Proposed changes to AASB 18 for Super Funds and NFPs

AASB proposes sector-specific amendments to AASB 18

AASB 18 Presentation and Disclosure in Financial Statements (AASB 18) introduces significant changes to the presentation of financial statements, including new subtotals in the statement of profit or loss, enhanced guidance on aggregation and disaggregation, and revised requirements for classifying dividend and interest cash flows.

When AASB 18 was issued, the AASB recognised that superannuation and not-for-profit entities may face specific application challenges. To address these, the AASB has released Exposure Draft ED 338 Application of AASB 18 and AASB 107 by Superannuation and Not-for-Profit Entities and Operating Cash Flow Reconciliation which proposes amendments to AASB 18 that provide targeted guidance on how AASB 18 and AASB 107 Statement of Cash Flows should be applied in these sectors, ensuring that financial statements remain relevant and understandable while maintaining consistency with sector-specific standards such as AASB 1056 Superannuation Entities and AASB 1049 Whole of Government and General Government Sector Financial Reporting.

The proposals also include consequential amendments to AASB 1039 Concise Financial Reports and AASB 1054 Australian Additional Disclosures.

Which entities are affected and when do the proposed changes apply?

The proposals apply to:

Superannuation entities reporting in accordance with AASB 1056
NFP private sector entities and universities preparing Tier 1 general purpose financial statements (GPFS) and
NFP public sector entities, including government.

They are proposed to be effective for annual periods beginning on or after 1 January 2028, with early adoption permitted. For-profit entities, other than super funds, apply related amendments to AASB 1039 and AASB 1054 from 1 January 2027.

What are the key proposed changes for superannuation entities?

The ED confirms that superannuation entities will continue to follow the familiar AASB 1056 reporting framework, rather than adopting the full presentation requirements of AASB 18. This means they will retain their existing income statement and cash flow formats through avoiding the new operating, investing, and financing classifications as required by AASB 18, and maintaining flexibility in classifying dividends and interest under the current AASB 107.

The proposals also clarify that the statement of changes in member benefits remains a primary financial statement, ensuring consistency with sector-specific reporting needs while aligning with the principles of AASB 18.

Superannuation entities will retain the AASB 1056 format for the statement of profit or loss. They will not be required to classify income and expenses into operating, investing, and financing categories nor present the new subtotals introduced by AASB 18, such as operating profit or loss.

Expenses will continue to be presented by nature as required by AASB 1056, rather than adopting AASB 18’s structured approach. This approach aligns with existing practice.

Superannuation entities can retain their current policy choice to classify dividends received and interest paid or received as operating cash flows. This approach aligns with existing practice.

When using the indirect method to reconcile operating cash flows, superannuation entities will use the total profit or loss as the starting point rather than the operating profit subtotal required by AASB 18. This simplifies compliance and reflects the absence of an operating subtotal in their financial statements.

The statement of changes in member benefits will continue to be treated as a primary financial statement for the purposes of applying AASB 18. This means it must comply with AASB 18 principles such as comparative information, aggregation and disaggregation, and materiality, ensuring that member benefit movements remain clearly presented.

What are the key proposed changes for NFP public sector entities?

Under AASB 18, the objective of financial statements is to provide financial information that is useful in assessing the prospects for future net cash inflows to the entity and in assessing management’s stewardship of the entity’s economic resources.

However, for NFP public sector entities, the ED requires the common information needs of users to be considered, which would include the ability of the entity to achieve its objectives (whether financial or non-financial) rather than obtaining a financial return on an investment in the entity. Additionally, when presenting expenses, entities should focus on line items that best explain their operations or main activities, rather than concentrating solely on drivers of profit or loss.

It further proposes tailored relief to reduce complexity and cost while maintaining meaningful reporting. Public sector NFPs will have options to avoid classifying income and expenses into operating, investing, and financing categories, present expenses by nature or function, and be exempt from disclosing management-defined performance measures.

Entities may choose not to classify income and expenses into operating, investing, and financing categories as required by AASB 18. This relief acknowledges that such classifications are less relevant for public sector entities whose focus is on service delivery rather than profit generation.

Entities can present expenses either by nature or by function, whichever provides more useful information to users. This flexibility aligns with existing AASB 101 Presentation of Financial Statements requirements and recognises the diversity of public sector reporting needs.

Public sector entities are exempt from identifying and disclosing MPMs. This exemption avoids the cost and complexity of tracking subtotals used in public communications, which may not be meaningful for accountability-focused reporting.

Entities may retain their current policy choice to classify dividends received and interest paid or received as operating cash flows. This approach ensures consistency with the ABS Government Finance Statistics (GFS) Manual and budget reporting practices, reducing the need for dual reporting.

If an entity does not present an operating profit or loss subtotal, it can use the total profit or loss as the starting point for reconciling operating cash flows under the indirect method. This simplifies compliance where operating subtotals are not relevant or practical.

How will NFP private sector entities and universities preparing Tier 1 GPFS be impacted?

NFP private sector entities and universities preparing Tier 1 GPFS will generally apply AASB 18 and the revised AASB 107 without significant modifications. However, the ED provides additional guidance to help these entities interpret certain principles in an NFP context.

NFP private sector entities must consider the common information needs of users, which are concerned with the ability of the entity to achieve its objectives (whether financial or non-financial) rather than obtaining a financial return on an investment in the entity. Additionally, when presenting expenses, entities should focus on line items that best explain their operations or main activities, rather than concentrating solely on drivers of profit or loss.

Are for-profit entities impacted by ED 338?

Although AASB 1054 applies to all entities preparing financial statements under Australian Accounting Standards, including for-profit entities, the changes proposed in ED 338 to AASB 1054 are consequential amendments only—they update references from AASB 101 to AASB 18 and ensure consistency with the new presentation and disclosure requirements without introducing new disclosures or substantive changes.