For 30 June 2016, the good news is that there are no new accounting standards, and only one small change to AASB 128 Investments in Associates and Joint Ventures that could impact your 30 June 2016 annual financial statements for the first time.
However, this is just the calm before the storm, with AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers effective for your 30 June 2019 annual periods, and AASB 16 Leases effective for June 2020. In addition, there are numerous changes to existing accounting standards that are effective from 1 January 2016 which may impact your 30 June 2017 financial statements.
Next financial year, superannuation entities will be impacted by the new standard, AASB 1056 Superannuation Entities and public sector entities will be required to disclose more information about related party transactions (AASB 2015-6 Extending Related Party Disclosures to Not-for-Profit Public Sector Entities).
ASIC continue, as part of their financial reporting surveillance programme, to focus on disclosures in the financial statements about the impacts of these standards and amendments that have been issued, but not yet effective, specifically the impact of the new revenue, leasing and financial instruments standards (including loan provisioning and hedge accounting).
You need to consider the following issues when preparing your 30 June 2016 annual financial statements:
These are discussed briefly below.
AASB 2015-4 is the only amending standard that applies for the first time to entities with a 30 June 2016 year-end.
This amendment is essentially an Australian ‘housekeeping’ matter that adds paragraph Aus 17.2 to AASB 128 to clarify, that in order to obtain an exemption from equity accounting interests in associates and joint ventures at intermediate levels within a group, the ultimate Australian entity must apply equity accounting in its own financial statements. Previously, this exemption was also available if the ultimate foreign entity applied equity accounting.
The amendment now makes the exemption for consolidation and equity accounting at intermediate levels in a group consistent. For both equity accounting and consolidation exemptions, the ultimate Australian entity must prepare consolidated financial statements, which includes equity accounting, if required.
When Corporations Regulation 2M.3.03 was first drafted, it unintentionally required key management personnel (KMPs) to disclose all of their personal shareholdings, in any company, in the remuneration report.
As an interim measure, the Australian Securities and Investments Commission (ASIC) issued Class Order 14/632 to clarify that only shares held by KMPs in the disclosing entity itself (or its subsidiaries) need be disclosed. This class order also required the disclosures in relation to the equity instruments to be separated into each class of equity instrument because this was omitted when the Regulation was originally drafted.
What changes have been made to the Regulations?
Regulation 2M.3.03 was updated on 16 April 2016 to fix the above-mentioned, and other drafting anomalies relating to:
Shareholdings - CO 14/632 is no longer required and has been withdrawn with effect from 16 April 2016. All references in Regulation 2M.3.03 to ‘issuing entity’ have been changed to refer to ‘disclosing entity or any of its subsidiaries’ to clarify that KMP shareholding disclosures include only equity instruments issued by the disclosing entity or its subsidiaries.
Loans - The changes also clarify that the required disclosures about loans to key management personnel do not include transactions that are in substance options, including non-recourse loans.
Transactions with KMPs – The superseded wording provided an exemption from disclosing KMP related party transactions if:
The revised Regulation 2M.3.03 replaces the ‘or’ conditions above with ‘and’. This means that all of the above criteria would need to be met for the disclosure exemption to apply. This is now consistent with the old AASB 124 Related Party Disclosures requirement transferred a number of years ago.
Entities that updated their disclosure templates to exclude KMP transactions where either one of the above criteria applied, will now need to revisit all KMP transactions to ensure that they are only omitted if all three criteria are met. This may result in more KMP transactions being disclosed than previously.
The majority of the changes made to the Regulations were previously incorporated in CO 14/632, however, you will need to ensure that:
ASIC has remade a number of legislative instruments (previously known as class orders) that affect 30 June 2016 annual financial statements. ASIC remakes legislative instruments when they expire, or reach their ‘sunset’ date of ten years from commencement date, if it determines that the legislative instrument remains ‘fit-for-purpose’ (that is effective, necessary and relevant).
The following class orders have been remade into legislative instruments, without making any substantive changes:
Remade Corporates Legislative Instrument
Replaces Class Order
Continuation of ‘grandfathering’ exemption from lodging financial statements
1 October 2015
Non-reporting entities permitted to apply transitional provisions in accounting standards for recognition and measurement
1 October 2015
Allows entities to disclose balance sheets showing financial effect of an acquisition or disposal after reporting date in the notes to the financial statements
1 October 2015
Relieves listed disclosing entities from obligations to lodge reports with both ASIC and a market operator (e.g. ASX), and allows the reports to be lodged electronically
1 April 2016
Changes to rounding class order
ASIC has remade Class Order 98/100 into ASIC Corporations (Rounding in Financial / Directors’ Reports) Legislative Instrument 2016/191. This legislative instrument allows rounding in financial statements and director’s reports for financial years or half-years ending on or after 30 June 2016. ASIC Class Order 98/100 continues to apply to financial years or half-years that end on or before 29 June 2016.
The re-made legislative instrument has been amended to clarify that the rounding exemptions only apply to dollar values (i.e. to the nearest thousand, hundred thousand or million dollars, depending on asset levels), and not to other amounts quoted in the financial statements (for example, numbers of shares, or when quantifying other items).
Therefore, Legislative Instrument 2016/191 no longer allows companies with assets greater than $1 billion to round the following items to the nearest $1,000 (whereas Class order 98/100 did):
The re-made Legislative Instrument, however, permits rounding to the nearest one cent for all entities for amounts disclosed in accordance with AASB 2, paragraphs 44 and 46.
In summary, rounding thresholds for dollar disclosures are generally as follows:
$10 million or less
More than $10 million to $1 billion
To nearest $1,000
More than $1 billion to $10 billion
To nearest $100,000
More than $10 billion
To nearest $1,000,000
However, all entities may only round to the nearest cent for:
Entities may only round to the nearest 1/10th of a cent for earnings per share disclosures under AASB 133 Earnings per Share.
Only entities with assets greater than $1 billion can round the following items to the nearest thousand dollars (instead of the usual million dollar threshold):
Entities with assets of $1 billion or less cannot round these items.
If you apply rounding in your financial statements and your year-end falls after 29 June 2016 you will need to change the rounding note in your financial statements and directors’ report to refer to Legislative Instrument 2016/191 rather than Class Order 98/100. You will also need to ensure you comply with the amendments made to the legislative instrument preventing rounding in some instances.
The disclosure initiative is a broad-based project that aims to improve disclosure in general purpose financial statements. The International Accounting Standards Board (IASB) has currently completed the following two disclosure initiative projects and is working on further projects in this area:
Is there any reason to adopt these changes early?
Our research has shown that, in response to the IASB’s disclosure initiative project (amendments to AASB 101), over 55% of the ASX 100 made changes to ‘declutter’ and improve disclosure in their financial statements by 31 December 2015.
In this first suite of changes made to AASB 101, entities are now able to apply judgement when determining which disclosures to include in their financial reports. This means that you now have the ability to only include disclosures that you consider to be either quantitatively or qualitatively material (or otherwise useful) to users of your financial report.
While such changes are not mandatory for entities with years ending 30 June 2016, the improvements we have seen in the ASX 100 companies that have early adopted these amendments have significantly improved their financial statements because they are now highlighting information considered to be of high importance to users.
What steps can I take to improve my financial statements?
This process will become mandatory for entities with a financial year commencing on or after 1 January 2016, which means that you will be required to go through this decluttering process for your 30 June 2017 financial statements. Steps you can start now include:
For more information, please refer to Accounting News articles:
On 3 March 2016, the Government announced its decision to retain the Australian Charities and Investments Commission (ACNC). Therefore, any charities and not-for-profit entities that are registered with the ACNC will need continue to meet the reporting obligations of the ACNC and report to the ACNC for years ending 30 June 2016.
The ACNC also indicated that it will continue its work with the Government and state and territory regulators to reduce the red tape burden across the sector, announcing that it will continue to accept financial reports lodged with state and territory regulators for the 2016 reporting period.
Although not effective until 1 July 2016, we recommend that not-for-profit public sector entities early adopt AASB 2015-7 Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities because it reduces the disclosures about level 3 fair value assumptions on items of property, plant and equipment for which future economic benefits are not primarily dependent on the asset’s ability to generate cash flows (e.g. roads and infrastructure assets such as for the supply of water).