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.
Top story
On 6 June 2024, the House of Representatives passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 without amendment. The Bill introduces staged mandatory climate-related disclosures for entities required to report under Chapter 2M of the Corporations Act 2001 within their annual report.
The Bill is now subject to passage in the Senate where the government, with the support of the Greens, has proposed amendments to specify the disclosure of at least the following two climate scenario analyses – an increase in the global average temperature of 1.5°C above pre‑industrial levels, and exceeding 2°C above pre‑industrial levels. If those amendments pass the Senate, the Bill will need to return to the House for approval.
If enacted, the law will apply to Group 1 entities commencing from annual reporting periods beginning on or after 1 January 2025.
Local reporting
AASB 18 Presentation and Disclosure in Financial Statements
The Australian Accounting Standards Board (AASB) issued AASB 18. This Standard will replace AASB 101 Presentation of Financial Statements. The key changes from AASB 101 introduced by AASB 18 include:
Statement of profit or loss:
(a) income and expenses to be classified into three defined categories mirroring the statement of cashflows – operating, investing, and financing; and
(b) two new required subtotals – ‘operating profit’ and ‘profit before financing and income taxes’.
Notes to the financial statements:
- Enhanced transparency of company-specific performance measures (referred to as ‘management-defined performance measures’) that are disclosed in the financial statements. Companies must explain why these alternative performance measures were used and its relationship to the related subtotals in the income statement; and
- Enhanced requirements for the aggregation and disaggregation of information in the primary financial statements and notes.
AASB 18 will be mandatorily effective for:
- Annual reporting periods beginning on or after 1 January 2027 for Tier 1 for-profit entities (other than superannuation entities applying AASB 1056 Superannuation Entities); and
- Annual reporting periods beginning on or after 1 January 2028 for not-for-profit private sector entities, not-for-profit public sector entities and superannuation entities applying AASB 1056. Earlier application is permitted.
Following consideration of the feedback received on Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information, the AASB decided to more closely align the Australian standards to international sustainability standards, rather than the modified approach proposed in the exposure draft.
The AASB decided to develop a non-mandatory ASRS 1 which would have the same scope as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and a mandatory ASRS 2 to function as a standalone, climate-only standard using IFRS S2 Climate-related Disclosures as a baseline.
The AASB will continue to address other aspects of the draft standards at future meetings.
- Financial reporting framework for Not-for-profit (NFP) private sector entities:The AASB continues to develop a Tier 3 financial reporting framework for NFP private sector entities.
- Post-implementation review – Income of Not-for-Profit entities:The Board decided to consider project proposals on:(a) applying the principles of AASB 15 Revenue from Contracts in identifying whether a performance obligation exists,
(b) whether IPSAS 47 Revenue can provide an alternative basis for revenue recognition,
(c) whether IPSAS 41 Financial Instruments could provide guidance on the accounting treatment of financial assets (including subsequent measurement of statutory receivables), and
(d) developing AASB Staff FAQs for grants received in arrears and termination for convenience clauses.
At its June meeting, the AASB discussed the IASB’s Exposure Draft Business Combinations – Disclosures, Goodwill and Impairment.
The AASB expressed support for the proposed changes to the calculation of an asset’s value in use and the additional clarification on allocating goodwill to cash-generating units. However, the AASB did not support the proposed disclosure requirements for strategic business combinations and synergies.
The agenda and board papers are available for the AASB Board meeting held on 26 June 2024.
Topics discussed include:
- Service performance reporting; and
- Climate-related financial disclosures – specifically:
- climate scenario analysis,
- cross-industry remuneration disclosures,
- reporting scope 3 GHG emissions using data for the immediately preceding reporting period,
- reporting by certain entities of information relating to financed emissions,
- modifying the definition of carbon credits to include carbon credits issued under the Australian Carbon Credits Units Scheme (ACCUs), and
- superannuation-entity-specific issues.
Regulations
On 16 May 2024, the ASX released Guidance Note 8: Continuous Disclosure: Listing Rules 3.1 – 3.1B, providing practical guidance for listed organisations on how to appropriately manage continuous disclosure obligations in the circumstances of a data breach.
Taking effect from 27 May 2024, Example I of the Guidance Note walks through various steps of a hypothetical cyber incident scenario, recognising the need for an organisation to work through what has happened before disclosure to the market may be required or any contingent liability or provision would arise under accounting standards.
Events
The recording of our Financial Reporting Update webinar held on 23 May, and relevant materials, are available on our website.
Our webinar explored:
- The key accounting standards and financial reporting changes for 30 June 2024;
- How recent changes will affect the classification of loans with annual review clauses, covenants, and other conditions;
- Legislative changes affecting companies, registered charities, and other For Purpose (Not-for-profit) entities;
- How companies will be affected by the sustainability and climate-related disclosure projects; and
- Developments in Australian and international financial reporting projects.
International news
The Financial Market Authority (FMA) and External Reporting Board (XRB) have jointly issued two guides to New Zealand’s Climate-related Disclosures Regime (CRD).
Climate-related Disclosures Regime: What you need to know explains:
(a) the purpose of disclosing climate-related information;
(b) the key legislative requirements;
(c) key considerations and context about the information in climate statements; and
(d) the roles of the FMA, XRB and relevant government agencies.
Navigating Climate Statements is a more detailed explanation of the information disclosed in climate statements. NZ climate-reporting entities should refer to the related legislation for their mandatory reporting requirements.
At its May 2024 meeting, the International Accounting Standards Board (IASB) reviewed stakeholder feedback on the post-implementation review of IFRS 15 and tentatively decided to take no further action on the matters related to:
- allocation of the transaction price to performance obligations in a contract; and
- other individual application issues raised by respondents on the basis that there was insufficient evidence that the matters are widespread.
An educational meeting will be held to discuss the Board’s tentative decisions and the impact of IFRS 15 on academic research and studies.
At its May 2024 meeting, the IASB tentatively decided to take no further action on matters relating to simplified approach for recognising expected credit losses and the addition of illustrative examples to IFRS 9 for some types of financial instruments, such as those between related parties.
Additionally, credit risk disclosure requirements under IFRS 7 Financial Instruments: Disclosures were classified as a medium priority for further action.
The IASB also made tentative decisions on rate-regulated activities and the second comprehensive review of the IFRS for SMEs Accounting Standard during its May 2024 meeting.
The IASB will continue to redeliberate on project proposals in relation to the above at future meetings.
The related podcast can also be accessed via the IASB website.
The IASB is finalising proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The proposals intend to:
- clarify the requirements supporting the present obligation recognition criterion;
- clarify that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate with no adjustment for non-performance risk;
- propose requiring an entity to disclose, for each class of provision, the rate or rates used in measuring the provision and the approach used to determine those rates; and
- clarify the costs to include in measuring a provision.
The IASB will begin the process for finalising and publishing an exposure draft.
The IASB is finalising proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The proposals intend to:
- clarify the requirements supporting the present obligation recognition criterion;
- clarify that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate with no adjustment for non-performance risk;
- propose requiring an entity to disclose, for each class of provision, the rate or rates used in measuring the provision and the approach used to determine those rates; and
- clarify the costs to include in measuring a provision.
The IASB will begin the process for finalising and publishing an exposure draft.
The IFRIC Interpretations Committee (IFRIC) tentatively decided not to develop a standard-setting project on how entities present cash flow impacts of variation margin calls on certain contracts. IFRIC determined the issue raised is not widespread in practice.
Additionally, IFRIC reviewed feedback on its November 2023 tentative decision regarding “Disclosure of Revenues and Expenses for Reportable Segments” (IFRS 8 Operating Segments). In November 2023, IFRIC tentatively decided not to develop a standard-setting project relating to:
- IFRS 8, paragraph 23: Requirements to disclose, for each reportable segment, specified amounts included in segment profit or loss reviewed by the chief operating decision maker (CODM); and
- IAS 1, paragraph 97: Definition of “material items of income and expense”.
The IASB will consider finalising this IFRS 8 agenda decision at its July 2024 meeting.
In case you missed it
Listed and unlisted Australian public companies that report under Chapter 2M of the Corporations Act are required to include a Consolidated Entity Disclosure Statement (CEDS) as part of its 30 June 2024 financial report.
Companies limited by guarantee reporting under the Corporations Act must prepare a CEDS, even if they are exempt from income tax.
The CEDS will disclose – for each entity that was part of the consolidated group at the end of the financial year – the entity name, entity type, country of incorporation, percentage of share capital held, and its tax residency.
A public company that has no subsidiaries or is not required to prepare consolidated financial statements is still required to include a CEDS.
The Australian Securities and Investments Commission (ASIC) released its focus areas for 30 June 2024 financial reports.
ASIC’s enduring areas of focus include asset values and impairment of non-financial assets, the classification of financial assets and expected credit losses (ECLs) on loans and receivables, the adequacy of provisions, subsequent events, and disclosures.
Particular focus areas and other matters for consideration in addition to the enduring focus areas include:
(a) Previously ‘grandfathered’ large proprietary companies – these companies are required to lodge financial reports for years ending on or after 10 August 2022. ASIC will now include this cohort in their surveillance program and follow up instances where non-compliance and non-lodgement occurs; and
(b) Superannuation trustees are required to lodge audited financial reports for most registrable superannuation entities (RSEs) with ASIC. Trustees will need to lodge within three months of the end of the fund’s 2023-24 financial year.
