Financial Sector (Collection of Data) (reporting standard) determination No. 48 of 2006 - Reporting Standard RRS 231.3b - International Exposures: Consolidated (Foreign Entity)

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.