AASB 2015-7 - Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities - July 2015

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Explanatory Statement

Accounting Standard AASB 2015-7
Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities

July 2015

 

 

EXPLANATORY STATEMENT

Reasons for Issuing AASB 2015-7

AASB 2015-7 makes amendments to AASB 13 Fair Value Measurement to exempt not-for-profit public sector entities from certain requirements of the Standard.

These amendments arise from the AASB’s short-term review of the disclosure requirements in AASB 13 applying to property, plant and equipment measured at fair value and categorised within Level 3 of the fair value hierarchy.  Following that review, the AASB decided to provide relief for not-for-profit public sector entities from making certain specified disclosures about the fair value measurement of assets within the scope of AASB 116 Property, Plant and Equipment which are primarily held for their current service potential rather than to generate future net cash inflows.  The relief is temporary pending the outcome of related current Board projects, including the review of the Reduced Disclosure Regime (Tier 2), Australian Reporting Framework, and Conceptual Framework.

Main Features of AASB 2015-7

Main Requirements

AASB 2015-7 relieves not-for-profit public sector entities from the following disclosures specified in AASB 13 for assets within the scope of AASB 116 that are held primarily for their current service potential rather than to generate future net cash inflows:

(a) for recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, quantitative information about the significant unobservable inputs used in the fair value measurement;

(b) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, the amount of the total gains and losses for the period included in profit or loss that is attributable to the change in unrealised gains or losses relating to the assets held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised; and

(c) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement.  Where there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, the disclosure of a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement will also not be required.

Application Date

AASB 2015-7 applies to annual reporting periods beginning on or after 1 July 2016.  Early application is permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 July 2016.

Reduced Disclosure Requirements

The amendments to AASB 13 do not affect the reduced disclosure requirements presently set out in AASB 13.  Accordingly, the reduced disclosure requirements set out in AASB 13 that apply to Tier 2 not-for-profit public sector entities are the same as those applying to other Tier 2 entities.

Consultation Prior to Issuing this Standard

The Board issued Exposure Draft ED 262 Fair Value Disclosures of Not-for-Profit Public Sector Entities for adverse comment in May 2015.  The Board considered that an adverse comment ED would be sufficient due process having regard to the feedback already received during its initial outreach activity.  The comment period closed on 4 June 2015.

The AASB received one comment letter in respect of the proposals in ED 262.  After consideration of constituent comments, the Board decided to proceed with its proposals to make amendments to AASB 13, and issued AASB 2015‑7 Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2015-7 as the amendments made do not have a substantial direct or indirect impact on business or competition, or are of a minor or machinery nature.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011

Accounting Standard AASB 2015-7
Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities

Overview of the Accounting Standard

AASB 2015-7 makes amendments to AASB 13 Fair Value Measurement to exempt not-for-profit public sector entities from certain requirements of the Standard.

AASB 2015-7 relieves not-for-profit public sector entities from the following disclosures specified in AASB 13 for assets within the scope of AASB 116 that are held primarily for their current service potential rather than to generate future net cash inflows:

(a) for recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, quantitative information about the significant unobservable inputs used in the fair value measurement;

(b) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, the amount of the total gains and losses for the period included in profit or loss that is attributable to the change in unrealised gains or losses relating to the assets held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised; and

(c) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement.  Where there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, the disclosure of a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement will also not be required.

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 Standards Board (AASB) issued AASB 2015-7, Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities, in July 2015. This amendment addresses a gap identified by the AASB in its short-term review of disclosure requirements under AASB 13, Fair Value Measurement, specifically concerning the disclosure obligations of not-for-profit public sector entities. These entities, which hold assets primarily for their current service potential rather than to generate future net cash inflows, were found to be subject to onerous disclosure requirements under AASB 13. The policy objective of AASB 2015-7 is to provide temporary relief to not-for-profit public sector entities from certain specified disclosures, pending the outcome of ongoing AASB projects. The relief is applicable to annual reporting periods beginning on or after 1 July 2016, with early application permitted for periods starting on or after 1 January 2005.

Scope and Application

Accounting Standard AASB 2015-7 applies to not-for-profit public sector entities, which are exempt from certain requirements of AASB 13 Fair Value Measurement concerning the disclosure of fair value measurements for assets held primarily for their current service potential rather than to generate future net cash inflows. These entities include public sector entities that operate for purposes other than generating a profit, such as government departments, statutory authorities, and public hospitals. The amendments are designed to relieve these entities from specific disclosure requirements regarding significant unobservable inputs, unrealised gains or losses, and sensitivity of fair value measurements to changes in unobservable inputs for Level 3 assets. The standard applies to annual reporting periods beginning on or after 1 July 2016, with early adoption permitted for periods starting from 1 January 2005. The scope of AASB 2015-7 is confined to the specified disclosure requirements, and it does not affect the reduced disclosure regime for Tier 2 entities. The standard does not extend or restrict application through subordinate instruments and is compatible with human rights as it does not diminish any applicable rights or freedoms.

Key Provisions

The main operative sections of AASB 2015-7 (sections 2 and 3) provide relief to not-for-profit public sector entities from certain disclosure requirements regarding the fair value measurement of assets primarily held for their current service potential. Specifically, the Standard exempts these entities from disclosing quantitative information about significant unobservable inputs (section 2(a)), the amount of total gains and losses attributable to changes in unrealised gains or losses (section 2(b)), and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs (section 2(c)). This relief applies to assets categorised within Level 3 of the fair value hierarchy under AASB 13 Fair Value Measurement, which are measured using unobservable inputs. The obligations imposed by AASB 2015-7 are primarily on not-for-profit public sector entities. These entities must ensure that they do not make the specified disclosures (sections 2(a), 2(b), and 2(c)) for assets held primarily for their current service potential and measured at fair value, categorised within Level 3 of the fair value hierarchy. This relief is temporary and is intended to remain in effect until the AASB completes its ongoing projects, including the review of the Reduced Disclosure Regime (Tier 2), the Australian Reporting Framework, and the Conceptual Framework. There are no specific offences, penalties, or civil/criminal consequences outlined for breaching the provisions of AASB 2015-7. However, entities that fail to comply with the Standard may face scrutiny from stakeholders, potentially impacting their credibility and financial reporting integrity. The AASB has not indicated any formal enforcement actions for non-compliance with this Standard, but entities are expected to adhere to the disclosure requirements of AASB 13 unless explicitly exempted by AASB 2015-7.

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