Overview

Accounting Standard AASB 2020-7, enacted in August 2020, introduces amendments to Australian Accounting Standards AASB 16 Leases and AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. This legislation was introduced to address the specific disclosure requirements arising from COVID-19-related rent concessions, aiming to ensure consistency and clarity in financial reporting during the pandemic. The Australian Accounting Standards Board (AASB), operating under the authority conferred by the Corporations Act 2001, issued this amendment to align and streamline the disclosure obligations for entities utilising the practical expedient for COVID-19-related rent concessions under AASB 16. The objective of the amendments is to provide appropriate financial reporting guidance in response to the unique circumstances brought about by the pandemic.

Scope and Application

The Accounting Standard AASB 2020-7, Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions: Tier 2 Disclosures, applies to entities reporting under the Tier 2 – Simplified Disclosures framework, particularly those that have applied the practical expedient for COVID-19-related rent concessions in AASB 16 Leases. The amendments made by AASB 2020-7 aim to ensure that entities subject to these concessions provide specific disclosures in their financial statements. These entities are required to make certain disclosures as per AASB 16 paragraph 60A, while being exempt from directly complying with the same requirement in AASB 16 and also relieved from a corresponding requirement in AASB 1060. The Standard is applicable to annual periods beginning on or after 1 July 2021, with earlier application permissible if the entity is concurrently applying AASB 1060 and AASB 2020-4. The AASB, which has the authority to amend these accounting standards under the Corporations Act 2001, has confirmed that this Standard is compatible with human rights, as it does not diminish or limit any applicable human rights or freedoms.

Key Provisions

The primary operative sections of the Accounting Standard AASB 2020-7, as referenced in the explanatory statement, pertain to amendments in Australian Accounting Standards AASB 16 Leases and AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. Specifically, AASB 2020-7 introduces new disclosure requirements under AASB 1060, which mandate that entities applying the Tier 2 – Simplified Disclosures framework, and who have applied the practical expedient for COVID-19-related rent concessions in AASB 16, must make disclosures as required under AASB 16 paragraph 60A (subsection (a)). Furthermore, these entities are exempt from directly complying with AASB 16 paragraph 60A (subsection (b)) and are relieved from complying with AASB 1060 paragraph 106(b) (subsection (c)), which is equivalent to AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 28(f). This accounting standard imposes specific obligations on entities reporting under the Tier 2 – Simplified Disclosures framework, requiring them to make certain disclosures related to COVID-19-related rent concessions. These obligations are in addition to those stipulated in AASB 16, where entities must disclose information about the nature and financial effect of rent concessions arising from COVID-19. The Standard also provides relief from certain other disclosure requirements in AASB 1060, easing the burden on these entities during the pandemic. These obligations are designed to ensure transparency and consistency in financial reporting, particularly in the context of COVID-19-related rent concessions, while reducing the administrative burden on entities. The Accounting Standard AASB 2020-7 does not explicitly outline specific offences, penalties, or civil and criminal consequences for breaches of its provisions. However, it is important to note that non-compliance with accounting standards in Australia can lead to various legal and financial repercussions. For example, entities that fail to adhere to the disclosure requirements may be subject to scrutiny by the Australian Securities and Investments Commission (ASIC) or other regulatory bodies. In severe cases, non-compliance could result in fines, legal actions, or damage to the entity's reputation. The exact penalties would depend on the specific circumstances of the breach and the provisions of other applicable legislation, such as the Corporations Act 2001. The explanatory statement also notes that a Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2020-7, as the amendments do not have a substantial direct or indirect impact on business or competition. This suggests that the AASB considered the amendments to be relatively minor and unlikely to cause significant economic disruption. Nevertheless, entities must ensure compliance with the new disclosure requirements to avoid any potential negative consequences. The AASB's authority to make these amendments is derived from the Corporations Act 2001, which allows the AASB to repeal, rescind, revoke, amend, or vary any accounting standard as a legislative instrument.