Accounting Standard AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material

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Explanatory Statement

Accounting Standard AASB 2018-7
Amendments to Australian Accounting Standards –
Definition of Material

 

December 2018

EXPLANATORY STATEMENT

Standards Amended by AASB 2018-7

This Standard makes amendments to the following Standards:

(a)          AASB 2 Share-based Payment (July 2015);

(b)         AASB 101 Presentation of Financial Statements (July 2015);

(c)          AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (August 2015);

(d)         AASB 110 Events after the Reporting Period (August 2015);

(e)          AASB 134 Interim Financial Reporting (August 2015); and

(f)           AASB 137 Provisions, Contingent Liabilities and Contingent Assets (August 2015).

The Standard also makes amendments to:

(g)         the Framework for the Preparation and Presentation of Financial Statements (July 2004); and

(h)         AASB Practice Statement 2 Making Materiality Judgements (December 2017).

These amendments arise from the issuance of International Financial Reporting Standard Definition of Material (Amendments to IAS 1 and IAS 8) by the International Accounting Standards Board (IASB) in October 2018.

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 2018-7

Main Requirements

The Standard principally amends AASB 101 and AASB 108. The amendments refine the definition of material in AASB 101. The amendments clarify the definition of material and its application by improving the wording and aligning the definition across AASB Standards and other publications. The amendment also includes some supporting requirements in AASB 101 in the definition to give it more prominence and clarifies the explanation accompanying the definition of material.

 

Application Date

AASB 2018-7 applies to annual reporting periods beginning on or after 1 January 2020. 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 282 Definition of Material in September 2017 for comment by 17 November 2017. ED 282 incorporated IASB Exposure Draft ED/2017/6  Definition of Material. Two submissions were received by the AASB in respect of the proposals in ED 282, generally supporting the proposed amendments to clarify the definition of material and providing some additional recommendations. The AASB did not make a submission to the IASB on ED/2017/6 as the AASB generally agreed with the proposals. Three Australian constituents made submissions to the IASB on ED/2017/6, supporting the proposed amendments overall, with some recommendations for further clarification.

The IASB analysed the feedback it received on the proposed amendments and revised the amendments in response to some of the issues and concerns raised by respondents. The IASB set an effective date of annual periods beginning on or after 1 January 2020, with earlier application permitted. The AASB considered the amendments made by the IASB and the Australian-specific comments in the submissions received in finalising AASB 2018-7 and the amendments to AASB 101, AASB 108 and the other Australian Accounting Standards and publications.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2018-7 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 2018-7
Amendments to Australian Accounting Standards –
Definition of Material

 

Overview of the Accounting Standard

This Standard makes amendments to the following Standards:

(a)          AASB 2 Share-based Payment (July 2015);

(b)         AASB 101 Presentation of Financial Statements (July 2015);

(c)          AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (August 2015);

(d)         AASB 110 Events after the Reporting Period (August 2015);

(e)          AASB 134 Interim Financial Reporting (August 2015); and

(f)           AASB 137 Provisions, Contingent Liabilities and Contingent Assets (August 2015).

The Standard also makes amendments to:

(g)         the Framework for the Preparation and Presentation of Financial Statements (July 2004); and

(h)         AASB Practice Statement 2 Making Materiality Judgements (December 2017).

These amendments arise from the issuance of International Financial Reporting Standard Definition of Material (Amendments to IAS 1 and IAS 8) by the International Accounting Standards Board (IASB) in October 2018.

The Standard principally amends AASB 101 and AASB 108. The amendments refine the definition of material in AASB 101. The amendments clarify the definition of material and its application by improving the wording and aligning the definition across AASB Standards and other publications. The amendment also includes some supporting requirements in AASB 101 in the definition to give it more prominence and clarifies the explanation accompanying the definition of material.

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 2018-7 Amendments to Australian Accounting Standards – Definition of Material in December 2018, in response to the issuance of the International Financial Reporting Standard Definition of Material (Amendments to IAS 1 and IAS 8) by the International Accounting Standards Board (IASB) in October 2018. This Standard amends several Australian Accounting Standards and the Framework for the Preparation and Presentation of Financial Statements to refine and clarify the definition of material, aligning it across various AASB Standards and publications. The AASB 2018-7 applies to annual reporting periods beginning on or after 1 January 2020, with earlier application permitted. The AASB received two submissions on the Exposure Draft ED 282 Definition of Material, generally supporting the proposed amendments, and did not make a submission to the IASB as it agreed with the proposals. The amendments made do not have a substantial direct or indirect impact on business or competition, and a Regulation Impact Statement has not been prepared. The Standard is compatible with human rights and freedoms as it does not diminish or limit any of the applicable human rights or freedoms.

Scope and Application

The Accounting Standard AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material applies to entities and individuals involved in the preparation and presentation of financial statements in Australia, encompassing corporations, unincorporated associations, and individuals such as accountants and auditors. The Standard affects all entities required to prepare financial statements under the Corporations Act 2001 and other relevant legislation, including public interest entities, listed entities, and small proprietary companies. It aligns Australian accounting standards with the International Financial Reporting Standard Definition of Material issued by the International Accounting Standards Board, ensuring consistency in financial reporting practices. The Standard applies to annual reporting periods beginning on or after 1 January 2020, with earlier application permitted. The AASB has the power to amend the Accounting Standards under the Corporations Act 2001, and these amendments do not have a substantial direct or indirect impact on business or competition, hence no Regulation Impact Statement was prepared. The Standard does not diminish or limit any of the applicable human rights or freedoms, and thus does not raise any human rights issues, being 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

The AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material, amends several existing accounting standards to refine and clarify the definition of material in AASB 101 Presentation of Financial Statements (subsections 33(3) and 101(4)). The amendments are made to AASB 2 Share-based Payment, AASB 101, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, AASB 110 Events after the Reporting Period, AASB 134 Interim Financial Reporting, AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the Framework for the Preparation and Presentation of Financial Statements, and AASB Practice Statement 2 Making Materiality Judgements. These changes are necessary to improve the wording and align the definition of material across AASB standards and other publications. The amendments will be effective for annual reporting periods beginning on or after 1 January 2020, with earlier application permitted. Entities governed by these accounting standards must ensure that they are compliant with the new definitions and requirements outlined in AASB 2018-7. The new definition of material in AASB 101 will have implications for the presentation of financial statements and the determination of what constitutes a material misstatement. Entities must review their accounting policies and practices to ensure that they are in line with the amended standards. The AASB 2018-7 also includes some supporting requirements in AASB 101 in the definition to give it more prominence and clarifies the explanation accompanying the definition of material. The AASB 2018-7 does not explicitly outline specific offences, penalties, or civil/criminal consequences for breach of the amended standards. However, entities that fail to comply with the new requirements may be subject to penalties under the Corporations Act 2001. The maximum penalties for contraventions of the Corporations Act 2001 can include fines of up to $210,000 for individuals and $1,050,000 for bodies corporate, as well as imprisonment for up to five years. Additionally, non-compliance with the amended standards may result in legal action by shareholders or other stakeholders, which could lead to reputational damage and financial loss for the entity. Therefore, it is crucial for entities to ensure that they are fully compliant with the new requirements to avoid any potential legal or financial consequences.

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