Explanatory Statement
Accounting Standard AASB 2015-4
Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent
January 2015
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2015-4
AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent makes amendments to:
(a) AASB 127 Separate Financial Statements; and
(b) AASB 128 Investments in Associates and Joint Ventures;
to align the relief available in AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures in respect of the financial reporting requirements for Australian groups with a foreign parent.
Main Features of AASB 2015-4
Main Requirements
AASB 2015-4 amends AASB 128 to require that, notwithstanding paragraphs 17 and Aus17.1 of AASB 128, the ultimate Australian entity shall apply the equity method in accounting for interests in associates and joint ventures if either the entity or the group is a reporting entity, or both the entity and group are reporting entities.
Application Date
AASB 2015-4 is applicable to annual reporting periods beginning on or after 1 July 2015. This Standard may be applied by:
(c) for-profit entities for annual reporting periods beginning on or after 1 January 2005 but before 1 July 2015; and
(d) not-for-profit entities for annual reporting periods beginning on or after 1 January 2013 but before 1 July 2015.
When an entity applies 2015-4 to such an annual reporting period, it shall disclose that fact.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 255 Financial Reporting Requirements for Australian Groups with a Foreign Parent in September 2014 for comment by 24 November 2014.
Five submissions were received by the AASB in respect of the proposals in ED 255 and there was general support for adopting the proposals in Australian Accounting Standards. The AASB considered the comments it received in finalising AASB 2015‑4.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2015-4 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 2015-4
Amendments to Australian Accounting Standards –Financial Reporting Requirements for Australian Groups with a Foreign Parent
Overview of the Accounting Standard
AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent amends AASB 128 to require that, notwithstanding paragraphs 17 and Aus17.1 of AASB 128, the ultimate Australian entity shall apply the equity method in accounting for interests in associates and joint ventures if either the entity or the group is a reporting entity, or both the entity and group are reporting entities.
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 2015-4, titled "Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent", was enacted in 2015. The standard was introduced to address the issue of aligning the financial reporting requirements for Australian groups with a foreign parent. The Australian Accounting Standards Board (AASB), which is the standard-setting body for accounting and financial reporting in Australia, issued AASB 2015-4 to amend existing standards and provide relief to entities that meet certain criteria. The policy objective of this amendment is to facilitate the Australian economy by ensuring consistency and clarity in financial reporting standards for entities with foreign parent companies. The standard applies to annual reporting periods beginning on or after 1 July 2015, although it can be applied earlier by certain entities.
Scope and Application
Accounting Standard AASB 2015-4 applies to the ultimate Australian entity within a group that has a foreign parent and mandates the application of the equity method in accounting for interests in associates and joint ventures if either the entity or the group is a reporting entity, or if both the entity and group are reporting entities. This amendment is designed to align the financial reporting requirements for such entities with those stipulated in AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures. The Standard is applicable to annual reporting periods beginning on or after 1 July 2015, though it can also be applied earlier by both for-profit entities for periods starting after 1 January 2005 and by not-for-profit entities for periods starting after 1 January 2013, with the requirement to disclose such early adoption. The geographic reach of this legislation is nationwide, impacting all entities within Australia that meet the criteria of being part of a group with a foreign parent and being a reporting entity. There are no exclusions or exemptions specified in the explanatory statement, and no subordinate instruments extend or restrict the application of this Standard.
Key Provisions
The key provisions of AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent primarily involve amendments to AASB 128. Section 17 of AASB 128, which traditionally provides exemptions for foreign parents of Australian entities, has been revised to ensure that the ultimate Australian entity must apply the equity method in accounting for interests in associates and joint ventures if either the entity or the group is a reporting entity, or both are reporting entities (AASB 2015-4, s. 1). This change mandates the use of the equity method in circumstances where previously exemptions may have applied.
Entities governed by AASB 2015-4 have specific obligations regarding the application of the equity method. They must ensure that the equity method is used in the financial reporting process for interests in associates and joint ventures, provided that either the ultimate Australian entity or the group is classified as a reporting entity (AASB 2015-4, s. 2). This requirement aligns with the amendments in AASB 127, ensuring consistency across different types of financial statements. The standard applies to annual reporting periods beginning on or after 1 July 2015. Entities may choose to apply the standard earlier, but if they do, they must disclose this fact in their financial statements (AASB 2015-4, s. 3).
Failure to comply with the requirements of AASB 2015-4 may result in civil consequences, including the possibility of financial penalties. While specific penalties are not outlined in the standard itself, entities that do not adhere to the prescribed accounting methods may face scrutiny from regulatory bodies, potentially leading to financial and reputational damage. The standard does not explicitly state criminal penalties, but breaches of accounting standards can sometimes lead to criminal investigations if they involve significant misrepresentation or fraud.