Financial Sector (Collection of Data) (reporting standard) determination No. 59 of 2006 - Reporting Standard RRS 393.0 - Lease Finance

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Legislation au F2006L02085 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 enacted to address the need for updating the reporting standards of financial sector entities in line with the Australian equivalents to international financial reporting standards (AIFRS), which were adopted for reporting periods beginning on or after 1 January 2005. Issued by the Australian Prudential Regulation Authority (APRA), these determinations are made under the authority of the Financial Sector (Collection of Data) Act 2001. The primary objective of these instruments is to revoke existing reporting standards for Registered Financial Corporations (RFCs) that have been affected by the adoption of AIFRS and replace them with new standards that incorporate the necessary adjustments, ensuring alignment with Australian accounting standards and principles. APRA undertook a comprehensive approach to address the changes brought about by AIFRS, opting to revoke and replace the affected reporting standards rather than amend them, for clarity and effectiveness. The changes primarily focus on updating references to AIFRS accounting standards and ensuring consistency with AIFRS terminology, without altering the core content of the reporting standards. Additionally, the formatting of the reporting standards and instruction guides were updated to maintain uniformity and consistency across different standards. This regulatory update reflects APRA's commitment to maintaining a coherent and effective reporting framework that supports the broader goals of financial sector regulation and stability.

Scope and Application

The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 44-60 of 2006 apply to Registered Financial Corporations (RFCs) operating within Australia, as mandated by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001. These determinations revoke and replace existing reporting standards to align with Australian equivalents to International Financial Reporting Standards (AIFRS). The changes encompass updates to the reporting forms and instructions, ensuring that RFCs comply with AIFRS when lodging their returns with APRA. The instruments aim to harmonise APRA's reporting standards with Australian accounting standards, facilitating a uniform basis for recognising and measuring assets, liabilities, equity, revenue, and expenses. Notably, the instruments do not alter the fundamental content of the reporting standards but focus on updating references, terminology, and formatting to reflect AIFRS. These new standards will come into effect on 1 July 2006, as per subsection 15(1) of the Act.

Key Provisions

The Financial Sector (Collection of Data) (Reporting Standard) Determinations Nos. 44-60 of 2006, issued under the Financial Sector (Collection of Data) Act 2001, establish new reporting standards for Registered Financial Corporations (RFCs) in response to the adoption of Australian equivalents to international financial reporting standards (AIFRS). These determinations revoke and replace existing reporting standards to ensure consistency with AIFRS, which were adopted by RFCs for reporting periods beginning on or after 1 January 2005 (section 13(1)(a)). The determinations apply to various aspects of financial reporting, including international exposures (RRS 231.1a-231.3b), financial position (RRS 320.0), and selected revenues and expenses (RRS 331.0). They also cover other financial data such as debt securities held (RRS 320.1), equity securities held (RRS 320.2), and various types of finance (RRS 391.0-394.0). The determinations came into force on 1 July 2006, as specified under subsection 15(1) of the Act. The obligations under these determinations primarily require RFCs to align their financial reporting with AIFRS. RFCs must ensure that their financial statements reflect the new accounting standards, including the recognition of derivative instruments, defined benefit assets and liabilities, and the treatment of intangible assets and goodwill. For instance, RFCs with assets of $50 million or more must submit a monthly statement of financial position to the Australian Prudential Regulation Authority (APRA), and those with assets of $500 million or more must report selected revenues and expenses quarterly. The RFCs are also required to update their reporting forms and follow the detailed technical instructions provided with the new standards. These obligations extend to updating references to AIFRS in the instructions, ensuring consistency with AIFRS terminology, and adhering to the updated formatting of the reporting standards and instruction guides. Failure to comply with these determinations can result in civil and criminal penalties. The Financial Sector (Collection of Data) Act 2001 provides for substantial penalties for non-compliance, including fines and imprisonment. Specifically, under section 18 of the Act, a person who contravenes a provision of the Act, including the reporting standards, is liable to a penalty of up to $105,000 for individuals and $525,000 for bodies corporate. Additionally, under section 19, a person who knowingly or recklessly makes a false or misleading statement in a document required to be lodged with APRA can face a fine of up to $210,000 for individuals and $1,050,000 for bodies corporate, or imprisonment for up to five years, or both. These penalties underscore the importance of adherence to the new reporting standards and the serious consequences of non-compliance.

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