Welcome to Beyond The Numbers, our monthly newsletter which brings you a summary of the latest developments from local and international standard setters and regulators.
Treasury further consults on climate reporting
Coinciding with the release of the International Sustainability Standards, Treasury released a further consultation paper on implementing climate disclosures in Australia.
Key proposals in the paper include:
- All entities that are required to lodge financial reports under Chapter 2M of the Corporations Act 2001 would be required to make climate-related financial disclosures by 2027-28. This would be achieved in three tranches starting from 2024-25, based on the entity’s size and not whether it is listed or not.
- Disclosures to be based on the expected Australian equivalent of IFRS S2 Climate-related Disclosures.
- Climate disclosures would be required to be published as in an entity’s annual report. Hence, within three months after year end for disclosing entities and registered managed investment schemes, and four months for all other companies.
- Mandatory assurance of reported climate information. This would be achieved via progressively increasing assurance for each tranche of reporting entities, from a minimum limited assurance for that tranche first reporting in 2024-25 to all entities obtaining reasonable assurance on all disclosures by 2030.
Submissions to Treasury close on 21 July.
Increased disclosure of Supplier Finance Arrangements
The Australian Accounting Standards Board (AASB) issued AASB 2023-1 Amendments to Australian Accounting Standards – Supplier Finance Arrangements to require disclosure of information about an entity’s supplier finance arrangements (also known as supply chain finance, payables finance or reverse factoring arrangements).
The new disclosures are designed to enable users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows.
The amendments apply for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted.
AASB amends deferred taxes arising from OECD Pillar Two Model Rules
The AASB issued AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules to give companies temporary relief from accounting for deferred taxes arising from the OECD Pillar Two international tax reforms. The Pillar Two rules ensure that large multinational companies would be subject to a minimum 15% tax rate. The Federal Government has committed to implementing the Pillar Two tax changes.
The accounting amendments introduce:
- a temporary exception to the accounting for deferred taxes arising from jurisdictions implementing the global tax rules; and
- targeted disclosure requirements to help investors understand a company’s exposure to income taxes arising from the reform.
The amendments apply for annual reporting periods beginning on or after 1 January 2023 but ending 30 June 2023 or later.
AASB amends Tier 2 Disclosures of Non-current Liabilities with Covenants
The AASB issued AASB 2023-3 Amendments to Australian Accounting Standards – Disclosure of Non-current Liabilities with Covenants: Tier 2 which clarifies the classification of loan arrangements for which the entity’s right to defer settlement of those liabilities for at least twelve months after the reporting period is subject to the entity complying with specified conditions.
This Standard applies to annual periods beginning on or after 1 January 2024. Earlier application is permitted, provided AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current is also applied at the same time.
Not-for-Profit Private Sector Financial Reporting Framework
At its board meeting on 22 June, the AASB discussed the feedback received on the Discussion Paper Development of Simplified Accounting Requirements (Tier 3 Not-for-Profit Private Sector Entities) and decided to proceed with the development of an Exposure Draft on:
- a Tier 3 Accounting Standard with simplified accounting requirements for smaller not-for-profit private sector entities; and
- removing the ability of certain not-for-profit entities to prepare special purpose financial statements under Australian Accounting Standards.
Further information will be discussed at the August 2023 Board meeting.
Charities to Report on Related Parties
The Australian Charities and Not-for-profits Commission (ACNC) has reminded charities that from the 2023 Annual Information Statement onwards, all charities (except Basic Religious Charities) are required to report on their related party transactions. This means charities will need to keep records of related party transactions from the start of their 2023 reporting period; for many charities, this period began on 1 July 2022.
Reporting requirements for related party transactions differ according to charity size. ACNC provided guidelines to comply with related party disclosures.
Financial Reporting Requirements for Queensland Government Agencies
Queensland Treasury issued its updated guidelines covering the reporting requirements of government agencies for 2022 – 2023 reporting period. The guide includes the minimum reporting requirements and assist agencies in the preparation of their financial statements. The requirements provide updates on new and revised accounting policies and standards and additional guidance and advice on the application of such policies and standards.
CA ANZ issues guidance on preparing for the ISSB’s sustainability standards
The first two IFRS Sustainability Standards were issued on 26 June 2023. These Standards will pave the way for mandatory reporting in Australia.
To assist the Australian finance teams to prepare for sustainability reporting, CA ANZ has launched a new series providing insights and actions to help them get ready for reporting under the ISSB’s Standards. The series will include topics such as:
- Developments on climate-related disclosures;
- Sustainability tools and resources; and
- Sustainability micro courses
ASIC’s focus areas for 30 June 2023 financial reports
ASIC has released its focus areas for 30 June 2023 financial reports and has called for financial statement preparers to assess the impact of uncertain market and economic conditions through better disclosure of business risks and strategies, and asset values in the financial report.
ASIC noted that better information about uncertainties, key assumptions, business strategies and risks are important to stakeholders.
ASIC further notes that companies will continue to be affected differently by changing and uncertain economic and market conditions depending on their industry, where they operate, how their suppliers and customers are affected, and a range of other factors.
Cyber Security – Small and Medium Businesses
The Australian Cyber Security Centre (ACSC) issued guidelines and alerts to assist small and medium businesses in assessing cyber threats and strengthening its cyber security.
The refreshed Small Business Cyber Security Guide includes a number of new recommendations including using passwords managers and the importance of network security and emergency planning. As a starting point, simple and inexpensive measures such as multi-factor authentication, software updates and backing up of information have been recommended.
ASIC Chair’s AFR ESG Summit Speech
ASIC released a transcript of the ASIC Chair’s speech at the Australian Financial Review’s environmental, social, and governance (ESG) Summit. The Chair’s speech highlighted ASIC’s three key areas of focus:
- strengthening and improving standards of governance and disclosure in Australia,
- eliminate and correct greenwashing, and
- preparation for the broader evolution of the ESG space.
International Sustainability Standards issued
The International Sustainability Standards Board (ISSB) issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures on 26 June 2023.
IFRS S1 provides a set of disclosure requirements relating to the sustainability-related risks and opportunities companies face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
Both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
These are available to registered users at no cost from the IFRS website. New users can register for free.
International Accounting Standards Board (IASB) meeting – June 2023
The summary of the IASB meeting held on 20 – 22 June 2023 has been released. Key topics discussed include, amongst others:
- Equity Method – the IASB tentatively decided to propose that:
a) on acquisition of an investment in an associate, an investor would recognise contingent consideration as part of the cost of the investment and measure that contingent consideration at fair value; and
b) after the acquisition date:
i. for contingent consideration classified as equity — an investor would account for its subsequent settlement within equity; and
ii. for other contingent consideration — an investor would measure it at fair value at each reporting date and recognise changes in fair value in profit or loss.
- Primary Financial Statements – the IASB made tentative decisions regarding the classification of certain income and expenses in the statement of profit and loss, and to prohibit entities whose main business activity is to provide financing to customers from presenting the subtotal ‘profit or loss before financing and income tax’.
- Rate-regulated Activities – the IASB redeliberated the proposals on the measurement basis, the cash-flow-based measurement technique and the estimation of uncertain future cash flows. The Board also commenced the redeliberation of specific topics relating to the proposals on estimating uncertain future cash flows.
IFRIC Update – June 2023
The Committee met on 6-7 June 2023, and discussed the following, amongst others:
- Merger between a parent and its subsidiary that constitutes a business in the separate financial statements of the parent. The Committee noted that parent entities generally do not apply the requirements in IFRS 3 but recognise the subsidiary’s assets and liabilities at previous carrying amounts. The Committee decided not to add a standard-setting project to the work plan.
- Application of the ‘own use’ exception in IFRS 9 Financial Instruments to some physical power purchase agreements to buy energy
- Consolidation of a Non-hyperinflationary Subsidiary by a Hyperinflationary Parent (IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies)
- Business Combinations under Common Control
Financial Reporting Update – Recording
If you missed Nexia’s annual Financial Reporting Update webinar on 1 June, you can view the recording and download the materials covering:
- The key accounting standards changes for 30 June 2023;
- How recent changes will affect the classification of loans with annual review clauses, covenants and other conditions;
- Legislative changes affecting companies, ACNC registered charities, and other not-for-profit entities; and
- The latest on sustainability and climate-related disclosure projects.
Contact your local Nexia Edwards Marshall Advisor today to discuss how these changes may impact you.