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Shedding light on disclosures

Understanding the disclosure requirements for new or revised accounting pronouncements

In this article, we shed some light on these disclosure requirements, answering the following commonly asked questions:


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What accounting pronouncements require these disclosures?

The disclosure requirements surrounding new or revised accounting pronouncements are specified by:

  • For annual reporting periods - AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors
  • For interim reporting periods - AASB 134 Interim Financial Reporting.


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Which entities are required to make these disclosures?

The need to make these disclosures depends on the type and nature of the entity. The following table summarises the requirements applying to various classes of entities:

Type of entity Required?
Reporting entities applying ‘Tier 1’ requirements, i.e. fully complying with the recognition, measurement, presentation and disclosure requirements of all Accounting Standards (which are in compliance with IFRS for for-profit entities) Yes
Other general purpose financial statements prepared in accordance with ‘Tier 1’ requirements Yes
Reporting entities and other entities voluntarily applying ‘Tier 2’ requirements, i.e. Australian Accounting Standards – Reduced Disclosure Requirements (RDR) No
Non-reporting entities preparing special purpose financial statements under the Corporations Act 2001 Yes*
Other non-reporting entities No

* Entities preparing financial statements under the Corporations Act 2001 are required to comply with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors regardless of whether they are a reporting entity or not. The ‘Tier 2’ requirements do not automatically apply in the special purpose financial statements of such entities.

On 2 July 2010, the AASB released AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements to implement ‘Stage 1’ of its revised differential reporting regime. These Standards were made by the AASB out of session on 30 June 2010 and mandatorily apply to annual financial reporting periods beginning on or after 1 July 2013. Early adoption is permitted to annual reporting periods beginning on or after 1 July 2009 (and so can generally be applied in financial statements at 30 June 2011). The above summary reflects the current requirements as a result of these developments.

Stage 2 of the project will consider whether to extend the regime to non-reporting entities. More information is available in Accounting alert 2010/08.


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What disclosures are required in annual financial reports?

The following table outlines the disclosures required in annual financial reports:

Applicability of new or revised pronouncement Summary of disclosures required in annual financial report
Initial mandatory or voluntary application of a new or revised pronouncement As required by paragraph 28 of AASB 108. Disclosures include the relevant pronouncement, the nature of the change in accounting policy, details of any transitional provisions, line-by-line analysis of the effect of the change in policy on the financial statements and the impacts on earnings per share.
Pronouncement on issue but not adopted As required by paragraphs 30-31 of AASB 108. The financial report must disclose which pronouncements have been issued but not adopted in the financial report, when the pronouncements have mandatory application, when those pronouncements are going to be applied by the entity and the possible impact on the entity's financial report (where known or reasonably estimable).

Example disclosures of the above requirements can be found in our illustrative financial reports.


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What disclosures are required in interim financial reports?

Paragraph 16(a) of AASB 134 requires disclosure in interim financial reports of the nature and effect of any change in accounting policy compared with the most recent annual financial report.

AASB 134 does not specify the level of detail of the disclosures required, and accordingly the level of detail may be less than is presented in an annual financial report in accordance with AASB 108.  However, best practice might suggest that the requirements of AASB 108 be used as a guide.

The impacts of new or revised accounting pronouncements that have not been early adopted are not explicitly required to be disclosed in interim financial reports.  Entities should consider making additional disclosures where the effects of these pronouncements are expected to be material and those effects have not previously been disclosed in the prior annual financial report.

Example disclosures of the above requirements can be found in our illustrative financial reports.


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Do the annual disclosures extend to the effects of Interpretations that have not been adopted?

Yes.

Due to legal restrictions, the application of an Australian Interpretation in the preparation of a financial report is mandated through the 'service standard', AASB 1048 Interpretation and Application of Standards.  AASB 1048 is reissued on a periodic basis as new Interpretations are made and includes a listing of all Australian Interpretations on issue and their application date.

Accordingly, entities are required to disclose the impacts of the application of any version of AASB 1048 that is not yet effective (and which has not been early adopted).  The disclosures made about AASB 1048 include the Australian Interpretations listed in that Standard that have not been applied in the preparation of the financial report.

Deciding on the early adoption of Interpretations

Interpretations that merely interpret the requirements of existing Standards are often considered best practice and so would ordinarily be adopted at an entity's next reporting date, e.g. this might apply to Interpretation 16.

Other Interpretations that effectively introduce new recognition and measurement requirements not explicitly covered under existing Standards might not ordinarily be early adopted, particularly where they change established industry practice and/or require substantial effort to implement, e.g. Interpretation 13 dealing with customer loyalty programmes and Interpretation 15 dealing with agreements for the construction of real estate.

Accordingly, where an Interpretation is on issue but is not yet mandatory, entities should carefully consider the requirements of each Interpretation and its potential impacts when making a decision whether early adoption is appropriate.


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Do the annual disclosures extend to pronouncements issued by the IASB or IFRS Interpretations Committee where an equivalent Australian pronouncement has not been made by the AASB at the date of signing the financial report?

Yes.

Although not technically required by paragraph 30 of AASB 108, for-profit entities should consider disclosing the information required by that paragraph (where material) in relation to a Standard or Interpretation issued by the IASB or IFRS Interpretations Committee where an equivalent Australian Standard or Interpretation has not been made by the AASB at the date of signing the financial report.  This approach ensures that the entity can make an unreserved statement of compliance with IFRS as required by paragraph 16 of AASB 101 Presentation of Financial Statements (2007).

Example disclosures

The following wording, amended from the wording in our illustrative annual reports, may be adapted in these circumstances:

"At the date of authorisation of the financial report, the following Standards and Interpretations, including those Standards or Interpretations issued by the IASB or IFRS Interpretations Committee where an equivalent Australian Standard or Interpretation has not been made by the AASB, were on issue but not yet effective:"

Where this wording is utilised, the relevant IASB or IFRS Interpretations Committee pronouncements should be cited by their IASB references and names, e.g. IFRS X, IFRIC Y, etc. Any Standards and Interpretations already issued by the AASB should be cited by their Australian references and names.

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