Date
AASB 2014-7 applies to annual reporting periods beginning on or after 1 January 2018. If AASB 9 (December 2014) is early applied, AASB 2014-7 shall also be applied for that earlier period.
Consultation Prior to Issuing this Standard
In the process of developing AASB 9, the AASB published the following consultation documents for public comment (which were based on similar consultation documents issued internationally by the IASB):
(a) Exposure Draft ED 189 Financial Instruments: Amortised Cost and Impairment (proposed amendments to AASB 7 and AASB 139) in November 2009, which incorporated the IASB Exposure Draft ED/2009/12 (of the same title);
(b) Exposure Draft ED 210 A Supplement to ED 189 in February 2011, which incorporated the IASB Exposure Draft A Supplement to ED/2009/12;
(c) Exposure Draft ED 230 Classification and Measurement: Limited Amendments to AASB 9 in December 2012, which incorporated the IASB Exposure Draft ED/2012/4 (of the same title); and
(d) Exposure Draft ED 237 Financial Instruments: Expected Credit Losses in March 2013, which incorporated the IASB Exposure Draft ED/2013/3 (of the same title).
A draft RIS was not prepared to accompany any of these Exposure Drafts. However, the Exposure Drafts were each accompanied by a Basis for Conclusions that included an outline of the potential benefits and costs of the respective proposals in qualitative terms. Accordingly, constituents were made aware of the IASB’s thinking on matters of costs and benefits of the proposals and were provided with ample opportunity to comment on those costs and benefits. Each Exposure Draft issued during the development of the ‘completed’ version of IFRS 9 also asked constituents whether they wish to raise any Australian-specific issues.
Impairment
There were three formal rounds of consultation as the IASB developed its proposals. The AASB, Australian constituents, and many others from around the world, contributed to their development.
In response to ED 189, which incorporated IASB ED/2009/12, the AASB received seven submissions. The AASB also held roundtable discussions in March 2010 in Melbourne and Sydney that approximately 30 constituents attended.
The ED 189 proposals were generally not supported and various issues were raised for consideration. The AASB considered comments it received in making its submission to the IASB on ED/2009/12 and submitted to the IASB that the IASB’s ED/2009/12 proposals are not supportable on both conceptual and practical grounds. Similar comments were made by a wide range of constituents (including other national standards setters) from around the world.
In February 2011 the AASB issued ED 210, which incorporated the IASB Supplementary Exposure Draft, which was an attempt by the IASB to address the weaknesses that had been commented on in respect of ED/2009/12.
Two submissions were received by the AASB and face-to-face meetings conducted with key constituents in respect of the proposals in ED 210 raised various issues for consideration. The AASB considered comments it received in making its submission to the IASB on the Supplement to ED/2009/12.
The AASB expressed concerns about the proposed approach because it employed both the time-proportionate loss method and the foreseeable future loss method and lacked a conceptual basis.
Based on the feedback on ED/2009/12 and on the Supplement to ED/2009/12, the IASB developed completely different proposals for an expected loss model.
In response to ED 237, which incorporated IASB ED/2013/3, the AASB received nine submissions. The AASB also held roundtable discussions in Melbourne and Sydney that approximately 20 constituents attended.
There was general support for the proposals in ED 237, whilst various issues were raised for consideration. The AASB considered comments it received in making its submission to the IASB that expressed the view that while the AASB was not entirely in agreement with the ED/2013/3 proposals, with certain refinements, it could provide a workable solution to the issues being faced.
Classification and Measurement
In response to ED 230, which incorporated IASB ED/2012/4 the AASB received eight submissions. Those submissions generally supported adopting the proposals, whilst raising various issues for consideration. The AASB considered comments it received in making its submission to the IASB on ED/2012/4.
Although concerned about the reversal of the IASB’s previous position of not having a FVOCI category for financial instruments in IFRS 9, the AASB broadly supported the proposals in ED/2012/4.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2014-7
Amendments to Australian Accounting Standards arising from AASB 9
Overview of the Accounting Standard
AASB 2014-7 makes amendments to Australian Accounting Standards and Interpretations, which arise from the issuance of AASB 9 in December 2014.
AASB 9 Financial Instruments requires that entities recognise impairment losses on financial assets on an expected basis rather than an incurred basis and introduces a fair value through other comprehensive income (FVOCI) category for non-equity financial assets.
The consequential amendments arising from AASB 9 also amend the existing disclosures set out in AASB 7 Financial Instruments: Disclosures in relation to impairment and classification and measurement of financial assets.
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.