Overview
• Discusses the key differences between AASBs and IFRSs applicable to private sector entities that could result in non-compliance with IFRS.
• Highlights Australian disclosures additional to IFRS and the Australian differential financial reporting framework for general purpose financial statements.
• The AASB has revised AASB 1031 Materiality in December 2013 removing Australian specific guidance on materiality.
7.1 For-profit private sector entities
7.1.1 Key differences between AASBs and IASBs
The following is a summary of the only remaining difference between AASBs and IFRSs applicable to for- profit, private sector tier 1 entities for financial years beginning on or after 1 July 2013:
Standard Addition Comment
AASB 6 Exploration for and Evaluation of Mineral Resources
AASB 6 Aus7.1, 7.2, 22.1
The level identified by the entity for testing exploration and evaluation assets for impairment shall be no larger than the area of interest to which the exploration and evaluation asset relates.
In contrast, IFRS 6 Exploration for and Evaluation of Mineral Resources is less restrictive in that the level identified by the entity for the purposes of testing exploration and evaluation of mineral resources assets for impairment, may comprise one or more cash-generating units, each of which could be larger than an area of interest, but less than a segment.
While the above Australian addition does not result in non-compliance with IFRSs, applying the guidance in IFRS 6 could result in non-compliance with AASBs.
7.1.2 Specialist industries Insurance industry
The following standards contain Australian specific requirements additional to AASB 4 Insurance Contracts:
• AASB 1023 General Insurance Contracts
• AASB 1038 Life Insurance Contracts.
AASB 2013-07 Amendments to AASB 1038 arising from AASB 10 in relation to Consolidation and Interests of Policyholders removes remove the specific consolidation requirements from AASB 1038, and thereby leave AASB 10 Consolidated Financial Statements as the sole source for consolidation
requirements applicable to life insurer entities. AASB 2013-07 applies to annual reporting periods beginning on or after 1 January 2014, but maybe early adopted. Prior to this amending standard AASB 1038 required a life insurer to recognise in its financial statements the assets, liabilities, income, expenses and equity of the entity, whether they are designated as relating to policyholders or to shareholders.
Extractive industry
The Australian equivalent of IFRS 6, AASB 6 Exploration for and Evaluation of Mineral Resources contains additional Australian specific requirements for entities in this sector (as discussed above).
In addition, the following AASB interpretation applies:
• AI 1003 Australian Petroleum Resource Rent Tax.
7.1.3 Additional Australian disclosures
AASB 1054 Australian Additional Disclosures includes disclosure requirements and definitions which are additional to IFRSs. Compliance with AASB 1054 is not needed for IFRS compliance.
Details of the additional Australian disclosures can be found in the Australian Disclosure Checklist.
7.1.4 Australian differential financial reporting framework
AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: Tier 1: Australian Accounting Standards; and Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.
Tier 2 comprises the recognition and measurement requirements of Tier 1 but substantially reduced disclosure requirements. Except for the presentation of a third statement of financial position under Tier 1, the presentation requirements under Tier 1 and Tier 2 are the same.
Each Australian Accounting Standard specifies the entities to which it applies and, where necessary, sets out disclosure requirements from which Tier 2 entities are exempt.
Refer to section 5.2 for further details.
Comparison with IFRSs for SMEs
The disclosures required by Tier 2 and the disclosures required by the IASB’s International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) are highly similar. However, Tier 2 requirements and the IFRS for SMEs are not directly comparable as a consequence of Tier 2 including recognition and measurement requirements corresponding to those in IFRSs, whereas the IFRS for SMEs includes limited modifications to those requirements.
In addition, the recognition, measurement and disclosure requirements that apply in accordance with Tier 2 are to be revised as Australian Accounting Standards are revised, whereas the IFRS for SMEs will be revised only periodically for revisions of IFRSs.
7.2 Not-for-profit private sector entities
Most AASBs contain additional guidance for not-for-profit entities in the form of ‘Aus’ paragraphs. These paragraphs provide alternate recognition and measurement requirements which not-for-profit entities generally must apply. As a result it is unlikely that a not-for-profit entity will be able to claim compliance with IFRS.
In addition, as discussed in section 1.2.4.4, for some AASBs, the application date for not-for-profit entities for new or amending AASBs has been delayed compared to the application date for for-profit entities.
See section 1.2.4.4 for further details.
A not-for-profit entity is defined by accounting standards as an entity whose principal objective is not the generation of profit. A not-for-profit entity can be a single entity or a group of entities comprising the parent entity and each of the entities that it controls. This definition can be found in the AASB Glossary and AASB 102.Aus6.1.
Refer to the AASB website (aasb.gov.au) for further details on the additional ‘Aus’ paragraphs that deal with not-for-profit entities.
7.3 Materiality
The AASB has revised AASB 1031 Materiality in December 2013 removing the Australian specific guidance on applying materiality.
The revised AASB 1031 is effective for annual reporting periods beginning on or after 1 January 2014 and early adoption is not permitted.
The revised AASB 1031 is an interim standard that cross-references to other standards and
the Framework for the Preparation and Presentation of Financial Statements (issued December 2013) that contain guidance on materiality. The AASB is progressively removing references to AASB 1031 in all standards and interpretations, and once all these references have been removed, AASB 1031 will be withdrawn.
In KPMG’s view, the removal from AASB 1031 of specific quantitative guidance is not expected to significantly change practice, as AASB 1031 still requires consideration of both quantitative and qualitative factors in assessing materiality.
Upon revision to AASB 1031, the definition of materiality outlined in AASB 101 Presentation of Financial Statements and also included in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors will be the basis for assessing whether an omission or misstatement is material.
The definition of materiality in AASB 101 is consistent with that in AASB 1031, with the exception of the explicit reference in AASB 1031 to the omission, misstatement or non-disclosure of information being material if it affects the discharge of accountability by the management or governing body of the entity.
The removal of this reference to accountability is not expected to significantly change the application of materiality in practice.
Materiality per AASB 1031 Materiality per AASB 101
“Information is material if its omission, misstatement or non-disclosure has the potential, individually or collectively, to:
(a) influence the economic decisions of users taken on the basis of the financial statements;
or
(b) affect the discharge of accountability by the management or governing body of the entity.”
“Omissions or misstatements of items are material if they could, individually or
collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances.
The size or nature of the item, or a combination of both, could be the determining factor.”