Accounting Standard AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures

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Explanatory Statement

Accounting Standard AASB 2017-7
Amendments to Australian Accounting Standards –
Long-term Interests in Associates and Joint Ventures

 

December 2017

EXPLANATORY STATEMENT

Standards Amended by AASB 2017-7

This Standard makes amendments to AASB 128 Investments in Associates and Joint Ventures (August 2015).

These amendments arise from the issuance of International Financial Reporting Standard Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) by the International Accounting Standards Board (IASB) in October 2017.

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 2017-7

Main Requirements

This Standard amends AASB 128 to clarify that an entity is required to account for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture but to which the equity method is not applied, using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in AASB 128.

Application Date

AASB 2017-7 applies to annual periods beginning on or after 1 January 2019. 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of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.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 276 Annual Improvements to Australian Accounting Standards 2015–2017 Cycle in January 2017 for comment by 8 March 2017. ED 276 incorporated IASB Exposure Draft ED/2017/1 Annual Improvements to IFRS Standards 2015–2017 Cycle. No submissions were received by the AASB in respect of the proposals in ED 276. The AASB did not make a submission to the IASB on ED/2017/1 as no Australian-specific issues were identified by either the AASB or constituents.

The IASB considered the comments it received in finalising the proposed amendments to IAS 28 Investments in Associates and Joint Ventures. The IASB clarified that an entity applies IFRS 9 Financial Instruments to long-term interests before it applies the loss allocation and impairment requirements of IAS 28. The IASB also developed an example illustrating how the requirements in IAS 28 and IFRS 9 interact with respect to long-term interests. The IASB set an effective date of 1 January 2019, with earlier application permitted.

The AASB considered the amendments made by the IASB to IAS 28 in finalising AASB 2017-7 and the amendments to AASB 128.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2017-7 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 2017-7
Amendments to Australian Accounting Standards –
Long-term Interests in Associates and Joint Ventures

 

Overview of the Accounting Standard

AASB 2017-7 makes amendments to AASB 128 Investments in Associates and Joint Ventures (August 2015).

These amendments arise from the issuance of International Financial Reporting Standard Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) by the International Accounting Standards Board (IASB) in October 2017.

This Standard amends AASB 128 to clarify that an entity is required to account for long-term interests in an associate or joint venture, which in substance form part of the net investment in the associate or joint venture but to which the equity method is not applied, using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in AASB 128.

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 2017-7, enacted in 2017, addresses the need to update and clarify the accounting treatment of long-term interests in associates and joint ventures under Australian Accounting Standards. This amendment was introduced in response to the International Accounting Standards Board's (IASB) issuance of International Financial Reporting Standard Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) in October 2017. The Australian Accounting Standards Board (AASB), empowered by subsection 33(3) of the Acts Interpretation Act 1901, has the authority to amend existing accounting standards, including those made as legislative instruments under the Corporations Act 2001. The policy objective of AASB 2017-7 is to align Australian accounting practices with international standards, ensuring consistency and clarity in financial reporting for long-term interests in associates and joint ventures. The amendments require entities to account for such interests using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in AASB 128.

Scope and Application

The AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures applies to entities that need to account for long-term interests in an associate or joint venture that form part of the net investment but do not use the equity method. This amendment arises from the IASB's issuance of International Financial Reporting Standard Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) in October 2017. The AASB 2017-7 amends AASB 128 Investments in Associates and Joint Ventures (August 2015) and clarifies that such entities must account for these long-term interests using AASB 9 Financial Instruments before applying the loss allocation and impairment requirements in AASB 128. This standard applies to annual periods beginning on or after 1 January 2019, with earlier application permitted. The AASB has the power to make amendments to Accounting Standards under subsection 33(3) of the Acts Interpretation Act 1901. The AASB 2017-7 does not have a substantial direct or indirect impact on business or competition, and it does not diminish or limit any of the applicable human rights or freedoms.

Key Provisions

Accounting Standard AASB 2017-7 introduces amendments to AASB 128 Investments in Associates and Joint Ventures (2015). This standard, which is applicable to annual periods starting on or after 1 January 2019, aims to clarify the accounting treatment for long-term interests in associates or joint ventures. Specifically, Section 5 of AASB 2017-7 mandates that entities account for these long-term interests, which are part of the net investment in the associate or joint venture but are not accounted for under the equity method, using AASB 9 Financial Instruments. This should be done prior to applying the loss allocation and impairment requirements outlined in AASB 128. Entities subject to AASB 128 must ensure that they correctly identify and account for long-term interests in accordance with the clarified provisions in AASB 2017-7. This includes maintaining appropriate records and disclosures to reflect the treatment of these interests under AASB 9 Financial Instruments before applying any loss allocation and impairment rules from AASB 128. Such compliance is critical for financial reporting accuracy and transparency. Failure to comply with the requirements of AASB 2017-7 may result in non-compliance with financial reporting standards, potentially leading to inaccurate financial statements. While the standard itself does not specify penalties for non-compliance, entities could face legal and regulatory scrutiny, and their financial statements may be subject to review and correction by relevant authorities. Additionally, the Australian Securities and Investments Commission (ASIC) may take action against entities that do not adhere to accounting standards, which could include fines or other enforcement actions. AASB 2017-7 is issued under the authority provided by subsection 33(3) of the Acts Interpretation Act 1901, which allows the AASB to amend accounting standards made under the Corporations Act 2001. This legislative framework ensures that the AASB can update accounting standards in line with international developments while maintaining the integrity of financial reporting in Australia. The standard is designed to be compatible with human rights, as it does not diminish any rights or freedoms and has been reviewed under the Human Rights (Parliamentary Scrutiny) Act 2011.

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