Financial Sector (Collection of Data) (reporting standard) determination No. 45 of 2006 - Reporting Standard RRS 231.1b - International Exposures: Locational (Liabilities) Part 1

Administered by Department of the Treasury

Legislation au F2006L02044 Not in force Legislative Instrument

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Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44 - 60 of 2006

 

 

EXPLANATORY STATEMENT

 

Prepared by the Australian Prudential Regulation Authority (APRA)

Issued by the authority of APRA

 

Financial Sector (Collection of Data) Act 2001 (the Act), paragraph 13(1)(a)

 

Acts Interpretation Act 1901, subsection 33(3)

 

 

Under paragraph 13(1)(a) of the Act, APRA may, by writing, determine reporting standards with which financial sector entities must comply.  Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities.  Subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to issue an instrument the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to amend or vary any such instrument.

 

Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44 - 60 of 2006 (the instruments) revoke and replace the reporting standards outlined below in respect of Registered Financial Corporations (RFCs):

 

RRS 231.1a   International Exposures: Locational (Assets) Part 1

RRS 231.1b   International Exposures: Locational (Liabilities) Part 1

RRS 231.2     International Exposures: Locational Part 2

RRS 231.3a International Exposures: Consolidated (Domestic Entity)

RRS 231.3b International Exposures: Consolidated (Foreign Entity)

RRS 320.0    Statement of Financial Position

RRS 320.1   Debt Securities Held

RRS 320.2   Equity Securities Held

RRS 320.3   Debt Securities on Issue

RRS 320.4   Bill Acceptances

RRS 320.5 Securities Subject to Repurchase and Resale and Stock Lending and Borrowing

RRS 331.0    Selected Revenues and Expenses

RRS 332.0   Statement of Economic Activity

RRS 391.0   Commercial Finance

RRS 392.0   Housing Finance

RRS 393.0   Lease Finance

RRS 394.0   Personal Finance

 

Under subsection 15(1) of the Act, APRA has determined that the instruments will come into force on 1 July 2006.

 

  1.    Background

 

This Explanatory Statement explains the changes being made by APRA to the reporting framework for RFCs in response to Australian equivalents to international financial reporting standards (AIFRS). RFCs have adopted AIFRS for reporting periods beginning on or after 1 January 2005.

 

Each reporting standard comprises: (1) the body of the reporting standard itself (which contains details about inter alia when returns under the standards must be lodged with APRA); (2) one or more reporting forms which must be completed by RFCs covered by the reporting standard; and (3) a set of detailed technical instructions regarding completion of the form.

 

The changes to Australian accounting standards that flow from the adoption of AIFRS, automatically flow through to APRA’s reporting framework. APRA’s objective in its approach to AIFRS is to align its reporting  standards with Australian accounting standards and principles to the extent practicable, as the latter provide a widely accepted basis for the recognition and measurement of assets, liabilities, equity, revenue and expenses.

 

2.      Purpose of the instruments

The purpose of the instrument is to revoke those reporting standards, applying to RFCs, whose operation is affected by AIFRS and to replace them with corresponding standards which incorporate appropriate adjustments (new standards).  APRA considered that it would be clearer and more effective to consolidate the necessary changes within new standards.  For that reason, APRA decided to revoke and replace affected reporting standards rather than to amend them. The reporting standards affected by AIFRS are RRS 320.0 Statement of Financial Position and RRS 331.0 Selected Revenues and Expenses. APRA has also taken this opportunity to update the formatting of instructions attaching to all RFC reporting standards. Therefore, APRA has revoked all RFC reporting standards and redetermined them.

 

3.      Operation of the instruments

 

The instruments determine the new standards.

 

There have been no material changes to the reporting standards themselves, only to the forms and instructions. References to accounting standards and Australian Accounting Standards Board (AASB) standards in the instructions have been updated to AIFRS accounting standards. Accordingly, AIFRS must be applied by RFCs, where instructed, when completing forms under the new standards.

 

The forms and instructions have also been updated for the accounting presentation changes that flowed from AIFRS. A more detailed summary of the changes follows:

 

RRS 231.1, RRS 231.2, RRS 231.3 International Exposures

 

These reporting standards collect information from Australian-resident RFCs on their international exposures and satisfy Australia’s obligation to the Bank for International Settlements (BIS) in providing aggregate international banking statistics for Australia.

 

The changes to these standards are for the purposes of updating references as they relate to the new accounting standards and to ensure consistency with AIFRS terminology. There have also been minor changes to update the formatting of the documents and minor drafting changes to ensure consistency between different reporting standards.

 

RRS 320.0 Statement of Financial Position

 

This reporting standard requires all RFCs with assets equal to or greater than $50 million to provide a statement of financial position to APRA each month. A number of changes have been made including the need for RFCs to ensure that derivative instruments and defined benefit assets and liabilities are recognised on their balance sheets. Intangible assets will also be required to be treated differently. Goodwill which was previously amortised will now have to be tested for impairment on an annual basis. There have also been changes to ensure consistency with AIFRS terminology and to update the formatting of the document and minor drafting changes to ensure consistency between different reporting standards.

 

RRS 331.0 Selected Revenues and Expenses

 

This reporting standard requires RFCs that have total assets equal to or greater than $500 million to report selected revenues and expenses on a quarterly basis. RFCs will be required to report gains losses on derivative instruments whereas previously such losses were not required to be disclosed. There have  also been minor changes to update the formatting of the document and minor drafting changes to ensure consistency between different reporting standards.

 

All other Reporting Standards listed in the instruments

 

There have been no changes to the other reporting standards other than to update the formatting of the reporting standards and instruction guides and minor drafting changes to ensure consistency between different reporting standards.  These changes do not affect the content of the reporting standards or instruction guides.

 

4.      Consultation

 

Industry wide consultation has been held over a 12-month period with RFCs. APRA also consulted the Reserve Bank of Australia (RBA) and Australian Bureau of Statistics (ABS) when developing the AIFRS regulatory reports. Feedback received has been incorporated within the final set of reports.

 

5.      Regulation Impact Statement

 

The Office of Regulation Review has advised that a RIS is not required for the amendments to the reporting standards. 

Overview

The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44 - 60 of 2006 were introduced by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001. These determinations were enacted to address the need to align APRA's reporting standards with Australian equivalents to international financial reporting standards (AIFRS), which were adopted by Registered Financial Corporations (RFCs) for reporting periods beginning on or after 1 January 2005. APRA's policy objective is to ensure that its reporting standards align with Australian accounting standards and principles to the extent practicable, thereby providing a widely accepted basis for the recognition and measurement of assets, liabilities, equity, revenue, and expenses. These determinations revoke and replace the existing reporting standards for RFCs, incorporating necessary adjustments to reflect the changes brought about by AIFRS, and update the formatting of instructions and minor drafting changes to ensure consistency across different reporting standards. The purpose of these instruments is to streamline and clarify the reporting framework for RFCs by replacing the affected reporting standards with new ones that incorporate the necessary adjustments due to AIFRS. APRA decided to revoke and replace the existing standards rather than amend them to achieve better clarity and effectiveness. The changes primarily involve updating references to AIFRS accounting standards and ensuring consistency with AIFRS terminology. RFCs are required to apply AIFRS when completing forms under the new standards. This initiative was developed in consultation with RFCs, the Reserve Bank of Australia (RBA), and the Australian Bureau of Statistics (ABS), with feedback incorporated into the final set of reports.

Scope and Application

The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44 - 60 of 2006 apply to financial sector entities in Australia, specifically Registered Financial Corporations (RFCs), which are mandated to report financial and accounting data to the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001. These determinations replace and revoke existing reporting standards to incorporate changes resulting from the adoption of Australian equivalents to international financial reporting standards (AIFRS). The instruments are designed to ensure that RFCs, which have adopted AIFRS for reporting periods beginning on or after 1 January 2005, comply with updated reporting standards. The reporting standards cover various aspects of financial reporting including international exposures, statements of financial position, and selected revenues and expenses, with specific requirements for entities based on their asset size. These determinations will come into force on 1 July 2006, and the changes primarily involve updating references to AIFRS, ensuring consistency with international terminology, and updating the formatting of the reporting standards and instruction guides. There are no changes to the content of the reporting standards themselves, except for those necessitated by AIFRS adoption. The instruments extend the application of the Act by specifically addressing the adoption of AIFRS in the financial reporting requirements for RFCs. While the core purpose is to align APRA’s reporting standards with AIFRS, the determinations also include minor drafting changes to ensure consistency across different reporting standards. APRA has opted to revoke and replace existing standards rather than amend them to maintain clarity and effectiveness in reporting requirements. The instruments do not specify any exclusions or exemptions, applying uniformly to all RFCs subject to the reporting standards. Furthermore, APRA has consulted extensively with RFCs, the Reserve Bank of Australia, and the Australian Bureau of Statistics during the development of these instruments, incorporating feedback into the final determinations. The Office of Regulation Review has advised that a Regulation Impact Statement is not required for these amendments.

Key Provisions

The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44 - 60 of 2006, made under the Financial Sector (Collection of Data) Act 2001, primarily serve to update and replace existing reporting standards for Registered Financial Corporations (RFCs) in light of the adoption of Australian equivalents to international financial reporting standards (AIFRS). These instruments replace and revoke the previously applicable reporting standards, aiming to ensure alignment with AIFRS and Australian accounting principles. The determinations specify the new standards that RFCs must adhere to when reporting financial and accounting data to the Australian Prudential Regulation Authority (APRA). The obligations imposed by these determinations require RFCs to comply with the new reporting standards when submitting data to APRA. RFCs must ensure that their financial reporting aligns with AIFRS, particularly in recognising derivative instruments, defined benefit assets and liabilities, intangible assets, and goodwill. For instance, RRS 320.0 mandates that RFCs with assets of $50 million or more submit a monthly statement of financial position, which must include derivative instruments and defined benefit assets and liabilities. RRS 331.0 requires RFCs with assets of $500 million or more to report selected revenues and expenses quarterly, including gains and losses on derivative instruments. The new standards also necessitate the application of AIFRS terminology and ensure consistency across different reporting standards. Failure to comply with these determinations can lead to significant consequences. While the determinations themselves do not explicitly state penalties for non-compliance, non-compliance with reporting requirements under the Financial Sector (Collection of Data) Act 2001 can result in enforcement actions by APRA. Such actions may include fines, public reprimands, or other regulatory measures. Additionally, inaccurate or incomplete reporting can undermine the integrity of financial data, potentially leading to regulatory scrutiny and adverse market perceptions. RFCs are, therefore, obligated to ensure that their financial reporting meets the stipulated standards to avoid any regulatory repercussions. These determinations underscore the importance of accurate and consistent financial reporting in the financial sector. By aligning reporting standards with AIFRS, APRA aims to enhance the transparency and reliability of financial data, which is crucial for regulatory oversight and market stability. RFCs must diligently update their reporting practices to reflect these changes and ensure compliance with the new standards to avoid any adverse regulatory consequences.

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