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Accounting Standard AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018–2020 and Other Amendments

Accounting Standard AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018–2020 and Other Amendments

Administered by Department of the Treasury

Legislation au F2020L00876 Not in force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2020-3
Amendments to Australian Accounting Standards –Annual Improvements 2018-2020 and Other Amendments

June 2020

EXPLANATORY STATEMENT

Standards Amended by AASB 2020-3

This Standard makes amendments to the following Australian Accounting Standards:

(a) AASB 1 First-time Adoption of Australian Accounting Standards (July 2015);

(b) AASB 3 Business Combinations (August 2015);

(d) AASB 116 Property, Plant and Equipment (August 2015);

(e) AASB 137 Provisions, Contingent Liabilities and Contingent Assets (August 2015); and

(f) AASB 141 Agriculture (August 2015).

These amendments arise from the issuance by the International Accounting Standards Board (IASB) in May 2020 of the following International Financial Reporting Standards:

(a) Annual Improvements to IFRS Standards 2018–2020;

(b) Reference to the Conceptual Framework (Amendments to IFRS 3);

(d) Onerous Contracts—Cost of Fulfilling a Contract (Amendments to IAS 37).

Marked-up Text

This Standard incorporates marked-up text to clearly identify some or all of the amendments made to the Standards. Those amendments are incorporated using clean text into the compilations of those Standards when they are prepared, based on the legal commencement date of the amendments.

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 2020-3

This Standard amends:

(a) AASB 1 to simplify the application of AASB 1 by a subsidiary that becomes a first-time adopter after its parent in relation to the measurement of cumulative translation differences;

(b) AASB 3 to update a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations;

(c) AASB 9 to clarify the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability;

(d) AASB 116 to require an entity to recognise the sales proceeds from selling items produced while preparing property, plant and equipment for its intended use and the related cost in profit or loss, instead of deducting the amounts received from the cost of the asset;

(e) AASB 137 to specify the costs that an entity includes when assessing whether a contract will be loss-making; and

(f) AASB 141 to remove the requirement to exclude cash flows from taxation when measuring fair value, thereby aligning the fair value measurement requirements in AASB 141 with those in other Australian Accounting Standards.

Application Date

AASB 2020-3 is applicable to annual periods beginning on or after 1 January 2022. Earlier application of the amendments to individual Standards 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 a number of Exposure Drafts contemporaneously with those issued by the IASB to propose the amendments now covered by this Standard. The AASB Exposure Drafts were as follows:

(a) ED 280 Property, Plant and Equipment – Proceeds before Intended Use was issued in June 2017, for comment by 18 September 2017. ED 280 incorporated IASB Exposure Draft ED/2017/4 Property, Plant and Equipment – Proceeds before Intended Use. Three Australian stakeholders made a submission directly to the IASB on ED/2017/4, two of which were also submitted to the AASB. All submissions broadly supported the IASB’s proposed amendments. The AASB did not make a submission to the IASB on ED/2017/4. The IASB analysed the feedback it received on the proposed amendments and decided to finalise the amendments, addressing the suggestions raised by Australian respondents;

(b) ED 287 Onerous Contracts – Cost of Fulfilling a Contract was issued in January 2019, for comment by 22 March 2019. ED 287 incorporated IASB Exposure Draft ED/2018/2 Onerous Contracts – Cost of Fulfilling a Contract. Three Australian stakeholders made a submission directly to the IASB on ED/2018/2, two of which were also submitted to the AASB. Two of the submissions expressed general support for the proposed amendments while commenting on the meaning of “economic benefits” for not-for-profit entities, an issue beyond the scope of this topic. One submission was not supportive of the amendments and was of the view that including allocated costs in the costs relating directly to a contract to provide goods or services would result in some viable contracts being treated as onerous contracts. The AASB did not make a submission to the IASB on ED/2018/2. The IASB analysed the feedback it received on the proposed amendments and decided to finalise the amendments, including narrowing the reference to allocated costs;

(c) ED 289 Annual Improvements to Australian Accounting Standards 2018–2020 was issued in May 2019, for comment by 31 July 2019. ED 289 incorporated IASB Exposure Draft ED/2019/2 Annual Improvements to IFRS Standards 2018–2020. The AASB received one formal submission in respect of the proposals in ED 289, which supported the amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 41 Agriculture, but suggested extending the amendment in IFRS 9 Financial Instruments and clarifying (rather than removing) the treatment of lease incentives under IFRS 16 Leases. Three Australian stakeholders made a submission directly to the IASB on ED/2019/2, including the one submitted to the AASB. All submissions suggested clarification of the accounting for lease incentives under IFRS 16 Leases. The AASB did not make a submission to the IASB on ED/2019/2. The IASB analysed the feedback it received on the proposed amendments and decided not to adopt the suggestions raised in the Australian submissions; and

(d) ED 290 Reference to the Conceptual Framework was issued in June 2019, for comment by 30 August 2019. ED 290 incorporated IASB Exposure Draft ED/2019/3 Reference to the Conceptual Framework. The AASB did not receive any formal submissions in respect of the proposals in ED 290. The AASB did not make a submission to the IASB on ED/2019/3. One Australian stakeholder made a submission directly to the IASB on ED/2019/3, supporting the IASB’s intention to remove a residual reference to the old conceptual framework, but not the specific proposals. The IASB analysed the feedback it received on the proposed amendments and decided to finalise the amendments, generally retaining its proposed approach.

The IASB set an effective date for each set of amendments of annual periods beginning on or after 1 January 2022. Earlier application of the amendments to individual Standards is permitted. The AASB considered and adopted the amendments made by the IASB in finalising AASB 2020-3. Since all the amendments have the same effective date, the AASB combined the four separate IFRS Standards into one Australian Accounting Standard, while maintaining the ability of entities to apply early the amendments to individual Standards.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2020-3 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 2020-3
Amendments to Australian Accounting Standards –
Annual Improvements 2018-2020 and Other Amendments

Overview of the Accounting Standard

This Standard amends:

(a) AASB 1 First-time Adoption of Australian Accounting Standards to simplify the application of AASB 1 by a subsidiary that becomes a first-time adopter after its parent in relation to the measurement of cumulative translation differences;

(b) AASB 3 Business Combinations to update a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations;

(c) AASB 9 Financial Instruments to clarify the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability;

(d) AASB 116 Property, Plant and Equipment to require an entity to recognise the sales proceeds from selling items produced while preparing property, plant and equipment for its intended use and the related cost in profit or loss, instead of deducting the amounts received from the cost of the asset;

(e) AASB 137 Provisions, Contingent Liabilities and Contingent Assets to specify the costs that an entity includes when assessing whether a contract will be loss-making; and

(f) AASB 141 Agriculture to remove the requirement to exclude cash flows from taxation when measuring fair value, thereby aligning the fair value measurement requirements in AASB 141 with those in other Australian Accounting Standards.

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 Amendment (AASB 2020-3) was enacted in 2020. This legislation is intended to address gaps in the current Australian Accounting Standards by incorporating amendments from the International Financial Reporting Standards issued by the International Accounting Standards Board. These amendments aim to enhance the clarity and consistency of accounting standards across various areas, including first-time adoption, business combinations, financial instruments, property, plant and equipment, provisions, contingent liabilities, contingent assets, and agriculture. The Australian Accounting Standards Board (AASB), established under the Corporations Act 2001, has the power to amend accounting standards as legislative instruments. The primary policy objective of AASB 2020-3 is to improve the applicability and coherence of Australian Accounting Standards by aligning them with international standards, thereby facilitating the Australian economy without compromising any human rights or freedoms. The amendments are set to take effect for annual periods beginning on or after 1 January 2022, with the option for early adoption of individual standards.

Scope and Application

Accounting Standard AASB 2020-3 applies to entities required to comply with Australian Accounting Standards, including public and private companies, listed entities, and other entities as designated under the Corporations Act 2001. This legislation is applicable nationally and is issued by the Australian Accounting Standards Board (AASB) under the authority granted by the AASB Act 2016, which allows for the creation and amendment of accounting standards as legislative instruments. AASB 2020-3 incorporates amendments from the International Financial Reporting Standards issued by the International Accounting Standards Board, making specific changes to six existing Australian Accounting Standards. These amendments aim to clarify, update, or enhance the accounting requirements for areas such as first-time adoption, business combinations, financial instruments, property, plant and equipment, provisions, contingent liabilities, contingent assets, and agriculture. The Standard applies to annual reporting periods beginning on or after 1 January 2022, with the option for early adoption of individual amendments. The AASB has not identified any exclusions or exemptions, and no subordinate instruments extend or restrict the application of the Standard.

Key Provisions

AASB 2020-3, titled "Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments," introduces several changes to existing Australian Accounting Standards (AASB). The amendments are primarily intended to align Australian standards with International Financial Reporting Standards (IFRS) and to provide clarity and consistency in accounting practices. For instance, AASB 1, concerning first-time adopters, is amended to simplify the process for subsidiaries that adopt accounting standards after their parent entities (Section 2(a)). AASB 3, on business combinations, is updated to include a reference to the Conceptual Framework for Financial Reporting without altering the accounting requirements (Section 2(b)). AASB 9, relating to financial instruments, clarifies the inclusion of fees when assessing the terms of financial liabilities (Section 2(c)). AASB 116, on property, plant, and equipment, now mandates that sales proceeds from items produced during asset preparation be recognised in profit or loss (Section 2(d)). AASB 137, addressing provisions, contingent liabilities, and contingent assets, specifies the costs to include when evaluating the loss-making potential of a contract (Section 2(e)). Lastly, AASB 141, concerning agriculture, removes the exclusion of cash flows from taxation in fair value measurements, aligning it with other Australian Accounting Standards (Section 2(f)). The amendments impose specific obligations on entities to ensure compliance with the updated accounting standards. For example, entities adopting AASB 1 for the first time must now simplify the measurement of cumulative translation differences when they follow their parent's adoption (Section 2(a)). Entities involved in business combinations must update their references to the Conceptual Framework for Financial Reporting (Section 2(b)). When assessing financial liabilities, entities must include fees in their evaluations (Section 2(c)). Entities with property, plant, and equipment must recognise sales proceeds from items produced during preparation in profit or loss (Section 2(d)). Additionally, entities must include specified costs when assessing the loss-making potential of contracts (Section 2(e)). Finally, entities in the agriculture sector must include cash flows from taxation in fair value measurements (Section 2(f)). Failure to comply with the provisions of AASB 2020-3 could result in financial statements that do not accurately reflect the entity's financial position and performance. While the document does not specify explicit penalties for non-compliance, entities that do not adhere to these standards may face scrutiny from regulatory bodies, potential legal consequences, or reputational damage. The impact of non-compliance would largely depend on the extent to which the entity's financial statements are affected and the implications for stakeholders, including investors, creditors, and regulators.

Area of Law: Accounting Law
Instrument: Regulation
Concepts: Definitions & Interpretation; Commencement Provisions; Repeal & Amendment; Compliance Obligations

Interactions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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