Explanatory Statement
Accounting Standard AASB 2015-5
Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception
January 2015
EXPLANATORY STATEMENT
Reasons for Issuing AASB 2015-5
This Standard makes amendments to Australian Accounting Standards AASB 10 Consolidated Financial Statements, AASB 12 Disclosure of Interests in Other Entities and AASB 128 Investments in Associates and Joint Ventures.
These amendments arise from the issuance of International Financial Reporting Standard Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) by the International Accounting Standards Board in December 2014.
Main Features of AASB 2015-5
Main Requirements
This Standard amends AASB 10, AASB 12 and AASB 128:
(a) to confirm that the exemption from preparing consolidated financial statements set out in paragraph 4(a) of AASB 10 is available to a parent entity that is a subsidiary of an investment entity;
(b) to clarify the applicability of AASB 12 to the financial statements of an investment entity; and
(c) to introduce relief in AASB 128 to permit a non-investment entity investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries.
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.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 250 Investment Entities: Applying the Consolidation Exception in June 2014 for comment by 15 August 2014.
Five submissions were received by the AASB in respect of the proposals in ED 250 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 2015‑5.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2015-5 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 2015-5
Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception
Overview of the Accounting Standard
AASB 2015-5 Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception amends AASB 10, AASB 12 and AASB 128:
(a) to confirm that the exemption from preparing consolidated financial statements set out in paragraph 4(a) of AASB 10 is available to a parent entity that is a subsidiary of an investment entity;
(b) to clarify the applicability of AASB 12 to the financial statements of an investment entity; and
(c) to introduce relief in AASB 128 to permit a non-investment entity investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries.
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 2015-5, titled Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception, was enacted in January 2015 to address the need for amendments to Australian Accounting Standards concerning investment entities. This standard arose from the International Accounting Standards Board's issuance of International Financial Reporting Standard Investment Entities: Applying the Consolidation Exception in December 2014. The AASB sought to implement these amendments to ensure consistency with international practices and to provide clarity on the treatment of investment entities within Australian financial reporting frameworks. The main objective of this standard is to confirm the exemption from consolidated financial statement preparation for certain entities, clarify the applicability of AASB 12 to investment entities, and provide relief to non-investment entity investors in associates or joint ventures that are investment entities. The standard applies to annual reporting periods beginning on or after 1 January 2016, with early application permitted under certain conditions.
Scope and Application
AASB 2015-5 Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception applies to entities preparing financial reports under Australian Accounting Standards, specifically those involved in consolidated financial statements, disclosures of interests in other entities, and investments in associates and joint ventures. The amendments confirm that the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity, clarify the applicability of AASB 12 to the financial statements of an investment entity, and introduce relief in AASB 128 to permit a non-investment entity investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries. This standard is applicable to annual reporting periods beginning on or after 1 January 2016, with early adoption allowed for for-profit entities from periods beginning on or after 1 January 2005 and for not-for-profit entities from periods beginning on or after 1 January 2013. The amendments were developed in response to the International Financial Reporting Standard Investment Entities: Applying the Consolidation Exception, reflecting a consensus from submissions and consultations that these changes should be incorporated into Australian standards.
Key Provisions
AASB 2015-5, Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception, introduces significant changes to existing accounting standards. Section 4(a) of AASB 10 Consolidated Financial Statements confirms that the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity. This exemption means that such entities do not need to consolidate the financial statements of their subsidiaries, aligning with international practices for investment entities. AASB 12 Disclosure of Interests in Other Entities is clarified in terms of its application to investment entities, ensuring that these entities comply with specific disclosure requirements. Furthermore, AASB 128 Investments in Associates and Joint Ventures is amended to allow a non-investment entity investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries.
Entities subject to AASB 2015-5 must ensure that they understand and comply with the new requirements. Parent entities that are subsidiaries of investment entities must follow the exemption from preparing consolidated financial statements, while investment entities must adhere to the clarified disclosure requirements under AASB 12. Additionally, non-investment entity investors in associates or joint ventures that are investment entities need to be aware of the changes to fair value measurement as outlined in AASB 128. These changes necessitate updates to financial reporting processes and potentially to internal control systems to ensure compliance.
Failure to comply with the provisions of AASB 2015-5 could lead to inaccuracies in financial reporting, which may have legal and financial consequences. While the specific penalties for non-compliance with AASB 2015-5 are not detailed in the explanatory statement, breaches of other Australian accounting standards typically result in civil or criminal penalties, including fines and potential imprisonment for directors. The severity of these penalties depends on the nature and extent of the non-compliance, as well as the impact on stakeholders. Ensuring adherence to AASB 2015-5 is therefore critical for maintaining the integrity of financial reporting and avoiding potential legal repercussions.