Explanatory Statement
Accounting Standard AASB 2016-1
Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses
February 2016
EXPLANATORY STATEMENT
Standards Amended by AASB 2016-1
This Standard makes amendments to Accounting Standards AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015). These amendments arise from the issuance of International Financial Reporting Standard Recognition of Deferred Tax Assets for Unrealised Losses by the International Accounting Standards Board (IASB) in January 2016.
Power to Make Amendments
Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument. Accordingly, the AASB has the power to amend the Accounting Standards that are made by the AASB as legislative instruments under the Corporations Act 2001.
Main Features of AASB 2016-1
Main Requirements
This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.
Application Date
AASB 2016-1 is applicable to annual periods beginning on or after 1 January 2017. Earlier application is permitted.
References to Other AASB Standards
References in this Standard to the titles of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 253 Recognition of Deferred Tax Assets for Unrealised Losses in August 2014 for comment by 20 November 2014. Three submissions were received by the AASB in respect of the proposals in ED 253. There was general support from constituents for adopting the proposals, which would ensure that general purpose financial statements prepared by for-profit entities in accordance with AASB Standards would also comply with International Financial Reporting Standards. The AASB considered the comments it received in finalising
AASB 2016-1.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2016-1 as the amendments made do not have a substantial direct or indirect impact on business or competition.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2016-1
Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses
Overview of the Accounting Standard
This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.
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 2016-1, enacted in February 2016, addresses the need to clarify the recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. This standard amends existing Accounting Standards AASB 112 (July 2004) and AASB 112 (August 2015) to align with the International Financial Reporting Standard issued by the International Accounting Standards Board in January 2016. The Australian Accounting Standards Board (AASB), established under the Corporations Act 2001, has the legislative power to amend these standards. The primary objective of AASB 2016-1 is to ensure consistency with international accounting practices and to provide clear guidance on the recognition of deferred tax assets for unrealised losses. The amendments are applicable to annual periods beginning on or after 1 January 2017, with earlier application permitted. The AASB considered public submissions and concluded that the amendments do not significantly impact business or competition, hence a Regulation Impact Statement was not prepared. Additionally, AASB 2016-1 is compatible with human rights as it neither diminishes nor limits any applicable human rights or freedoms.
Scope and Application
The AASB 2016-1 Accounting Standard, titled Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses, applies to entities that prepare general purpose financial statements in accordance with Australian Accounting Standards. It amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to address the recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value, aligning Australian standards with the corresponding International Financial Reporting Standards issued by the International Accounting Standards Board. The standard is applicable to annual reporting periods beginning on or after 1 January 2017, although earlier application is permitted. The amendments made by AASB 2016-1 do not have a substantial impact on business or competition, and thus a Regulation Impact Statement was not prepared. Furthermore, the standard does not diminish or limit any human rights or freedoms, and it is compatible with the human rights and freedoms recognised or declared in international instruments. The AASB has the legislative power to make these amendments under the Corporations Act 2001, which allows for the repeal, rescission, revocation, amendment, or variation of existing standards.
Key Provisions
The main operative sections of AASB 2016-1 are those that amend AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) (sections 1 and 2). These amendments provide clarification on the recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. According to the standard, the amendments are applicable to annual periods beginning on or after 1 January 2017, with earlier application permitted (section 4).
The obligations imposed by this standard on parties or entities it governs include the requirement to comply with the clarified recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value (section 2). Entities must ensure that their financial reporting processes and systems are updated to reflect these amendments to comply with the standard. It is crucial that entities ensure their financial statements are prepared in accordance with the amended AASB 112 Income Taxes standards to maintain compliance with the new requirements.
The AASB 2016-1 does not explicitly state any offences, penalties, or consequences for non-compliance. However, non-compliance with accounting standards can result in financial misstatements, which may lead to legal and regulatory consequences. These may include investigations by regulatory bodies, fines, and reputational damage. While the standard itself does not specify penalties, entities can face financial penalties and legal action if their financial statements are found to be non-compliant with the amended AASB 112 Income Taxes. The consequences of non-compliance can vary, but they generally include financial penalties and legal repercussions.