Explanatory Statement

Accounting Standard AASB 2022-4
Amendments to Australian Accounting Standards –
Disclosures in Special Purpose Financial Statements of Certain For-Profit Private Sector Entities

June 2022

EXPLANATORY STATEMENT

Standards Amended by AASB 2022-4

This Standard makes amendments to the following Australian Accounting Standards:

(a) AASB 1054 Australian Additional Disclosures (May 2011); and

(b) AASB 1057 Application of Australian Accounting Standards (July 2015).

Main Features of AASB 2022-4

This Standard amends AASB 1054 and AASB 1057 in relation to for-profit private sector entities that are required only by their constituting document or another document (being a document created before 1 July 2021 and not amended on or after that date) to prepare financial statements that comply with Australian Accounting Standards. The amendments require that when such entities prepare special purpose financial statements that are required to comply with Australian Accounting Standards, the financial statements include disclosures that inform users of the basis upon which those financial statements were prepared.

In particular, the amendments made to AASB 1054 by this Standard require the special purpose financial statements to:

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

(b) disclose information about the material accounting policies applied in the special purpose financial statements, including information about changes in those policies;

(c) where the entity has interests in other entities – disclose 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, also disclose the reasons why;

(d) 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 AASB 10 and AASB 128) – disclose an indication of how it does not comply;

(e) disclose whether or not the financial statements overall comply with all the recognition and measurement requirements in Australian Accounting Standards (except for AASB 10 and AASB 128); and

(f) comply with the disclosure requirements in paragraphs 8 and 9 of AASB 1054 regarding the reporting framework and the type of financial statements.

The amendments to AASB 1057 ensure that the for-profit private sector entities addressed in this Standard are made subject to Australian Accounting Standards – explicitly only AASB 1054 (in addition to AASB 1057) – so that the relevant disclosure requirements in AASB 1054 are applicable to their special purpose financial statements that are required to comply with the Standards.

Application Date

AASB 2022-4 applies to annual periods ending on or after 30 June 2022, with earlier application permitted.

Marked-up Text

This Standard incorporates marked-up text to clearly identify some of the amendments to AASB 1057. All amendments are incorporated using clean text into the compilations of the pronouncements when they are prepared, based on the legal commencement date of the amendments.

Consultation Prior to Issuing this Standard

The Australian Accounting Standards Board issued AASB 2022-4 following its consideration of the responses to Exposure Draft ED 302 Amendments to Australian Accounting Standards – Disclosures in Special Purpose Financial Statements of Certain For-Profit Private Sector Entities, which was issued in June 2020 for comment by 11 September 2020.

ED 302 was issued following an extensive due process over a period of some years, including the other Exposure Drafts summarised below.

Background

In 2018 the Board initiated a broad project to address the issues associated with special purpose financial statement reporting in the for-profit private sector. As part of that project, the Board proposed, through Exposure Draft ED 297 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities (August 2019), to remove the ability of certain for-profit private sector entities to prepare special purpose financial statements. ED 297 proposed an operative date of annual reporting periods beginning on or after 1 July 2020.

Noting that the proposals expected to be outlined in ED 297 were limited to certain for-profit private sector entities and their anticipated application only from the 2020/21 financial year, the Board decided to first issue 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. ED 293 proposed requiring both for-profit and not-for-profit entities (meeting certain criteria) to disclose information in their special purpose financial statements that would allow users to understand the extent of compliance or otherwise of the entity’s accounting policies with the recognition and measurement requirements in Australian Accounting Standards. These proposals were considered an interim measure necessary to improve the transparency and comparability of special purpose financial statements in the short term. ED 293 proposed the application of the disclosure requirements from the 2019/20 financial year.

In November 2019, the ED 293 proposals were finalised by the Board by issuing 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. After considering the feedback from stakeholders on ED 293, the Board decided that the requirements of AASB 2019-4 would apply only to certain not-for-profit private sector entities, and not also to certain for-profit private sector entities. Respondents to ED 293 had observed that if the Board finalised the proposals in ED 297 as expected, the requirements proposed in ED 293 would be relevant to certain for-profit private sector entities only for a short period of time – typically the 2019/20 financial year.

In March 2020, the Board finalised the ED 297 proposals for the removal of special purpose financial statements for certain for-profit private sector entities by issuing AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities, to apply from the 2021/22 financial year. In finalising the proposals in ED 297, the Board decided to provide ‘grandfathering’ relief to for-profit private sector entities required only by a constituting document or another document (eg a loan agreement) that was created before 1 July 2021 (and not amended on or after that date) to prepare financial statements that comply with Australian Accounting Standards. Providing this relief means that these entities will be permitted to continue to prepare special purpose financial statements for the foreseeable future, provided that they do not amend their relevant document(s).

ED 302

However, the Board remained concerned about the lack of transparency in special purpose financial statements. Therefore, the Board reconsidered its earlier decision not to require for-profit private sector entities to comply with the recognition and measurement disclosure requirements of AASB 2019-4 in their special purpose financial statements. As a result, the Board decided that for-profit private sector entities that can continue to prepare special purpose financial statements should include disclosures in their special purpose financial statements that inform special purpose financial statement users of the basis upon which they were prepared. This includes disclosing information about the material accounting policies applied in the special purpose financial statements and the extent of compliance or otherwise of those accounting policies with the recognition, measurement, consolidation and equity accounting requirements in Australian Accounting Standards. These proposals were exposed for public comment in ED 302.

The AASB received 13 formal comment letters on ED 302. The feedback received indicated some mixed views from respondents. Following the consultation period, and after considering feedback from respondents, the Board decided to proceed with the proposals in ED 302, but with some changes.

Scope and application date

The Board proposed in ED 302 that the special purpose financial statement disclosure requirements should apply to:

(a) for-profit private sector entities that are required by legislation (eg Part 2M.3 of the Corporations Act 2001 or other legislation) to prepare financial statements that comply with either Australian Accounting Standards or accounting standards; and

(b) other for-profit private sector entities that are required only by their constituting document or another document to prepare financial statements that comply with Australian Accounting Standards, provided the relevant document was created before 1 July 2021 and not amended on or after that date.

ED 302 proposed that the requirements would apply to annual periods ending on or after 30 June 2021 (eg the 2020/21 financial year), with earlier application permitted.

A number of respondents expressed concern that the proposed application date would provide insufficient time for entities to prepare for the new requirements. Furthermore, some respondents expressed concern that the cost of implementing the ED 302 proposals would exceed any benefits, particularly for those entities outlined in (a) above. For these entities, the requirements would apply for only one year, typically the 2020/21 financial year, as AASB 2020‑2 removed the ability of these entities to prepare special purpose financial statements for annual reporting periods beginning on or after 1 July 2021 (eg the 2021/22 financial year).

After considering this feedback, the Board decided that it was appropriate to exclude the entities outlined in (a) above from the final requirements. The Board also decided to delay the application date of the final amendments by one year, to ensure that subject entities had enough time to prepare for the implementation of the disclosures. Consequently, AASB 2022-4 applies to annual periods ending on or after 30 June 2022. That is, it first applies to the 2021/22 financial year rather than the 2020/21 financial year as proposed in ED 302.

Disclosures regarding compliance with the recognition and measurement requirements in Australian Accounting Standards

Respondents to ED 302 observed that AASB 2019-4 permits not-for-profit entities to disclose that they have not assessed compliance with certain Australian Accounting Standards requirements and that this option was not proposed by the Board in ED 302. In finalising AASB 2022-4 based on the ED 302 proposals, the Board reaffirmed its decision to not provide entities within the scope of this Standard an option to state they have not assessed compliance with certain Australian Accounting Standards requirements. The Board observed that no new arguments in support of a ‘not assessed’ option were provided by respondents to ED 302.

Disclosures regarding the reporting framework and whether the financial statements are general purpose or special purpose

When finalising AASB 2022-4, the Board also decided to require in-scope entities to comply with several existing disclosure requirements of AASB 1054 (those in paragraphs 8 and 9). That is, entities would also be required to disclose their reporting framework, whether the entity is a for-profit or not-for-profit entity, and whether the financial statements are general purpose or special purpose financial statements. The Board considered these disclosures would provide useful information to users at minimal cost as this information is expected to be readily available to an entity.

Following consultation with the Office of Best Practice Regulation, a Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2022-4 as the amendments made do not have a substantial direct or indirect impact on business or competition.

Legislative Features of Accounting Standards

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.

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.

Copyright

This Standard, like all Accounting Standards promulgated by the AASB, is published with Commonwealth of Australia copyright. Educational, commercial and other publishers are able to request the AASB for permission to reprint all or parts of this Standard, which is given without charge.

Exemption from Sunsetting

Accounting Standards promulgated by the AASB that are legislative instruments are exempt from the sunsetting provisions of the Legislation Act 2003. The AASB’s Standards incorporate Standards set by the International Accounting Standards Board in respect of publicly accountable for-profit entities. A more stringent review process than sunsetting applies to the Standards and is retained to ensure Australia’s Accounting Standards regime remains consistent with international Standards.

Statement of Compatibility with Human Rights

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

Accounting Standard AASB 2022-4
Amendments to Australian Accounting Standards –
Disclosures in Special Purpose Financial Statements of Certain
For-Profit Private Sector Entities

Overview of the Accounting Standard