5. Compliance with Accounting Standards
5.3 General purpose and special purpose financial statements
5.3.2.6 A non-reporting entity considering changing to Tier 2
Non-reporting entities that want to start preparing general purpose financial statements using Tier 2 (Reduced disclosure regime) may do so. If they are already applying the full classification, recognition and measurement requirements of AASBs, including consolidating subsidiaries, the transitional
requirements only change their level of disclosure to that required for Tier 2 (Reduced disclosure regime), i.e. they do not have to apply AASB 1.
However, non-reporting entities that were previously not applying all the classification, recognition and measurement requirements of AASBs, including consolidating subsidiaries, are unlikely to want to consider using Tier 2 (Reduced disclosure regime) as AASB 1 would have to be applied in full.
5.4 Consolidated and separate financial statements
5.4.1 Reporting entities – parent and group
The fundamental requirement of AASB 10 is that a parent entity that is a reporting entity must present consolidated financial statements in which it consolidates its investments over which it has control, except where the parent meets one of the exemptions discussed below.
A reporting entity that is a parent must apply the requirements of AASB 10 Consolidated Financial Statements. The determination of whether a parent entity is a reporting entity is the same as for other entities, that is whether it is “reasonable to expect the existence of users who depend on the financial statements for information that will be useful for making and evaluating decisions about the scarce allocation of resources” (see section 5.1). [AASB 10 Aus3.1]
Whilst the concept of reporting entity under the standard applies to a parent, the factors which would be considered in determining whether the group is a reporting entity are also generally relevant in
determining whether a parent entity is a reporting entity.
Exemptions from consolidation requirements for parent entities
An unlisted group that is a subset of a larger group that prepares publicly available consolidated IFRS financial statements is excluded from the requirement to prepare consolidated financial statements.
However, in AASB 10, this exemption is subject to an Australian amendment which requires the ultimate Australian parent of a group to present consolidated financial statements that consolidate its investments in subsidiaries when either the parent or the group is a reporting entity. The implication of the Australian amendment is illustrated below.
AASB 10 Aus4.2 is designed to address the following situation, where either B or the group BCD is a reporting entity, and B’s foreign parent A prepares publicly available consolidated IFRS financial statements:
IFRS 10 would not require B to prepare consolidated financial statements because it meets the conditions for exemption. However, AASB 10 requires B, as the ultimate Australian parent, to prepare consolidated financial statements where either B or the group BCD is a reporting entity. [AASB 10 Aus 4.2]
Foreign Parent Entity
Ultimate Australian Parent Entity
Intermediate Australian Parent Entity A
D C B
Consolidation exemption extended – Tier 2 (Reduced disclosure regime) and not-for-profit entities1 AASB 10.Aus4.1 extends the relief from consolidation by removing the requirement for the consolidated financial statements prepared by the ultimate or any intermediate parent to be IFRS compliant in the circumstances, as discussed in the following paragraph.
Under Aus4.1 paragraph, in the case of consolidation, AASB 10.4(a)(i) to 4(a)(iii) must be met (see decision tree at 5.4.2.1); however a parent need not present consolidated financial statements if its ultimate or any intermediate parent produces consolidated financial statements available for public use and:
• both are not-for-profit entities complying with Australian Accounting Standards (i.e. Tier 1 and even if not IFRS compliant) or
• both are entities (for-profit or not-for-profit) complying with Australian Accounting Standards – Reduced Disclosure Regime (i.e. Tier 2) or
• the parent entity (for-profit or not-for-profit) is complying with Australian Accounting Standards – Reduced Disclosure Regime (i.e. Tier 2) and its ultimate or intermediate parent is a not-for-profit entity complying with Australian Accounting Standards (i.e. Tier 1 and even if not IFRS compliant).
Under the Australian amendments the following situations will benefit:
• All Tier 2 (reduced disclosure regime) parent entities where the ultimate/intermediate parent is also Tier 2 (reduced disclosure regime) – irrespective of whether both entities are for-profit or not-for- profit
• All not-for-profit parent entities where the ultimate/intermediate parent is a Tier 1 not-for-profit entity
• All for-profit Tier 2 (reduced disclosure regime) parent entities where the ultimate/intermediate parent is a Tier 1 not-for-profit entity.
Section 5.4.2.2 provides a summary for all ultimate parent/intermediate parent/parent combinations.
The flowchart in section 5.4.2.1 provide a decision tree for determining whether an Australian entity preparing general purpose financial statements (either statutory or non-statutory), must prepare consolidated financial statements.
1 The discussion in this and subsequent sections on consolidated financial statements is on the basis that an entity is applying AASB 10. As highlighted in section 1.2.4.4, the application date for not-for-profit entities for AASB 10 has been delayed by 12 months compared to the application date for for-profit entities, and is effective for annual reporting periods beginning on or after 1 January 2014, with early adoption permitted. Where a not-for-profit entity is still applying the former consolidation standard, AASB 127 Consolidated and Separate Financial Statements, equivalent
5.4.2 Exemptions from consolidation requirements for Australian parent entities