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
The Australian Accounting Standards Board (AASB) has released two Exposure Drafts to significantly alter the financial reporting framework for not-for-profit (NFP) entities:
- Exposure Draft ED 334 Limiting the Ability of Not-for-Profit Entities to Prepare Special Purpose Financial Statements; and
- Exposure Draft ED 335 General Purpose Financial Statements – Not-for-Profit Private Sector Tier 3 Entities.
ED 334 proposes to remove the ‘reporting entity’ concept currently applied by many NFP entities and require general purpose financial statements where a NFP is required:
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- by legislation to comply with either Australian Accounting Standards or accounting standards; or
- by their constituting document or another document to prepare financial statements that comply with Australian Accounting Standards.
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This change would affect large and medium-sized charities registered with the ACNC and many incorporated associations, co-operatives and other NFP entities.
ED 335 proposes a new simplified Tier 3 general purpose financial statements framework for smaller private sector NFP entities. The new framework aims to simplify many of the recognition, measurement, and disclosure requirements compared to both Tier 1 and Tier 2 general purpose financial statements.
NFP stakeholders can get involved by completing an online survey for:
or visit the AASB website.
Both Exposure Drafts are open for public comment until 28 February 2025.
Local reporting
The AASB proposes amendments to equity accounting in Exposure Draft ED 333 Equity Method of Accounting.
The major change proposed by the Exposure Draft relates to recognition in full of the gains and losses resulting from all ‘upstream’ and ‘downstream’ transactions with its associates, including transactions involving the loss of control of a subsidiary. With the current Standard, gains and losses are recognised only to the extent of third parties’ interests in the associate.
Among other changes, the Exposure Draft proposes changes to 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
- an additional requirement in AASB 12 Disclosure of Interests in Other Entities for a reconciliation between the opening and closing carrying amounts of investments in associates and joint ventures.
An IASB webcast discussing these proposed changes can be viewed on the IFRS website or YouTube channel.
The AASB Exposure Draft is open for public comment until 22 November 2024.
The agenda papers for the Board’s last scheduled meeting for the year to be held on 7 November 2024 are available on the AASB website.
Key agenda items include:
- Discussion of feedback received on the IASB’s ED/2024/6 Climate-related and Other Uncertainties in Financial Statements: Proposed Illustrative Examples.
- Consideration of consequential amendments to AASB 1048 Interpretation of Standards due to changes in AASB 18 Presentation and Disclosure in Financial Statements.
- Vote on the further deferral of AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture to annual reporting periods beginning on or after 1 January 2028.
Discussion of potential climate-related disclosure requirements for not-for-profit public sector entities.
Regulations
The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 would amend the Anti-Money Laundering and Counter-Terrorism Financing regime to expand the list of designated services to include higher risk services provided by real estate professionals, dealers in precious metals and stones, and professional service providers including accountants, legal practitioners, conveyancers, professional trustees and company secretariat services.
An Impact Analysis has been prepared by the Attorney-General’s Department and has been assessed by the Office of Impact Analysis (OIA). The Impact Analysis noted that, if implemented, the annual average costs are estimated to amount to $1.851 billion in regulatory costs to businesses and $29 million to individuals each year over the next 10 years.
The Bill has been referred to Senate Legal and Constitutional Affairs Legislation Committee for inquiry and report by 13 November 2024.
The Australian Securities and Investments Commission (ASIC) has released its 2023-2024 Annual Report. The Report highlights ASIC’s progress towards improving consumer outcomes in relation to financial products and services.
In addition to its Annual Report, ASIC also expressed its commitment to protect small businesses by acting against directors who fail to properly manage their companies and assist liquidators after a company collapses. This includes prosecuting individuals for failing to assist liquidators and disqualifying directors who have engaged in misconduct, such as insolvent trading and failing to maintain proper records.
Finally, ASIC also warned small businesses to be on high alert for scams such as false billings, payment redirection, impersonation, investment scams, and phishing.
The Paid Parental Leave Amendment (Adding Superannuation for a More Secure Retirement) Act 2024 adds a superannuation contribution to the Commonwealth-funded Paid Parental Leave (PPL) Scheme in respect of children born on or after 1 July 2025.
Parental Leave Pay recipients will not be required to make a separate claim to access the PPL Superannuation Contribution. The Australian Taxation Office will calculate and disburse the PPL Superannuation Contribution based on information it will receive from Services Australia about Parental Leave Payments.
The ACNC has updated guidance on managing people’s information and data, helping charities better understand their obligations under privacy law.
The updated guidance provides clear steps for charities to safeguard personal data, ensuring they comply with legal obligations and adhere to best practice. Key areas covered include data collection, secure storage and handling of personal information, as well as the importance of transparency in how charities manage individuals’ data to build trust with donors, beneficiaries and volunteers.
ASIC has updated regulatory guide RG 26 Resignation, removal and replacement of auditors. RG 26 provides guidance for public companies, registered managed investment schemes, AFS licensees, credit licensees, most registrable superannuation entities (RSEs) licensees, and retail corporate collective investment vehicles (CCIVs), along with their auditors.
It details circumstances for auditor changes, reasonable timeframes for applications related to resignation, removal, and replacement, and outlines ASIC’s approach to the resignation and removal of auditors of public companies limited by guarantee registered with the Australian Charities and Not-for-Profits Commission (ACNC).
In addition, ASIC released three new information sheets to offer further guidance for RSEs, retail CCIVs, and AFS licensees, as well as separate guidance for companies, registered schemes, and credit licensees.
The Treasury is proposing technical amendments to the Consolidated Entity Disclosure Statement (CEDS) to clarify the disclosures made in the CEDS for financial years commencing on or after 1 July 2024. These amendments are outlined in the Exposure Draft Bill Treasury Laws Amendment Bill 2024: Minor and technical Amendments (Spring 2024).
The changes intend to clarify:
- the tax definition of ‘Australian resident’ for partnerships and trusts; and
- the disclosures required where a subsidiary is not an Australian tax resident and where the tax residency of other foreign jurisdictions also do not apply to the subsidiary.
Australian insolvencies surged in 2024, with a 43% increase in the first quarter of FY2025 compared to the previous year.
ASIC’s insolvency statistics notes that the construction sector, while still leading in total insolvencies, has seen slower growth (12%). However, industries like accommodation and food services (105%), healthcare and social maintenance (100%), professional services (93%), and other services (72%) have experienced significant jumps.
Companies with exposure to these sectors should consider the financial reporting implications of these trends, particularly regarding expected credit losses and impairment assessments.
International news
The International Accounting Standards Board (IASB) met on 21-23 October 2024 and considered the following matters.
- Dynamic risk management (DRM) model
The Board finalised its deliberations on proposed amendments to IFRS 9 Financial Instruments for the use of a DRM model. The IASB agreed to begin the process for balloting an exposure draft for public consultation. - Power purchase agreements
The Board finalised its deliberations on Exposure Draft Contracts for Renewable Electricity, which proposed amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.
The IASB agreed to begin the process for balloting the narrow-scope amendments to IFRS 9 and IFRS 7.
The International Sustainability Standards Board (ISSB) met on 24 October and discussed the following matters.
- Research projects on future sustainability topics of Biodiversity, Ecosystems and Ecosystem Services and Human Capital.
- The location and connectivity between the disclosures required by IFRS Sustainability Disclosure Standards if an entity applies the revised IFRS Practice Statement 1 Management Commentaryin preparing the entity’s management commentary.
No decisions were made.
The IFRS Interpretations Committee (IFRIC) published the compilation of its agenda decisions for the period May to October 2024.
The IFRS Foundation has issued its October 2024 newsletter, highlighting key developments from recent events and projects led by the IASB and International Sustainability Standards Board (ISSB).
The developments discussed include:
- the future of financial reporting: IFRS 18 Presentation and Disclosure in Financial Statements, and connectivity between the financial statements and sustainability-related financial disclosures, and
- recent IASB (statement of cash flows and equity method) and ISSB (research projects) updates.
In case you missed it
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.
