1. The Australian financial reporting environment
1.2.2.2 What is the role of the International Accounting Standards Board (‘IASB’) and International
The AASB uses IFRSs issued by the IASB as the basis of preparation of Australian Accounting Standards as a result of a directive from the FRC. In adopting IFRS, the AASB’s overall approach has been to adopt the content and terminology used in IFRS, with extra modifications to:
• provide exemptions or modified application to particular accounting requirements for not-for-profit entities (entities whose principal objectives do not include the generation of profit as defined in AASB 102 Aus6.1)
• increase the number of disclosures required in the financial statements where they are considered particularly relevant to the Australian reporting environment
• provide accounting interpretations for Australian specific issues.
As a result of these modifications, each entity must perform its own assessment of whether in addition to complying with Australian Accounting Standards, it can also claim compliance with IFRS.
S295(4)(ca) requires directors’ declarations attached to the financial statements to include reference to any statement of IFRS compliance (see section 4.2.2).
1.2.3 Comparison between AASB and IFRS Accounting Standards terminology
The following table compares the AASB standards with the equivalent IFRS standards, where they exist.
T h e
The IASB standard IFRS for SME’s (Small, Medium Enterprises) has no Australian equivalent and cannot currently be used in Australia.
* Predecessor Accounting / Interpretation Standard Setters
• International Accounting Standards Committee (‘IASC’) the predecessor to the IASB
• Standing Interpretations Committee (‘SIC’) the predecessor to the IFRIC which is now called IFRS Interpretations Committee
• Urgent Issues Group (‘UIG’) previous committee whose responsibilities now absorbed by AASB
• Accounting Standards Review Board (‘ASRB’) predecessor to the AASB.
Issuer AASB terminology IFRS terminology
AASB/IASB AASB standard 1 onwards IFRS standard 1 onwards
AASB/IASC* AASB standards 101 – 141 IAS standards 1 – 41
AASB • AASB Australian specific
standards 1000 onwards
• AASB series 20XX – XX onwards (amending existing AASB’s)
• AAS 25 Accounting for Superannuation Plans (see 1.2.4.4)
No equivalent standards
AASB/IFRIC Interpretations 1 onwards IFRIC Interpretation 1 onwards (see 1.2.4.2)
AASB/SIC* Interpretations 101 – 132 SIC 1 – 32
AASB/UIG* AASB Interpretations Australian specific interpretations 1001 onwards
No equivalent
AASB/IASB AASB framework IASB framework
ASRB* • Statement of Accounting Concept 1 Definition of the Reporting Entity (‘SAC 1’)
No equivalent statements
1.2.4 Structure of accounting standards 1.2.4.1 Standards
AASBs comprise a series of bold-type and plain-type paragraphs. Generally the bold-type paragraphs outline the main principle, and the plain-type paragraphs provide further explanation. Both bold-type and plain-type paragraphs have equal authority and must be complied with.
The status of appendices to AASBs varies. A statement at the top of each appendix clarifies whether the appendix is illustrative only (indicating the standard does not have the same status as the standard itself) or whether it is an integral part of the standard. In our view, the guidance in an appendix should be followed except when it conflicts with the requirements of a standard or interpretation, or when the guidance merely represents an illustrative example, and it is clear that a standard or requirement can be complied with in different ways. [AASB 108.9, AASB 108.7]
For example, Appendix A Application Guidance is an integral part of AASB 139 Financial Instruments:
Recognition and Measurement and is mandatory. In contrast, Appendix A Example of Temporary Differences is considered to accompany but not be part of AASB 112 Income Taxes – the examples being considered illustrative, and depending on the tax laws and specific circumstances of an entity, may or may not be relevant.
In addition to Application Guidance, the AASB may issue Implementation Guidance, for example
Implementation Guidance AASB 2 Share-based Payments. Implementation Guidance does not form part of an accounting standard and is non-mandatory. However, there is a requirement to consider, but not necessarily apply, any Implementation Guidance in the selection of accounting policies.
1.2.4.2 Interpretations and Abstracts
The AASB issues interpretations to provide requirements concerning limited scope financial reporting issues. Since mid 2006, the AASB has had direct responsibility for developing both Australian equivalents of the International Financial Reporting Interpretations Committee (‘IFRIC’) Interpretations and domestic Interpretations. Before this period, the now defunct UIG had responsibility for issuing the equivalent interpretations.
AASB Interpretations are listed in AASB 1048 Interpretation of Standards, giving them legal authority under the Act alongside the Standards. For non-Corporations Act entities, Interpretations are also considered mandatory in the preparation and presentation of general purpose financial statements by members of the Accounting professional bodies due to the requirement to comply with Australian Accounting Standards, which includes AASB 1048 (see section 1.2.1.2).
The AASB formally approves or rejects proposed new Interpretations. A proposed Interpretation may be published on the AASB website for a period of time, but has no authority. A proposed Interpretation approved by the AASB is formally issued as an AASB Interpretation. When an issue is rejected by the AASB for consideration, it publishes an agenda rejection statement. Whilst not authoritative, the rejection statement outlines the reasons why the AASB declined to issue an interpretation.
1.2.4.3 Hierarchy of generally accepted accounting principles
AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors includes a hierarchy which provides entities with a basic structure for resolving issues in the absence of specific guidance in AASBs.
When AASBs do not cover a particular issue, management of the entity is required to use its judgement in developing and applying an accounting policy that results in relevant and reliable information.
[AASB 108.10]
Management should consider:
• the guidance and requirements in standards and interpretations dealing with similar and related issues
Management also may consider the pronouncements of other standard-setting bodies (e.g. the US Financial Accounting Standards Board) that have similar conceptual frameworks, and other accounting literature and accepted industry practice, to the extent that they do not conflict with the standards, interpretations and the Framework. [AASB 108.12]
The AASB has revised AASB 1031 Materiality in December 2013 removing the additional Australian guidance on materiality. Existing accounting standards (AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors) contain guidance on materiality which is considered both sufficient and IFRS compliant. The revisions to AASB 1031 are not expected to change practice or to change the level of disclosure presently specified by accounting standards. See section 7.3 for further discussion.
1.2.4.4 Entity specific standards
Historically, the AASB series were only applicable to entities required to comply with the Act and its predecessors, generally companies, disclosing entities and registered schemes. Australian Accounting Standards (‘AASs’) applied to all other entities such as public sector entities and trusts. However AASBs issued since August 2000 now apply to entities governed by the Act and any other entities preparing general purpose financial statements. The AASB has announced that no further AASs will be issued.
Although the AASB’s stated intention has been to adopt accounting standards that are transaction neutral, it has, in relation to the following types of entities, continued to maintain the entity specific requirements for which guidance existed pre-implementation of IFRS.
Superannuation entities
In December 2013, the AASB has approved a new standard applying to superannuation entities, which is subject to fatal flaw review. The final standard will replace AAS 25 Financial Reporting by
Superannuation Plans and is expected to apply to annual reporting periods beginning on or after 1 July 2016. Following the fatal flaw process, the final standard is expected to be made by the AASB in the 2nd quarter of 2014. Fatal flaw comments are due by 28 February 2014.
Government entities
Government specific reporting is addressed by the following AASB standards and interpretations:
• AASB 1004 Contributions
• AASB 1049 Whole of Government and General Government Sector Financial Reporting
• AASB 1050 Administered Items
• AASB 1051 Land Under Roads
• AASB 1052 Disaggregated Disclosures
• AASB 1055 Budgetary Reporting
• AI 1038 Contributions by Owners made to Wholly-Owned Public Service Entities.
Not-for-profit specific standards
Unless otherwise specified, most AASBs contain guidance for both profit and not-for-profit entities.
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. As at 31 January 2014, this is the case for the following AASB standards, all of which are effective for not-for-profit entities for annual reporting periods beginning on or after 1 January 2014 (where for for-profit entities the effective date is 1 January 2013):
• AASB 10 Consolidated Financial Standards
• AASB 11 Joint Arrangements
• AASB 12 Disclosure of Interests in Other Entities
• AASB 127 Separate Financial Statements (2011)
• AASB 128 Investments in Associates and Joint Ventures (2011).
In November 2013, the AASB also issued specific guidance for not-for-profit entities on determining when an entity controls another: AASB 2013-8 Amendments to Australian Accounting Standards Australian Implementation Guidance for Not-for-Profit Entities – Control and Structured Entities. The standard adds an appendix to both AASB 10 and AASB 12 explaining how the principles contained within these
standards apply from the perspective of not-for-profit entities.
In addition, the following standard applies to not-for-profit entities:
• AASB 1004 Contributions.
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.
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.
In addition, the following AASB interpretation applies:
• AI 1003 Australian Petroleum Resource Rent Tax.