Explanatory Statement
Accounting Standard AASB 2016-3
Amendments to Australian Accounting Standards – Clarifications to AASB 15
May 2016
EXPLANATORY STATEMENT
Standard Amended by AASB 2016-3
This Standard makes amendments to Accounting Standard AASB 15 Revenue from Contracts with Customers. These amendments arise from the issuance of International Financial Reporting Standard Clarifications to IFRS 15 Revenue from Contracts with Customers by the International Accounting Standards Board (IASB) in April 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 2016-3
Main Requirements
This Standard amends AASB 15 Revenue from Contracts with Customers to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence. In addition, it provides further practical expedients on transition to AASB 15.
Application Date
AASB 2016-3 applies to annual periods beginning on or after 1 January 2018. 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of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.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 267 Clarifications to AASB 15 in August 2015 for comment by 2 October 2015. ED 267 incorporated IASB Exposure Draft ED/2015/6 Clarifications to IFRS 15. Five submissions were received by the AASB in respect of the proposals in ED 267. 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 2016-3.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2016-3 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 2016-3
Amendments to Australian Accounting Standards –
Clarifications to AASB 15
Overview of the Accounting Standard
This Standard amends AASB 15 Revenue from Contracts with Customers to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence. In addition, it provides further practical expedients on transition to AASB 15.
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 2016-3, Amendments to Australian Accounting Standards – Clarifications to AASB 15, was enacted in May 2016 to address the need for clearer guidance on revenue recognition, particularly in relation to contracts with customers. This amendment was introduced by the Australian Accounting Standards Board (AASB) under its legislative authority as outlined in the Acts Interpretation Act 1901 and the Corporations Act 2001. The primary objective of AASB 2016-3 is to ensure that financial reporting practices in Australia align with international standards, thereby enhancing the transparency and comparability of financial statements. By clarifying key aspects such as identifying performance obligations, distinguishing between principal and agent roles, and determining the timing of revenue recognition from granting a licence, the amendment aims to provide more precise guidance for entities preparing their financial reports. The standard applies to annual periods beginning on or after 1 January 2018, with earlier application being permitted.
Scope and Application
The Accounting Standard AASB 2016-3, which amends AASB 15 Revenue from Contracts with Customers, applies to entities that prepare general purpose financial statements in accordance with Australian Accounting Standards. This includes for-profit entities, and the amendments are designed to ensure that these financial statements are also compliant with International Financial Reporting Standards. The AASB 2016-3 applies to annual reporting periods beginning on or after 1 January 2018, although earlier application is permitted. The amendments clarify specific requirements concerning the identification of performance obligations, the distinction between principal and agent considerations, and the timing of revenue recognition for granting licenses. Additionally, this Standard provides further practical expedients to facilitate the transition to AASB 15. The AASB has the legislative power to amend these accounting standards under the Corporations Act 2001. It is important to note that this Standard does not diminish or limit any human rights or freedoms, and thus does not raise any human rights issues.
Key Provisions
The AASB 2016-3 standard, which amends the AASB 15 Revenue from Contracts with Customers, introduces several key provisions primarily aimed at clarifying certain requirements. Section 1 of the standard highlights the amendments made to AASB 15, focusing on clarifying the identification of performance obligations, the distinction between principal and agent considerations, and the timing of recognising revenue from the granting of a licence. Additionally, section 2 provides further practical expedients for entities transitioning to AASB 15. This standard is applicable to annual periods beginning on or after 1 January 2018, with earlier application permitted.
The AASB 2016-3 imposes specific obligations on entities that prepare and present financial statements in accordance with Australian Accounting Standards. Firstly, it requires entities to clearly identify their performance obligations under contracts with customers, ensuring a consistent approach to recognising revenue. Secondly, it mandates entities to determine whether they are acting as a principal or an agent in a contract, which significantly influences revenue recognition. Lastly, it necessitates entities to appropriately time the recognition of revenue from granting a licence, considering the nature and terms of the contract.
Breach of the requirements set out in AASB 2016-3 can result in financial misstatements, which may lead to non-compliance with the Corporations Act 2001. Although AASB 2016-3 does not specify particular penalties, non-compliance with the Corporations Act could result in civil or criminal penalties, including fines and imprisonment. The specific consequences would depend on the nature and extent of the non-compliance, as well as any associated regulatory actions taken by the Australian Securities and Investments Commission (ASIC).