Accounting Standard AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015–2017 Cycle

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Legislation au F2018L00157 Not in force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2018-1
Amendments to Australian Accounting Standards –
Annual Improvements 2015–2017 Cycle

 

February 2018

EXPLANATORY STATEMENT

Standards Amended by AASB 2018-1

This Standard makes amendments to AASB 3 Business Combinations (August 2015), AASB 11 Joint Arrangements (July 2015), AASB 112 Income Taxes (August 2015) and AASB 123 Borrowing Costs (August 2015).

These amendments arise from the issuance of International Financial Reporting Standard Annual Improvements to IFRS Standards 2015–2017 Cycle by the International Accounting Standards Board (IASB) in December 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 2018-1

Main Requirements

The Standard amends:

(a)          AASB 3 to clarify that an entity remeasures its previously held interest in a joint operation when it obtains control of the business;

(b)         AASB 11 to clarify that an entity does not remeasure its previously held interest in a joint operation when it obtains joint control of the business;

(c)          AASB 112 to clarify that an entity accounts for all income tax consequences of dividend payments according to where the entity originally recognised the past transactions or events that generated the distributable profits; and

(d)         AASB 123 to clarify that an entity treats any borrowing originally made to develop a qualifying asset as part of general borrowings when the asset is ready for its intended use or sale.

Application Date

AASB 2018-1 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 275 Definition of a Business and Accounting for Previously Held Interests in June 2016 for comment by 23 September 2016. ED 275 incorporated IASB Exposure Draft ED/2016/1 Definition of a Business and Accounting for Previously Held Interests. Two submissions were received by the AASB in respect of the proposals in ED 275, supporting the proposed amendments to accounting for previously held interests. The AASB did not make a submission to the IASB on ED/2016/1 as no Australian-specific issues were identified by either the AASB or constituents. Two Australian constituents made submissions to the IASB on ED/2016/1, supporting the proposed amendments to accounting for previously held interests.

The IASB analysed the feedback it received on the proposed amendments to IFRS 3 Business Combinations and IFRS 11 Joint Arrangements on accounting for previously held interests and decided to finalise those amendments with no substantive changes, setting the mandatory effective date of 1 January 2019, with earlier application permitted. The IASB has not yet finalised the proposed amendments relating to the definition of a business.

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 analysed the feedback it received on the proposed amendments to IAS 12 Income Taxes and IAS 23 Borrowing Costs and decided to finalise those amendments with the only substantive change being to simplify the transition requirements for the amendments to IAS 12. The IASB decided that an entity should apply the amendments prospectively to income tax consequences of dividends recognised on or after the beginning of the earliest reporting period presented in the financial statements for the period when the amendments are first adopted by an entity. The IASB set an effective date of 1 January 2019, with earlier application permitted.

The AASB considered the amendments made by the IASB to IFRS 3, IFRS 11, IAS 12 and IAS 23 in finalising AASB 2018-1 and the amendments to the corresponding Standards AASB 3, AASB 11, AASB 112 and AASB 123.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2018-1 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 2018-1
Amendments to Australian Accounting Standards –
Annual Improvements 2015–2017 Cycle

 

Overview of the Accounting Standard

This Standard makes amendments to AASB 3 Business Combinations (August 2015), AASB 11 Joint Arrangements (July 2015), AASB 112 Income Taxes (August 2015) and AASB 123 Borrowing Costs (August 2015).

These amendments arise from the issuance of International Financial Reporting Standard Annual Improvements to IFRS Standards 2015–2017 Cycle by the International Accounting Standards Board (IASB) in December 2017.

The Standard amends:

(a)          AASB 3 to clarify that an entity remeasures its previously held interest in a joint operation when it obtains control of the business;

(b)         AASB 11 to clarify that an entity does not remeasure its previously held interest in a joint operation when it obtains joint control of the business;

(c)          AASB 112 to clarify that an entity accounts for all income tax consequences of dividend payments according to where the entity originally recognised the past transactions or events that generated the distributable profits; and

(d)         AASB 123 to clarify that an entity treats any borrowing originally made to develop a qualifying asset as part of general borrowings when the asset is ready for its intended use or sale.

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 2018-1, titled "Amendments to Australian Accounting Standards – Annual Improvements 2015–2017 Cycle," was enacted in February 2018. This legislation aims to address the need for periodic updates and improvements to existing Australian Accounting Standards to align them with international practices. The Australian Accounting Standards Board (AASB) was the enacting body, utilising its authority under the Acts Interpretation Act 1901 and the Corporations Act 2001 to make these amendments. The policy objective is to ensure consistency and clarity in financial reporting, enhancing the quality and comparability of financial information across different entities. This standard introduces amendments to four existing standards: AASB 3 Business Combinations, AASB 11 Joint Arrangements, AASB 112 Income Taxes, and AASB 123 Borrowing Costs. These amendments are intended to clarify specific accounting treatments, particularly in relation to the measurement of interests in joint operations, the accounting for income tax consequences of dividends, and the treatment of borrowing costs associated with qualifying assets.

Scope and Application

Accounting Standard AASB 2018-1, which amends Australian Accounting Standards, pertains to the annual improvements made to AASB 3 Business Combinations, AASB 11 Joint Arrangements, AASB 112 Income Taxes, and AASB 123 Borrowing Costs for the 2015–2017 cycle. This Standard applies to all entities required to comply with Australian Accounting Standards and is relevant to their financial reporting for annual periods beginning on or after 1 January 2019, with earlier application permitted. The amendments to these standards arise from the International Financial Reporting Standard Annual Improvements to IFRS Standards 2015–2017 Cycle issued by the International Accounting Standards Board in December 2017. The AASB possesses the authority to make these amendments under the Corporations Act 2001, which grants the AASB the power to amend Accounting Standards that are legislative instruments. There are no specific exclusions, exemptions, or thresholds mentioned in the Act, but the application of these amendments is expected to enhance clarity and consistency in financial reporting. The AASB ensures that the amendments incorporate provisions of other AASB Standards as in force from time to time, reflecting ongoing adjustments and updates to accounting practices.

Key Provisions

AASB 2018-1 introduces amendments to four existing Australian Accounting Standards, namely AASB 3 Business Combinations, AASB 11 Joint Arrangements, AASB 112 Income Taxes, and AASB 123 Borrowing Costs. These amendments are aligned with the International Financial Reporting Standard Annual Improvements to IFRS Standards 2015–2017 Cycle, issued by the International Accounting Standards Board in December 2017. The key changes include: AASB 3 now requires entities to remeasure their previously held interest in a joint operation when they obtain control of the business (section 3.2); AASB 11 clarifies that entities do not remeasure their previously held interest in a joint operation when they obtain joint control of the business (section 3.3); AASB 112 mandates that entities account for all income tax consequences of dividend payments based on where the entity originally recognised the past transactions or events that generated the distributable profits (section 3.4); and AASB 123 specifies that entities must treat any borrowing originally made to develop a qualifying asset as part of general borrowings once the asset is ready for its intended use or sale (section 3.5). Entities governed by these Standards must ensure that they adhere to the new requirements. For instance, under AASB 3, entities must now remeasure their previously held interests in joint operations when they gain control, while under AASB 11, no remeasurement is required when joint control is obtained. Similarly, AASB 112 necessitates that income tax consequences of dividends be accounted for according to the original recognition of the underlying transactions or events, and AASB 123 requires borrowings for asset development to be treated as general borrowings upon asset completion. Failure to comply with these provisions may result in non-compliance with the applicable accounting standards. Breach of these Standards may lead to financial reporting inaccuracies and potential regulatory scrutiny. While the Standard does not explicitly outline specific penalties, non-compliance with accounting standards generally could result in legal consequences, including potential fines or sanctions. For example, under the Corporations Act 2001, entities that fail to comply with accounting standards may face civil penalties, and in severe cases, criminal penalties may apply. It is important for entities to ensure they implement these amendments accurately to avoid any adverse consequences.

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