Accounting Standard AASB 2022-1 Amendments to Australian Accounting Standards – Initial Application of AASB 17 and AASB 9 – Comparative Information

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Legislation au F2022L00398 In force Legislative Instrument

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Explanatory Statement

Accounting Standard AASB 2022-1
Amendments to Australian Accounting Standards –
Initial Application of AASB 17 and AASB 9 –
Comparative Information

 

March 2022

EXPLANATORY STATEMENT

Standards Amended by AASB 2022-1

This Standard makes amendments to AASB 17 Insurance Contracts (July 2017).

These amendments arise from the issuance of International Financial Reporting Standard Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Amendment to IFRS 17) by the International Accounting Standards Board (IASB) in December 2021.

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 2022-1

Main Requirements

This Standard amends AASB 17 to add a transition option referred to as ‘a classification overlay’ relating to comparative information about financial assets presented on initial application of AASB 17 and AASB 9 Financial Instruments at the same time. The amendments relate to financial assets for which comparative information presented on initial application of AASB 17 and AASB 9 has not been restated for AASB 9. Applying the transition option would permit an entity to present comparative information about such a financial asset as if the classification and measurement requirements of AASB 9 had been applied to that financial asset. This enables insurers to reduce potentially significant accounting mismatches between financial assets and insurance contract liabilities in the comparative period (or periods), to improve the usefulness of the comparative information in the general purpose financial statements.

Application Date

AASB 2022-1 applies to annual reporting periods beginning on or after 1 January 2023. The amendments may be applied to earlier reporting periods.

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 313 Initial Application of AASB 17 and AASB 9 – Comparative Information in August 2021, with comments due by 20 August 2021. ED 313 incorporated IASB Exposure Draft ED/2021/8 Initial Application of IFRS 17 and IFRS 9 – Comparative Information. No comment letters were received by the AASB relating to ED 313. The AASB did not make a submission to the IASB on ED/2021/8.

The IASB analysed the feedback it received on the proposed amendments and decided to finalise the amendments after making some minor changes, including expanding the availability of the classification overlay to all financial assets, while also providing relief in disclosure requirements. The IASB concluded that these amendments will help insurers to avoid differences in transition requirements causing temporary accounting mismatches and, therefore, will improve the usefulness of information to investors on initial application of the insurance contracts Standard. The IASB set an effective date for the amendments of annual periods beginning on or after 1 January 2023, with earlier application permitted. The AASB considered and adopted the amendments made by the IASB to IFRS Standards in finalising AASB 2022-1 and the amendments to AASB 17.

A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2022-1 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 2022-1
Amendments to Australian Accounting Standards –
Initial Application of AASB 17 and AASB 9 – Comparative Information

Overview of the Accounting Standard

This Standard amends AASB 17 to add a transition option referred to as ‘a classification overlay’ relating to comparative information about financial assets presented on initial application of AASB 17 and AASB 9 Financial Instruments at the same time. The amendments relate to financial assets for which comparative information presented on initial application of AASB 17 and AASB 9 has not been restated for AASB 9. Applying the transition option would permit an entity to present comparative information about such a financial asset as if the classification and measurement requirements of AASB 9 had been applied to that financial asset. This enables insurers to reduce potentially significant accounting mismatches between financial assets and insurance contract liabilities in the comparative period (or periods), to improve the usefulness of the comparative information in the general purpose financial statements.

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 2022-1, enacted in 2022, addresses the issue of accounting mismatches that can arise in the initial application of Australian Accounting Standards Board (AASB) 17 and AASB 9, particularly for insurance contracts and financial instruments respectively. This amendment was introduced to provide a transition option, a 'classification overlay', for comparative information about financial assets during the initial application of AASB 17 and AASB 9. The AASB, empowered under the Corporations Act 2001, finalised these amendments to align with similar changes made by the International Accounting Standards Board (IASB). The objective is to improve the usefulness of comparative information in general purpose financial statements by reducing significant accounting mismatches between financial assets and insurance contract liabilities. AASB 2022-1 applies to annual reporting periods beginning on or after 1 January 2023, with earlier application permitted.

Scope and Application

The Accounting Standard AASB 2022-1, which amends Australian Accounting Standards, applies to entities involved in the insurance industry and specifically to those that must comply with AASB 17 Insurance Contracts. This standard is designed to address the initial application of AASB 17 and AASB 9 Financial Instruments by providing a transition option known as the 'classification overlay' for comparative information about financial assets. The amendments introduced by AASB 2022-1 aim to help insurers reduce accounting mismatches between financial assets and insurance contract liabilities in the comparative periods, thereby enhancing the usefulness of comparative information in general purpose financial statements. AASB 2022-1 applies to annual reporting periods beginning on or after 1 January 2023, though entities may choose to apply the amendments to earlier reporting periods. The AASB has the power to make these amendments under subsection 33(3) of the Acts Interpretation Act 1901, which allows for the amendment of legislative instruments, including accounting standards, as necessary to align with international standards and improve the quality of financial reporting.

Key Provisions

AASB 2022-1 (sections 1-11) amends AASB 17 Insurance Contracts by introducing a transition option for presenting comparative information about financial assets. This option, known as the 'classification overlay', applies to financial assets for which comparative information on the initial application of AASB 17 and AASB 9 has not been restated according to AASB 9. By applying this overlay, an entity can present comparative information as if the classification and measurement requirements of AASB 9 were applied to those financial assets. This amendment is designed to help insurers reduce significant accounting mismatches between financial assets and insurance contract liabilities, thus improving the usefulness of comparative information in financial statements. The standard applies to annual reporting periods beginning on or after 1 January 2023, although earlier application is permitted. The AASB 2022-1 imposes several obligations on entities subject to AASB 17. Firstly, entities must determine whether they have financial assets that meet the criteria for the classification overlay. If so, they can choose to apply the overlay to present comparative information as if AASB 9 requirements had been applied. This involves reviewing the existing comparative data and making necessary adjustments to align with the classification and measurement rules of AASB 9. Secondly, entities must ensure that any adjustments made under this transition option are adequately disclosed in the financial statements. This includes providing detailed explanations of how the comparative information has been adjusted and the impact of such adjustments on the financial statements. Breaching the requirements of AASB 2022-1 does not directly result in specific offences or penalties as the standard is more focused on providing guidance for accounting practices. However, non-compliance with the standard may lead to material misstatements in the financial reports, which could have indirect consequences. These may include regulatory scrutiny, reputational damage, and potential legal liabilities if the misstated information leads to decisions that harm stakeholders. Entities must ensure compliance to avoid these potential negative outcomes, as accurate and transparent financial reporting is crucial for maintaining investor confidence and meeting regulatory standards.

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