Explanatory Statement

Accounting Standard AASB 2024-2
Amendments to Australian Accounting Standards –
Classification and Measurement of Financial Instruments

July 2024

EXPLANATORY STATEMENT

Standards Amended by AASB 2024-2

This Standard makes amendments to AASB 7 Financial Instruments: Disclosures (August 2015) and AASB 9 Financial Instruments (December 2014).

These amendments arise from the issuance of International Financial Reporting Standard Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7) by the International Accounting Standards Board (IASB) in May 2024.

Main Features of AASB 2024-2

This Standard amends AASB 7 and AASB 9 in response to feedback from the 2022 Post-implementation Review of the classification and measurement requirements in AASB 9 and related requirements in AASB 7 and the subsequent 2023 Exposure Draft.

This Standard amends requirements related to:

(a)                   settling financial liabilities using an electronic payment system; and

(b)                   assessing contractual cash flow characteristics of financial assets with environmental, social and corporate governance (ESG) and similar features.

This Standard also amends disclosure requirements relating to investments in equity instruments designated at fair value through other comprehensive income and adds disclosure requirements for financial instruments with contingent features that do not relate directly to basic lending risks and costs.

Application Date

This Standard applies to annual periods beginning on or after 1 January 2026, with earlier application permitted.

Marked-up Text

This Standard incorporates marked-up text to clearly identify some of the amendments to AASB 7 and AASB 9. 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 IASB issued two consultation documents for public comment before issuing Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7).

In September 2021, the IASB published Request for Information Post-implementation Review of IFRS 9 – Classification and Measurement. The AASB issued the same proposals in Australia for public comment in Invitation to Comment ITC 47 Request for Comment on IASB Request for Information on Post-implementation Review of IFRS 9 Financial Instruments – Classification and Measurement. Comments to the AASB were due by 31 December 2021.

The AASB made a submission to the IASB on its Request for Information. The AASB’s submission noted that, overall, the classification and measurement requirements of IFRS 9 were working as intended and providing useful information to users of financial statements. The submission also highlighted some matters that might warrant additional consideration. The AASB’s submission was informed by feedback from stakeholders, including three written submissions, consultation with the AASB Financial Instruments Project Advisory Panel, the AASB User Advisory Committee and the AASB Academic Advisory Panel, and other targeted consultations with financial statement preparers, auditors, professional bodies, regulators, academics and users.

After considering stakeholder feedback, in March 2023 the IASB issued Exposure Draft ED/2023/2 Amendments to the Classification and Measurement of Financial Instruments. The AASB issued the same proposals in Australia for public comment in Exposure Draft ED 324 Amendments to the Classification and Measurement of Financial Instruments. Comments to the AASB were due by 31 May 2023.

The AASB made a submission to the IASB on ED/2023/2. The AASB’s submission supported some aspects of the proposals and also suggested several clarifications of or amendments to the proposals. The AASB’s submission was informed by feedback from targeted outreach activities, including consultation with the AASB Financial Instruments Project Advisory Panel, the AASB User Advisory Committee, financial statement preparers, auditors and professional bodies.

The IASB analysed the feedback it received on ED/2023/2 and decided to finalise the amendments after making some changes, which largely addressed the AASB’s concerns. The changes included refining and redrafting some of the proposed requirements to avoid unintended consequences and limiting the scope of some of the proposed disclosure requirements. The IASB concluded that these amendments should address diversity in accounting practice by making the requirements more understandable and consistent. The IASB set an effective date for the amendments of annual periods beginning on or after 1 January 2026, with earlier application permitted.

The AASB considered and adopted the amendments made by the IASB to IFRS 7 and IFRS 9 in finalising AASB 2024‑2. The AASB set an effective date of annual periods beginning on or after 1 January 2026, with earlier application permitted, the same as the IASB’s effective date.

A Policy Impact Analysis has not been prepared in connection with the issue of AASB 2024-2 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 through section 12 of the Legislation (Exemptions and Other Matters) Regulation 2015 (Item 18(a)).

The AASB’s Australian Accounting Standards incorporate Standards set by the International Accounting Standards Board in respect of publicly accountable for-profit entities. The AASB’s Accounting Standards are exempt from sunsetting because a more stringent review process than sunsetting applies to the Standards. This review process ensures Australia’s Accounting Standards regime remains consistent with international Standards. Typically, the AASB Standards are revised at least once within a ten-year period, with most of the Standards subject to much more frequent revisions. Each revision follows the stringent review process (which includes the opportunity for public comment) in order to remain consistent with international Standards. It is very unlikely that any AASB Standard would not have been amended (or else considered for amendment) within a ten-year period through these review processes. Therefore, if it applied, a ten-year sunsetting regime would have very limited practical application to AASB Standards. Parliamentary oversight is retained whenever a Standard is replaced or amended since the Standards are disallowable instruments and subject to the normal tabling and scrutiny process as required by the Legislation Act 2003.

Statement of Compatibility with Human Rights

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

Accounting Standard AASB 2024-2
Amendments to Australian Accounting Standards –
Classification and Measurement of Financial Instruments

Overview of the Accounting Standard

This Standard makes amendments to AASB 7 Financial Instruments: Disclosures (August 2015) and AASB 9 Financial Instruments (December 2014). This Standard amends requirements related to:

(a)                   settling financial liabilities using an electronic payment system; and

(b)                   assessing contractual cash flow characteristics of financial assets with environmental, social and corporate governance (ESG) and similar features.

This Standard also amends disclosure requirements relating to investments in equity instruments designated at fair value through other comprehensive income and adds disclosure requirements for financial instruments with contingent features that do not relate directly to basic lending risks and costs.

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.