Accounting Standard AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements

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Legislation au F2019L01584 Not in force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2019-4
Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements

 

November 2019

EXPLANATORY STATEMENT

Standards Amended by AASB 2019-4

This Standard makes amendments to AASB 1054 Australian Additional Disclosures (May 2011).

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 2019-4

Main Requirements

This Standard amends AASB 1054 to require not-for-profit private sector entities that are required to apply AASB 1054 (including those required by legislation to do so) and are preparing special purpose financial statements to disclose information about those financial statements, including information that enables users of the financial statements to understand whether or not the material accounting policies applied in the financial statements comply with all the recognition and measurement requirements in Australian Accounting Standards.

In particular, the amendments to AASB 1054 require a not-for-profit private sector entity to:

(a)          disclose the basis on which the decision to prepare special purpose financial statements was made;

(b)          where the entity has interests in other entities – disclose either:

(i)           whether or not its subsidiaries and investments in associates or joint ventures have been consolidated or equity accounted in a manner consistent with the requirements set out in AASB 10 Consolidated Financial Statements or AASB 128 Investments in Associates and Joint Ventures, as appropriate.  If the entity has not consolidated its subsidiaries or equity accounted its investments in associates or joint ventures consistently with those requirements, it shall disclose that fact, and the reasons why; or

(ii)          that the entity has not assessed whether its interests in other entities give rise to interests in subsidiaries, associates or joint ventures, provided it is not required by legislation to make such an assessment for financial reporting purposes and has not made such an assessment;

(c)          for each material accounting policy applied and disclosed in the financial statements that does not comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128), disclose an indication of how it does not comply; or if such an assessment has not been made, disclose that fact; and

(d)          disclose whether or not the financial statements overall comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128) or that such an assessment has not been made.

Application Date

This Standard applies to annual reporting periods ending on or after 30 June 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 an Exposure Draft ED 293 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Compliance with Recognition and Measurement Requirements in July 2019 for comment by 19 August 2019. The Board received twelve written submissions. A webinar on ED 293 was also conducted in July 2019 as part of the education and outreach in relation to this ED. Respondents generally supported the proposals and stated that it would improve transparency and comparability however, argued that certain aspects of Disclosures required changes along with, the illustrative examples and additional guidance.  Some respondents also suggested that the scope of the proposals should be limited to not-for-profit entities only.

 

The AASB considered the feedback and decided to issue AASB 2019-4 to require not-for-profit private sector entities that are required to apply AASB 1054 (including those required by legislation to do so) and are preparing special purpose financial statements to disclose information about those financial statements, including information that enables users of the financial statements to understand whether or not the material accounting policies applied in the financial statements comply with all the recognition and measurement requirements in Australian Accounting Standards.  When deciding to limit the application of this Standard to not-for-profit private sector entities only, the Board noted feedback from respondents to ED 293 that if the proposals in ED 297 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities to remove the ability for certain for-profit private sector entities to prepare special purpose financial statements are finalised as proposed, so that they are effective for annual reporting periods beginning on or after 1 July 2020, the requirements of this Standard would only be relevant for a short period of time for these for-profit private sector entities.  The Board therefore considered that the costs to prepare the disclosures in this Standard for these for-profit private sector entities would arguably outweigh the benefits. If however the proposals in ED 297 are not finalised as proposed, the Board will reconsider the application of the requirements in this Standard for for-profit private sector entities.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2019-4 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 2019-4
Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements

 

Overview of the Accounting Standard

This Standard makes amendments to AASB 1054 Australian Additional Disclosures (May 2011).

This Standard amends AASB 1054 to require not-for-profit private sector entities that are required to apply AASB 1054 (including those required by legislation to do so) and are preparing special purpose financial statements to disclose information about those financial statements, including information that enables users of the financial statements to understand whether or not the material accounting policies applied in the financial statements comply with all the recognition and measurement requirements in Australian Accounting Standards.

In particular, the amendments to AASB 1054 require a not-for-profit private sector entity to:

(a)          disclose the basis on which the decision to prepare special purpose financial statements was made;

(b)          where the entity has interests in other entities – disclose either:

(i)           whether or not its subsidiaries and investments in associates or joint ventures have been consolidated or equity accounted in a manner consistent with the requirements set out in AASB 10 Consolidated Financial Statements or AASB 128 Investments in Associates and Joint Ventures, as appropriate.  If the entity has not consolidated its subsidiaries or equity accounted its investments in associates or joint ventures consistently with those requirements, it shall disclose that fact, and the reasons why; or

(ii)          that the entity has not assessed whether its interests in other entities give rise to interests in subsidiaries, associates or joint ventures, provided it is not required by legislation to make such an assessment for financial reporting purposes and has not made such an assessment;

(c)          for each material accounting policy applied and disclosed in the financial statements that does not comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128), disclose an indication of how it does not comply; or if such an assessment has not been made, disclose that fact; and

(d)          disclose whether or not the financial statements overall comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128) or that such an assessment has not been made.

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 2019-4, titled "Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements," was enacted in November 2019. This amendment was introduced to address the need for enhanced transparency and comparability of financial statements prepared by not-for-profit private sector entities that are subject to AASB 1054. The Australian Accounting Standards Board (AASB), which has the authority to amend accounting standards under the Corporations Act 2001, issued this amendment to ensure that these entities provide more detailed disclosures in their special purpose financial statements. The policy objective is to improve the clarity and usefulness of financial information to users by ensuring that not-for-profit entities disclose how their accounting policies comply with Australian Accounting Standards.

Scope and Application

The AASB 2019-4 is a legislative instrument under the Corporations Act 2001 that amends AASB 1054 Australian Additional Disclosures, focusing on the disclosure requirements for not-for-profit private sector entities preparing special purpose financial statements. This Standard applies to not-for-profit private sector entities that are required to apply AASB 1054 and are preparing special purpose financial statements. These entities must disclose specific information to ensure that users of the financial statements can understand whether the material accounting policies applied comply with Australian Accounting Standards. The Standard requires entities to disclose the basis for preparing special purpose financial statements, details about consolidation or equity accounting of subsidiaries and investments, how material accounting policies do not comply with Australian Accounting Standards, and whether the overall financial statements comply with the recognition and measurement requirements in Australian Accounting Standards. The application date for this Standard is annual reporting periods ending on or after 30 June 2020, with earlier application permitted. The AASB has considered feedback from respondents to an exposure draft and decided to limit the application of this Standard to not-for-profit private sector entities, with a potential reconsideration for for-profit private sector entities if certain proposals are not finalised as suggested. The Standard does not diminish or limit any human rights or freedoms and is compatible with the human rights and freedoms recognised or declared in the international instruments listed in the Human Rights (Parliamentary Scrutiny) Act 2011.

Key Provisions

AASB 2019-4 makes amendments to AASB 1054 Australian Additional Disclosures, focusing on the disclosure requirements for not-for-profit private sector entities preparing special purpose financial statements (paragraphs 1-2). The amendments mandate that these entities disclose the basis for preparing special purpose financial statements and the status of compliance with recognition and measurement requirements in Australian Accounting Standards (paragraph 3). Specifically, entities must disclose whether their subsidiaries and investments in associates or joint ventures have been consolidated or equity accounted in line with AASB 10 and AASB 128 (paragraph 4(b)). They must also indicate how any material accounting policies in their financial statements align with, or differ from, the relevant Australian Accounting Standards (paragraph 4(c)). Additionally, entities must disclose whether their overall financial statements comply with the recognition and measurement requirements, excluding those specified in AASB 10 and AASB 128 (paragraph 4(d)). The obligations imposed by AASB 2019-4 on not-for-profit private sector entities include ensuring that they provide transparent and comprehensive disclosures in their special purpose financial statements. This entails making clear the rationale behind their decision to prepare such statements and assessing and disclosing compliance with accounting standards. Entities must identify and explain any deviations from Australian Accounting Standards and provide details on how their accounting policies are applied or how they diverge from the standards. This includes disclosures on the consolidation or equity accounting of investments in subsidiaries, associates, or joint ventures, as well as overall compliance with accounting requirements (paragraphs 4(b)-(d)). Breach of the requirements set out in AASB 2019-4 could result in civil or regulatory consequences, as the standard is designed to enhance transparency and compliance in financial reporting. While the AASB 2019-4 does not explicitly state penalties for non-compliance, entities that fail to adhere to these disclosure requirements may face scrutiny from regulators, potentially leading to investigations, sanctions, or other enforcement actions. The severity of these consequences would depend on the extent of the non-compliance and the impact on the users of the financial statements. The standard's focus on transparency and compliance suggests that non-compliance could undermine the reliability and usefulness of the financial statements, which are critical for stakeholders' decision-making processes.

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