Welcome to the first edition of Beyond The Numbers for 2023, our monthly newsletter which brings you a summary of the latest developments from local and international standard setters and regulators.
AASB Progresses Sustainability Reporting
At its February meeting the Australian Accounting Standards Board (AASB) agreed to progress a project plan to develop climate-related financial reporting requirements in Australia.
The AASB supported a ‘climate first’ approach and decided that sustainability reporting standards would be:
- A separate suite of standards from Australian Accounting Standards (with climate the first topic addressed);
- Based on ISSB IFRS Sustainability Disclosure Standards, but could be modified for Australian matters and requirements;
- Focused on sustainability-related financial information (consistent with the ISSB’s focus on the development of a global baseline of sustainability disclosures for capital markets); and
- Initially focused on reporting by for-profit entities.
Separately, Treasury recently consulted on who and when the disclosures would mandatorily apply. At present, it is uncertain when mandatory sustainability reporting will commence.
AASB Board Meeting – March 2023
The agenda and board papers for the AASB’s meeting on 8-9 March are available. The main topics for discussion include:
- The effect of amendments relating to the classification of non-current debt with covenants on Tier 2 financial reports;
- Consideration of post implementation reviews of specific public sector standards;
- Consider preliminary feedback on the proposed Tier 3 Not-for-profit Financial Reporting;
- Developing a draft sustainability reporting standard-setting framework and Climate-related Financial Disclosures.
AASB Amends Classification of Non-Current Debt With Covenants
The AASB issued amendments to AASB 101 Presentation of Financial Statements to clarify that only conditions (covenants) with which an entity is required to comply on or before the reporting date affects the classification of a loan liability as current or non-current. Covenants that an entity has to comply with after balance date does not affect the classification of the liability.
New disclosures regarding the conditions that could cause those loans to become repayable within twelve months after balance date have also been added.
The amendments contained in AASB 2022-6 are expected to result in more bank loans and borrowings being classified as non-current liabilities.
The amendments apply from 1 January 2024 but can be applied earlier provided amendments in AASB 2020-1 are also applied at the same time.
ACNC Consults on Inclusion of Related Party Information in the AIS
Medium and large charities are required to include related party disclosures in their 2022-23 financial statements even if they prepare a Special Purpose Financial Report. All charities (except Basic Religious Charities) will be required to provide information on related party transactions commencing from their 2023 Annual Information Statement (AIS).
The Australian Charities and Not-for-profits Commission (ACNC) is consulting on the extent of related party transaction disclosures in the 2023 AIS by way of a short survey.
The consultation period closes on 16 March.
Remaking of ACNC Regulations
The Australian Charities and Not-for-profits Commission Regulations 2013 automatically sunset on 1 April 2023. As a result, Treasury has remade the regulations as the Australian Charities and Not-for-profits Commission Regulations 2022, which are effective from 1 April 2023. There are minimal changes to the substantive requirements of the 2013 Regulations.
The relevant ACNC Regulations apply as follows:
- Financial reports for the 31 December 2022 financial year that are signed before 1 April 2023 are prepared using the 2013 Regulations;
- Financial reports for the 31 December 2022 financial year that are signed on or after 1 April 2023 are prepared using the 2022 Regulations; and
- Financial reports for the 2022-23 financial year and beyond apply the 2022 Regulations.
ASIC Launches First Court Proceedings Alleging Greenwashing
The Australian Securities and Investments Commission (ASIC) has launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. Greenwashing refers to overrepresenting the extent to which practices are environmentally friendly, sustainable, or ethical.
ASIC Deputy Chair Sarah Court said, ‘This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct, and it reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate.
Australian Legal Requirements Relating to Board Composition
Section 201A(2) of the Corporations Act 2001 requires Australian-incorporated public companies to have at least two Australian-based directors.
The Australian Securities Exchange (ASX) expects listed Australian entities to monitor their own compliance with section 201A(2) and to tell ASX immediately if this obligation is not met. If ASX becomes aware that an Australian-incorporated listed entity does not comply with the Act, ASX will suspend the entity’s securities from quotation until the matter has been rectified.
International Accounting Standards Board (IASB) Update – February 2023
The IASB met on 20 – 23 February 2023 when it made the following decisions:
- Supplier Finance Arrangements – The IASB agreed to amend IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to add disclosure requirements about an entity’s supplier finance arrangements. The amendments are expected to apply for annual reporting periods beginning on or after 1 January 2024;
- IFRS 9 impairment considerations – The IASB agreed to issue a request for information regarding various aspects of applying the existing expected credit loss (ECL) model.
The IASB also continued discussion of the following projects:
- Business combinations – The development of ‘a management approach’ to disclose information about the subsequent performance of a business combination for as long as the entity’s management continues to monitor whether the objectives of the acquisition are being met;
- IFRS 9 Financial Instruments – The Board discussed feedback from stakeholders on the first phase of the post-implementation review of the impairment requirements in IFRS 9;
- The classification and measurement of Financial Instruments with Characteristics of Equity;
- The development of the Dynamic Risk Management (DRM) model for hedge accounting; and
- Rate-regulated Activities – The Board considered proposed recognition requirements for regulatory assets and regulatory liabilities.
International Sustainability Standards Board (ISSB) Update
The ISSB has taken its final decisions on all the technical content of proposed IFRS Sustainability Disclosure Standards S1 and S2. With the substance of the Standards now fully agreed, the ISSB is proceeding to the final drafting and formal ‘balloting’ process of the Standards, ahead of their expected issuance at the end of Q2 2023. The standards are expected to become effective for annual reporting periods commencing 1 January 2024. It is up to each jurisdiction to choose to adopt ISSB standards.
The ISSB will focus efforts on developing further guidance and training material to assist in their implementation.
ISSB standards will form a globally consistent basis for reporting climate and sustainability disclosures and can be applied in the absence of mandatory local disclosures.
AASB Issues Post-implementation Review of Income Recognition of Not-for-profit Entities
The AASB is seeking feedback from not-for-profit stakeholders on implementation problems arising from the application of AASB 1058 Income of Not-for-profit Entities and AASB 15 Revenue from Contracts with Customers.
The AASB is seeking stakeholder feedback on the following areas:
- Sufficiently specific criterion and the legal interpretation of agreements;
- Capital grants;
- Difference between management accounts and statutory accounts and alternative revenue recognition models;
- Principal v agent, including the appropriate recognition of financial liabilities;
- Grants received in arrears;
- Termination for convenience clauses in grant agreements;
- Accounting for research grants; and
- Statutory receivables.
Comments to the AASB close on 31 March 2023.
Post-implementation Review of Not-for-Profit Topics – Control, Structured Entities, Related Party Disclosures and Basis of Preparation of Special Purpose Financial Statements
The AASB is seeking feedback from not-for-profit (NFP) stakeholders on implementation problems arising from the following areas:
- Control and consolidation for NFP entities;
- The definition of a structured entity for NFP entities;
- Related party disclosures by NFP public sector entities; and
- Basis of preparation of special purpose financial statements.
Comments to the AASB close on 31 March 2023.
Tier 3 Simplified Accounting for Not-for-Profit Private Sector Entities
The AASB’s Discussion Paper addresses a proposed Tier 3 general purpose financial reporting framework for not-for-profit (NFP) entities.
The Discussion Paper proposes a number of simplified measurement and recognition requirements as an alternative to IFRS measurement and recognition, and reduced disclosures compared to Tier 2 general purpose financial statements.
Comments to the AASB close on 31 March 2023.
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