Accounting Standard AASB 2021-4 Amendments to Australian Accounting Standards – Modified Retrospective Transition Approach for Service Concession Grantors

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Legislation au F2021L00953 Not in force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2021-4
Amendments to Australian Accounting Standards –
Modified Retrospective Transition Approach for Service Concession Grantors

 

June 2021

EXPLANATORY STATEMENT

Standards Amended by AASB 2021-4

This Standard makes amendments to AASB 1059 Service Concession Arrangements: Grantors (July 2017).

The AASB received comments from a stakeholder regarding the modified retrospective method for measuring the Grant of a Right to the Operator (GORTO) liability set out in paragraph C4(c) of AASB 1059 when implementing the Standard. The stakeholder noted that the Standard is unclear how financial contributions paid by the grantor to the operator prior to the date of initial application should be treated when calculating the GORTO liability under the modified retrospective transition approach. The stakeholder noted that if these financial contributions were not adjusted in the grantor’s liability calculation, the GORTO liability at the date of initial application would be likely to be overstated, which in turn would lead to the overstatement of revenue in subsequent periods as the GORTO liability is unwound over the period of the service concession arrangement. The AASB considered the stakeholders’ comments and decided to amend AASB 1059 to address the issue.

Marked-up Text

This Standard incorporates marked-up text to clearly identify the amendments to AASB 1059. All amendments are incorporated using clean text into the compilation of AASB 1059 when 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 2021-4

Main Requirements

AASB 2021-4 amends AASB 1059 to change the modified retrospective method for measuring the Grant of a Right to the Operator (GORTO) liability set out in paragraph C4(c) of AASB 1059 so that the GORTO liability is initially measured based on the fair value (current replacement cost) of the service concession asset at the date of initial application, adjusted by:

(a)          deducting the carrying amount of any consideration transferred by the grantor to the operator recognised as an asset;

(b)         adjusting the resulting amount to reflect the remaining period of the service concession arrangement relative to the total period of the arrangement; and then

(c)          deducting any outstanding related financial liabilities.

Application Date

AASB 2021-4 applies to annual reporting periods ending on or after 30 June 2021, with earlier application 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 Fatal-Flaw Review version of the proposed amending Standard in May 2021 for comment by 4 June 2021. The AASB received three submissions and informal comments from another stakeholder. All respondents were supportive of the AASB changing the modified retrospective method to measure the GORTO liability stated in paragraph C4(c) of AASB 1059.

One stakeholder noted that the changes to AASB 1059 paragraph C4(c) proposed in the Fatal-Flaw Review version of the Standard specifically addressed only financial consideration paid by the grantor to the operator prior to the date of initial application of the Standard. The stakeholder commented that the GORTO liability and subsequent revenue would also be likely to be overstated if the grantor had provided non-financial consideration prior to the date of initial application that was not adjusted in determining the grantor’s GORTO liability.

The AASB considered the feedback received and decided to amend AASB 1059 to address the issues. The AASB decided that expanding the scope of the amendments to include non-financial consideration was appropriate, based on the principles and approach proposed in the Fatal-Flaw Review version.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2021-4 as the amendments made do not have a substantial direct or indirect impact on business or competition. The amendments are relevant only to public sector entities that are grantors under service concession arrangements.

 

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011

Accounting Standard AASB 2021-4
Amendments to Australian Accounting Standards –
Modified Retrospective Transition Approach for Service Concession Grantors

Overview of the Accounting Standard

This Standard amends AASB 1059 Service Concession Arrangements: Grantors (July 2017) to change the modified retrospective method for measuring the Grant of a Right to the Operator (GORTO) liability set out in paragraph C4(c) of AASB 1059 so that the GORTO liability is initially measured based on the fair value (current replacement cost) of the service concession asset at the date of initial application, adjusted by:

(a)          deducting the carrying amount of any consideration transferred by the grantor to the operator recognised as an asset;

(b)         adjusting the resulting amount to reflect the remaining period of the service concession arrangement relative to the total period of the arrangement; and then

(c)          deducting any outstanding related financial liabilities.

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

Accounting Standard AASB 2021-4, titled "Amendments to Australian Accounting Standards – Modified Retrospective Transition Approach for Service Concession Grantors," was enacted in June 2021. This amendment to AASB 1059 addresses the issue of overstatement of the Grant of a Right to the Operator (GORTO) liability when implementing the modified retrospective transition approach for service concession arrangements. The Australian Accounting Standards Board (AASB), operating under the authority granted by the Acts Interpretation Act 1901 and the Corporations Act 2001, issued this amendment in response to stakeholder feedback indicating that the original standard did not clearly specify how financial and non-financial contributions made by the grantor prior to the date of initial application should be accounted for in the GORTO liability calculation. This oversight could lead to an overstatement of the GORTO liability and subsequent revenue. The amendment aims to ensure that the GORTO liability is accurately measured from the date of initial application, thus preventing the overstatement of revenue in future periods.

Scope and Application

The Accounting Standard AASB 2021-4 applies to entities that are grantors of service concession arrangements, specifically targeting public sector entities. This amendment modifies the method for measuring the Grant of a Right to the Operator (GORTO) liability under AASB 1059 Service Concession Arrangements: Grantors. The changes are designed to ensure accurate financial reporting by clarifying how financial and non-financial contributions made prior to the date of initial application of the Standard should be treated. The Standard applies to annual reporting periods ending on or after 30 June 2021, with earlier application permitted. The AASB has the authority to make these amendments under the Corporations Act 2001, and the Standard incorporates marked-up text to clearly identify the changes to AASB 1059. It is important to note that the amendments are specific to entities operating under service concession arrangements and do not have a substantial direct or indirect impact on business or competition beyond this scope.

Key Provisions

The main operative sections of AASB 2021-4 amend AASB 1059, specifically the modified retrospective method for measuring the Grant of a Right to the Operator (GORTO) liability. According to paragraph C4(c) of AASB 1059, the GORTO liability is now measured based on the fair value (current replacement cost) of the service concession asset at the date of initial application, adjusted by deducting the carrying amount of any consideration transferred by the grantor to the operator recognised as an asset, adjusting the resulting amount to reflect the remaining period of the service concession arrangement relative to the total period of the arrangement, and then deducting any outstanding related financial liabilities. This change was made in response to stakeholder feedback regarding the potential overstatement of the GORTO liability and subsequent revenue if certain financial contributions made prior to the date of initial application were not adjusted in the liability calculation. The AASB 2021-4 imposes obligations and requirements on public sector entities that are grantors under service concession arrangements. These entities must apply the amended modified retrospective method for measuring the GORTO liability, as set out in paragraph C4(c) of AASB 1059, when preparing their financial reports. The amended method requires the entities to measure the GORTO liability based on the fair value of the service concession asset at the date of initial application, adjusted for consideration transferred to the operator, the remaining period of the arrangement, and any outstanding related financial liabilities. The entities must also adjust their financial reports to reflect the changes in the GORTO liability, as well as any impact on the revenue recognised over the period of the service concession arrangement. There are no specific offences, penalties, or civil/criminal consequences mentioned for breaches of AASB 2021-4. However, non-compliance with Australian Accounting Standards, including AASB 2021-4, may result in legal consequences for public sector entities that are grantors under service concession arrangements. For example, if an entity fails to comply with the amended modified retrospective method for measuring the GORTO liability, their financial reports may be deemed misleading or inaccurate, which could lead to investigations, legal proceedings, or other regulatory actions by the Australian Securities and Investments Commission (ASIC) or other relevant authorities. Additionally, the entity may face reputational damage, loss of investor confidence, or financial penalties if they are found to have breached accounting standards or other applicable laws.

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