Accounting Standard AASB 2018-3 Amendments to Australian Accounting Standards – Reduced Disclosure Requirements

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Legislation au F2018L01152 Not in force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2018-3
Amendments to Australian Accounting Standards –
Reduced Disclosure Requirements

 

 

August 2018

EXPLANATORY STATEMENT

Standards Amended by AASB 2018-3

This Standard makes amendments to AASB 16 Leases (February 2016) and AASB 1058 Income of Not-for-Profit Entities (December 2016).

These amendments establish Reduced Disclosure Requirements for entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements.

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 2018-3

Main Requirements

AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements. This Standard makes amendments to AASB 16 and AASB 1058 to establish reduced disclosure requirements for entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements (Tier 2). Tier 2 requirements comprise the recognition and measurement requirements of Tier 1 (Australian Accounting Standards) but substantially reduced disclosure requirements in comparison with Tier 1.

Application Date

AASB 2018-3 applies to annual reporting 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of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.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 Board issued Exposure Draft ED 284 Recent Standards – Reduced Disclosure Requirements in December 2017 for comment by 31 March 2018. ED 284 set out the disclosures in AASB 16 Leases, AASB 1058 Income of Not-for-Profit Entities and AASB 1059 Service Concession Arrangements: Grantors from which the Board proposed entities applying Tier 2 reporting requirements should be exempt.

The Board developed the proposals based on the current RDR decision-making framework, which specifies the following principles are applied in determining disclosures under Tier 2:

(a)      drawing directly on the IFRS for SMEs when Tier 2 recognition and measurement requirements are the same as those under the IFRS for SMEs; and

(b)      using the ‘user need’ and ‘cost-benefit’ principles applied by the IASB in developing its IFRS for SMEs when Tier 2 recognition and measurement requirements are not the same as those available under the IFRS for SMEs.

The Board received five submissions on ED 284. The respondents generally agreed that the Board had appropriately applied the current RDR decision-making framework and expressed support for the proposed RDR concessions for AASB 16 and AASB 1058. The Board amended some of the proposed disclosure concessions in response to the submissions received. The Board concluded that reduced disclosure requirements were not required for AASB 1059, as had been proposed in ED 284. This approach was supported by most respondents.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2018-3 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 2018-3
Amendments to Australian Accounting Standards –
Reduced Disclosure Requirements

 

Overview of the Accounting Standard

This Standard makes amendments to AASB 16 Leases (February 2016) and AASB 1058 Income of Not-for-Profit Entities (December 2016).

The amendments establish reduced disclosure requirements for entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements (Tier 2). Tier 2 requirements comprise the recognition and measurement requirements of Tier 1 (Australian Accounting Standards) but substantially reduced disclosure requirements in comparison with Tier 1.

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) introduced AASB 2018-3 Amendments to Australian Accounting Standards – Reduced Disclosure Requirements in August 2018. This amendment to the Australian Accounting Standards was enacted to establish reduced disclosure requirements for entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements (Tier 2). This is a legislative instrument made by the AASB under the Corporations Act 2001, which provides the AASB with the power to amend the Accounting Standards. The reduced disclosure requirements aim to reduce the burden on small and medium-sized entities by offering simplified reporting while still maintaining the necessary recognition and measurement requirements. The amendments apply to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted. The AASB concluded that the amendments do not have a substantial direct or indirect impact on business or competition, and thus, a Regulation Impact Statement was not prepared. This amendment 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.

Scope and Application

The AASB 2018-3 Amendments to Australian Accounting Standards – Reduced Disclosure Requirements applies to entities preparing general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements. Specifically, it amends AASB 16 Leases and AASB 1058 Income of Not-for-Profit Entities to establish reduced disclosure requirements for entities that opt for Tier 2 reporting. The amendments align with the differential reporting framework outlined in AASB 1053, which comprises two tiers of reporting requirements, with Tier 2 having substantially reduced disclosure requirements compared to Tier 1. This Standard applies to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted. The Standard extends its application through references to other AASB Standards as legislative instruments under the Corporations Act 2001. The AASB has the power to amend these Standards, including repealing, rescinding, revoking, amending, or varying them, as conferred by the Acts Interpretation Act 1901. The Standard does not specify any exclusions or exemptions and does not impose any thresholds. The amendments made by this Standard do not have a substantial direct or indirect impact on business or competition, hence a Regulation Impact Statement was not prepared. The Standard is also 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.

Key Provisions

AASB 2018-3 introduces amendments to two existing Australian Accounting Standards: AASB 16 Leases and AASB 1058 Income of Not-for-Profit Entities. These amendments establish reduced disclosure requirements for entities that prepare general purpose financial statements under Australian Accounting Standards – Reduced Disclosure Requirements (Tier 2). Entities that opt to use Tier 2 will still need to adhere to the recognition and measurement requirements of Tier 1 (Australian Accounting Standards), but they will benefit from significantly reduced disclosure requirements. This Standard applies to annual reporting periods beginning on or after 1 January 2019, though earlier application is permitted. The obligations imposed by AASB 2018-3 primarily revolve around the adoption of reduced disclosure requirements for qualifying entities. Entities that choose to apply Tier 2 must comply with the recognition and measurement provisions of Tier 1 while benefiting from the reduced disclosure obligations stipulated in Tier 2. This means that while the substantive accounting treatment of transactions and events remains unchanged, the amount and detail of the financial disclosures are markedly reduced compared to those required under Tier 1. This approach is designed to alleviate some of the reporting burdens on entities without compromising the essential information required by financial statement users. Breaches of the provisions under AASB 2018-3 do not explicitly outline specific offences, penalties, or civil/criminal consequences within the explanatory statement. However, the implications of non-compliance with Australian Accounting Standards, in general, can be significant. Entities that fail to comply with the recognition and measurement requirements, whether under Tier 1 or Tier 2, may face regulatory scrutiny, potential financial penalties, and reputational damage. The Australian Securities and Investments Commission (ASIC) enforces compliance with accounting standards, and entities found to be in breach of these standards could face legal action, fines, or other sanctions under the Corporations Act 2001. While AASB 2018-3 itself does not detail maximum penalties, the broader legal framework provides a basis for enforcing compliance and addressing non-compliance issues.

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