In May 2022, the Australian Accounting Standards Board (AASB) released two new amending Australian Accounting Standards outlining narrow scope amendments relevant to Australia – not driven by changes to IFRS® Accounting Standards:
- AASB 2022-2 Amendments to Australian Accounting Standards – Extending Transition Relief under AASB 1
- AASB 2022-3 Amendments to Australian Accounting Standards – Illustrative Examples for Not-for-Profit Entities accompanying AASB 15.
Extending AASB 1 transition relief
AASB 1 optional exemption extended to include IFRS Standards
To assist entities with the first-time preparation of general purpose financial statements (GPFS), AASB 2022-2 amends AASB 1 First-time Adoption of Australian Accounting Standards to allow a subsidiary preparing GPFS for the first time to apply the optional exemption in paragraph D16(a) and measure its assets and liabilities at the carry amounts that would be included in the parent’s consolidated financial statements, if the parent has already adopted either Australian Accounting Standards (AAS) or IFRS Accounting Standards.
Similarly, a parent entity preparing consolidated GPFS for the first time can use the carrying amounts included in its subsidiary’s (or associate’s or joint venture’s) separate financial statements, if its subsidiary has already adopted AAS or IFRS Accounting Standards.
Why the amendment was made
The optional exemption in AASB 1 previously only referenced where a parent or subsidiary had already adopted AAS – there was no reference to IFRS Accounting Standards. Given that a foreign parent could have applied IFRS Accounting Standards, and that AAS are based on IFRS Accounting Standards, this amendment provides clarity and practicality for entities with such circumstances.
Application of AASB 1 on transition to consolidated GPFS-SD
AASB 2022-2 also amends AASB 1053 Application of Tiers of Australian Accounting Standards to allow for-profit private sector entities transitioning from unconsolidated GPFS-Tier 2 Reduced Disclosure Requirements (RDR) to consolidated GPFS-Tier 2 Simplified Disclosures (SD) to apply AASB 1 when preparing consolidation financial statements for the first time.
Why the amendment was made
For the for-profit private sector entities that previously prepared unconsolidated GPFS-Tier 2 RDR but are now required to prepare consolidated GPFS-Tier 2 SD, the AASB was concerned that such entities would not be able to apply AASB 1 on transition. Therefore, this amendment was made to explicitly extend the transition relief to allow these entities to apply AASB 1 when preparing consolidated financial statements for the first time.
In our view the amendment made to AASB 1053 is not required – however it does not impact on an entity’s ability to apply AASB 1 when transitioning to prepare consolidated GPFS-Tier 2 SD. Over time, an entity can become a first-time adopter more than once through its different reporting entities in respect to each (different) set of financial statements that it prepares.
For example, if in the prior year, the parent only prepared separate financial statements, but is required to prepare group consolidated financial statements for the current reporting period, this entity will already be required to apply AASB 1 on transition to GPFS-Tier 2 SD, because for this group reporting entity, this is the first group set of AAS financial statements.
AASB 2022-2 applies to annual reporting periods ending on or after 30 June 2022, with earlier application permitted.
The AASB continues to seek to make the transition for for-profit entities to the new Australian financial reporting framework – mandatory from this 30 June 2022 financial year-end – as practical as possible. Some of the changes – as highlighted – are in our view, technically not needed.
New illustrative example – up-front fees for not-for-profit entities
The AASB 2022-3 amendments insert Example 7A to illustrate for not-for-profit (NFP) entities how AASB 15 Revenue from Contracts with Customers applies to the recognition and measurement of up-front fees charged to its customers or members. The new illustrative example is consistent with and expands on the guidance already contained in the AASB Staff FAQs for NFPs and is not expected to be a change in practice for most NFP entities. The amendments do not change the requirements of AASB 15.
In addition, the Basis for Conclusions accompanying AASB 2022-3 clarifies that an accounting policy choice for NFP private sector lessees to elect to initially measure the fair value of right-of-use assets under concessionary leases at cost or at fair value is permanent.
Such consideration of making the temporary option permanent for NFP public sector lessees is deferred until additional guidance is discussed.
AASB 2022-3 applies to annual reporting periods beginning on or after 1 July 2022, with earlier application permitted.
Further issues raised by stakeholders on the application of the revenue (AASB 15) and income (AASB 1058) standards by not-for-profit entities will be addressed in the forthcoming post implementation review of these standards by the AASB. We urge stakeholders to engage in this process when announced by the AASB, especially where you have experienced challenges in the practical application of the standards.
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