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
September 2024 marked the beginning of Australia’s climate-reporting era as the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 became effective.
Shortly after, the Australian Accounting Standards Board (‘AASB’) approved its two inaugural sustainability reporting standards – AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and AASB S2 Climate-related Disclosures. AASB S1 and AASB S2 are available on the AASB’s website.
To assist reporting entities, ASIC established a dedicated sustainability reporting page which it will populate with regulatory resources and information for preparers and auditors as they are developed.
The Australian Auditing and Assurance Standards Board (‘AUASB’) recently released two consultation papers relating to the phasing of assurance requirements and the use of internal audit in relation to sustainability reporting. The consultation periods close on 16 November 2024 and 1 December 2024, respectively. The AUASB anticipates that a final assurance standard will be approved by December 2024.
Local reporting
The AASB approved its first two sustainability reporting standards – AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information (voluntary) and AASB S2 Climate-related Disclosures. Both Standards are effective for annual reporting periods beginning or after 1 January 2025. Earlier application is permitted.
AASB S1 is a voluntary Standard. It has the same scope and content as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, except for some transition reliefs, which have been modified or omitted to align with the Standard’s voluntary status. It also includes several Australian specific paragraphs referring to general purpose financial reports of not-for-profit (NFP) entities and their primary users, to assist NFP entities electing to apply AASB S1.
AASB S2 is a mandatory Standard, applying under the Corporations Act. It incorporates all requirements of IFRS S2 Climate-related Disclosures, with only limited modifications.
AASB S1 and AASB S2 are available in the AASB Digital Standards Portal.
At its September 2024 meeting, the AASB made decisions on the draft Exposure Draft for a proposed Tier 3 financial reporting framework for NFP private sector entities.
The Board decided to include guidance relating to the presentation of adjustments related to the adoption of new accounting policies, disclosure requirements for first-time adopters of Tier 3 Standard, and measurement of donated non-financial assets at cost versus fair value.
The Board continued to develop an exposure draft to extend the Conceptual Framework for Financial Reporting to certain NFP entities and limiting their ability to prepare special purpose financial statements.
The AASB issued AASB 2024-3 Amendments to Australian Accounting Standards – Annual Improvements Volume 11. This Standard makes minor improvements to AASB 1, AASB 7, AASB 9, AASB 10 and AASB 107 to address inconsistencies or clarify requirements.
AASB 2024-3 will be effective for annual periods beginning on or after 1 January 2026. Earlier application is permitted.
Regulations
ASIC has reissued RG 121 with updated guidance for individuals and companies outside Australia that wish to conduct financial services business in Australia. The new guidance includes changes to AFS licensing exemptions and relief, descriptions of “carrying on a business in Australia,” and indicators of carrying on a business.
Among other changes, the guidance outlines an individual or company will be deemed to carry on a business in Australia if they have a place of business in Australia; establish or use a share transfer office or share registration office in Australia; or administer, manage, or otherwise deal with, property situated in Australia as an agent, legal personal representative or trustee, whether by employees or agents or otherwise.
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 aims to strengthen the existing regulatory regime, giving the regulators the authority to monitor, manage, and respond to risks related to financial market infrastructures (FMI) – the key entities that enable, facilitate, and support trading in capital markets.
On top of ASIC’s current focus on combating against investment scams, the new law provides it (alongside RBA) with more capacity to monitor the ongoing conduct of FMI entities, identify emerging risks, and take appropriate action to prevent those risks from escalating.
At this point, ASIC is reviewing its approach to the regulation of financial market infrastructures to ensure that its expanded powers are used effectively and efficiently.
The Reserve Bank of Australia (RBA) and Treasury have released a report on a central bank digital currency (CBDC) and the future of digital money.
The report finds that there is no strong case for a retail CBDC in Australia at this time, but there are potential benefits and uses for a wholesale digital currency.
As a result, the future work program of the RBA and Treasury will prioritise CBDC initiatives in wholesale applications.
International news
The IFRS Interpretations Committee (IFRIC) tentatively decided not to develop a standard-setting project relating to two matters:
- Guarantees issued on obligations of other entities
The request related to different types of contractual guarantees to make payments to a bank, a customer, or another third party in the event when a related party fails to meet its contractual obligations to make payments when due.
The Committee observed that there is no single Accounting Standard that applies to all guarantees. The Committee tentatively determined that an entity accounts for a guarantee that it issues based on the requirements, including the scoping requirements, in IFRS Accounting Standards and applies judgement in determining which IFRS Accounting Standard applies to a guarantee that it issues based on the specific terms and conditions of the arrangement. - Recognition of revenue from tuition fees (IFRS 15 Revenue from Contracts with Customers)
The Committee received a request about the period over which an educational institution recognises revenue from tuition fees for an academic year.
Applying IFRS 15, the educational institution recognises revenue from tuition fees over time. Evidence gathered by the Committee indicates no diversity in accounting for revenue from tuition fees. IFRIC’s view is that current IFRS Accounting Standards are sufficient guidance for the accounting treatment of those matters.
The public can comment on these tentative decisions until 18 November 2024.
The International Accounting Standards Board (IASB) seeks public consultation on the Exposure Draft Equity Method of Accounting – IAS 28 Investments in Associates and Joint Ventures (revised 202x).
The Exposure Draft proposes to, among others, clarify the measurement requirements for:
- the initial recognition of investment in associate or joint venture – including the treatment of contingent consideration;
- a change in ownership of an associate – gaining or retaining significant influence, and disposing ownership interest;
- recognising the investor’s share of profit or loss and other comprehensive income – particularly for ‘catchup’ losses where an investor has previously reduced its investment in an associate to nil; and
- accounting for gains and losses resulting from all ‘upstream’ and ‘downstream’ transactions between an investor and its associates or joint ventures.
The Exposure Draft is open for public comment until 20 January 2025.
At its September 2024 meeting, the IASB considered:
- Dynamic risk management (DRM) model
The Board tentatively agreed to require additional disclosures for an entity’s risk management strategy relating to the use and discontinuation of a DRM model under IFRS 9 Financial Instruments. - Exposure Draft Management Commentary
The Board discussed targeted refinements for a revised IFRS Practice Statement 1 Management Commentary.
- Power purchase agreements
The Board considered feedback on the Exposure Draft Contracts for Renewable Electricity, which proposed amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.
The IASB will continue to redeliberate these projects at future meetings.
The related podcast can also be accessed via the IASB website.
Based on evidence gathered in the post-implementation review of IFRS 15 Revenue from Contracts with Customers, the IASB concluded that the standard is working as intended and provides a clear and robust framework for revenue accounting.
The IASB will consider the following matters identified in the post-implementation review of IFRS 15 in its next agenda consultation:
- how to report on payments to a customer;
- assessing whether an entity acts as a principal or an agent in a transaction; and
- how IFRS 15 works alongside several other IFRS Accounting Standards.
In case you missed it
Listed and unlisted public companies that report under Chapter 2M of the Corporations Act 2001 are required to include a Consolidated Entity Disclosure Statement (CEDS) within 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 Australian Securities and Investments Commission (ASIC) issued Information Sheet 284 to guide preparers on ensuring the CEDS comply with the Corporations Act and its policy intent.
The CEDS must disclose for all subsidiaries – regardless of size or materiality – the entity’s name, entity type, country of incorporation, percentage of share capital held by the parent, 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.
