Explanatory Statement
Accounting Standard AASB 2014-9
Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements
December 2014
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2014-9
AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements makes amendments to the following Standards:
- AASB 1 First-time Adoption of Australian Accounting Standards,
- AASB 127 Separate Financial Statements, and
- AASB 128 Investments in Associates and Joint Ventures.
These amendments arise from the issuance of International Financial Reporting Standard Equity Method in Separate Financial Statements (Amendments to IAS 27) by the International Accounting Standards Board (IASB) in August 2014, and to make editorial corrections.
Main Features of AASB 2014-9
Main Requirements
This Standard amends AASB 127 and consequentially amends AASB 1 and AASB 128, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements.
Application Date
This Standard applies to annual reporting periods beginning on or after 1 January 2016.
This Standard may be applied by:
(a) for-profit entities to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2016; and
(b) not-for-profit entities to annual reporting periods beginning on or after 1 January 2013 but before 1 January 2016.
If an entity applies this Standard to such an annual reporting period in accordance with paragraph (a) or (b), it shall disclose that fact.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 246 Equity Method in Separate Financial Statements in December 2013 for comment by 24 January 2014.
Five submissions were received by the AASB in respect of the proposals in ED 246 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 2014‑9.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2014-9 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 2014-9
Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements
Overview of the Accounting Standard
The amendments in AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements.
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 2014-9, titled "Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements," was enacted in 2014. This standard was introduced to address a gap in the application of the equity method of accounting for investments in subsidiaries, joint ventures, and associates within the context of separate financial statements. The standard was issued by the Australian Accounting Standards Board (AASB) and aligns with the objective of facilitating the Australian economy by providing clarity and consistency in accounting practices. The primary policy objective of AASB 2014-9 is to amend existing standards to allow entities to use the equity method of accounting for specified investments, thereby improving the quality and comparability of financial information presented in separate financial statements.
Scope and Application
The AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements applies to entities, including for-profit and not-for-profit organisations, that prepare financial statements in accordance with Australian Accounting Standards. The Standard modifies AASB 127 Separate Financial Statements and consequently impacts AASB 1 and AASB 128, providing the option to apply the equity method of accounting for investments in subsidiaries, joint ventures, and associates within separate financial statements. This change aims to align Australian accounting practices with international standards, specifically the amendments to IAS 27 by the IASB. The amendments apply to annual reporting periods beginning on or after 1 January 2016, with early application permitted for specific periods for for-profit and not-for-profit entities, as detailed in the Standard. Entities that opt for early application must disclose this fact. The Standard extends across the Commonwealth of Australia, affecting all entities subject to Australian Accounting Standards. There are no stated exclusions or exemptions within the text, although the application may be further defined through subordinate instruments or guidance notes issued by the AASB.
Key Provisions
The key operative sections of the legislation, AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements, pertain primarily to AASB 127 Separate Financial Statements, with consequential amendments to AASB 1 and AASB 128. Section 1 of the legislation amends these standards to allow entities to adopt the equity method of accounting for investments in subsidiaries, joint ventures, and associates when preparing their separate financial statements. This amendment is intended to align Australian accounting standards with international practices, specifically the International Financial Reporting Standard Equity Method in Separate Financial Statements issued by the International Accounting Standards Board in August 2014.
The legislation imposes certain obligations on entities that choose to apply the equity method for investments in subsidiaries, joint ventures, and associates. Entities must ensure that they comply with the requirements of AASB 127, including the need to disclose any use of the equity method in their financial statements. This disclosure requirement is crucial for maintaining transparency and ensuring that stakeholders are adequately informed about the accounting methods used. Moreover, entities must ensure that their financial statements reflect the investments in accordance with the equity method, which includes recognising the initial cost of the investment, adjusting the carrying amount to reflect the entity's share of the investee's profit or loss, and making appropriate adjustments for dividends received and impairment losses.
In terms of potential consequences for non-compliance, the legislation does not explicitly outline specific offences, penalties, or civil/criminal consequences for breach. However, entities that fail to comply with the accounting standards may face scrutiny from regulatory bodies, which could result in investigations and potential sanctions. Additionally, inaccurate or misleading financial statements could lead to reputational damage, loss of investor confidence, and other financial repercussions. It is important for entities to adhere to the requirements of AASB 127 and other relevant standards to avoid any negative outcomes associated with non-compliance.