IASB provisions proposals
The IASB has released IASB/ED/2024/8 Provisions – Targeted Improvements, which proposes changes to recognition, measurement and disclosure requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The AASB has released an equivalent exposure draft.
Notably, the proposals would:
- Align the requirements of IAS 37/AASB 137 with the Conceptual Framework for Financial Reporting and amend the requirements supporting the present obligation recognition criterion. Importantly, this would change the timing of recognition of some provisions, resulting in the earlier recognition of levies and seeing the withdrawal of IFRIC 21 Levies
- Clarify that expenditure required to settle a present obligation comprises the costs that relate directly to the obligation, including both the incremental costs of settling the obligation and an allocation of other costs that relate directly to settling obligations of that type
- Require provisions to be measured by reference to a risk-free discount rate, excluding any ‘non-performance risk’. An entity would be required to disclose the discount rates used and the approach it has used to determine those rates
- Add additional examples and guidance and update existing examples and analysis in the implementation guidance to reflect the revised requirements.
Comments on the proposals to the IASB close by 12 March 2025 (and to the AASB by 31 January 2025). For more information, see iGAAP in Focus IASB proposes targeted improvements to the accounting for provisions.
New IFRS Foundation educational material on sustainability-related risks and opportunities and materiality
The IFRS Foundation has released educational material entitled Sustainability-related risks and opportunities and the disclosure of material information which provides guidance on:
- The main components of the definition of “material information” in IFRS Sustainability Disclosure Standards (IFRS SDS) and how to make materiality judgements in that context. The document explains that materiality is an entity-specific characteristic of information and that the term “materiality” is not used in IFRS SDS in relation to the significance or importance of a sustainability-related risk or opportunity
- What sustainability-related risks and opportunities (SRROs) are and how they could reasonably be expected to affect an entity’s prospects (including its cash flows, and its access to finance or cost of capital over the short, medium or long term). IFRS SDS do not require a specific approach or method to identify SRROs
- Identifying material information about sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, including a process that entities could follow.
The document also discusses connectivity considerations with IFRS Accounting Standards and other sustainability reporting frameworks.
The information in the document will be a useful resource for entities preparing for sustainability reporting under the Corporations Act 2001 and Australian Sustainability Reporting Standards.
AASB proposes to remove not-for-profit special purpose financial statements and introduce ‘Tier 3’ general purpose financial statements
The AASB has released two exposure drafts which would:
- Remove the ability of certain not-for-profit entities to prepare special purpose financial statements (ED 334 Limiting the Ability of Not-for-Profit Entities to Prepare Special Purpose Financial Statements)
- Introduce a new Tier 3 of general purpose financial statements with simplified recognition, measurement and disclosure requirements that would apply to all eligible not-for-profit private sector Tier 3 entities (ED 335 General Purpose Financial statements – Not-for-Profit Private Sector Tier 3 Entities).
The proposals borrow from the requirements for for-profit entities through Australian Accounting Standards – Simplified Disclosures, and represent the next step in implementing the Conceptual Framework for Financial Reporting in the Australian context. However, to respond to the needs of smaller not-for-profit entities, the requirements in ED 335 simplify the language used and the presentation, recognition and measurement requirements; reduce the required disclosures; and omit requirements relating to transactions which are uncommon for small not-for-profit entities.
The exposure drafts are open for comment until 28 February 2025.
Corporate reporting considerations from recent legislative changes
The House of Representatives and Senate sat for the last time this year on 25-28 November 2024, with over 30 pieces of legislation passing on the final sitting day alone. Many of the Bills considered by the Senate were amended and the House sat on Friday 29 November 2024 to confirm the Senate’s amendments – so all legislation will become law on Royal Assent.
From a corporate reporting perspective, we note the following:
Pillar Two legislation
The primary legislation to implement the OECD ‘Pillar Two’ top-up tax in Australia was passed. We expect that the subordinate legislation (which provides details of how the top-up taxes are calculated) will be made before 31 December 2024, confirming substantive enactment of the Pillar Two legislation for accounting purposes.
Broadly, Pillar Two applies to entities with annual global income of EUR 750 million (approximately A$1.2 billion) or greater and will apply to income years commencing on or after 1 January 2024. Accordingly, full-year and half-year financial reports at December 2024 will need to recognise any current tax arising under Pillar Two if the subordinate legislation confirming substantive enactment is made prior to 31 December 2024.
Entities with income exceeding the EUR 750 million threshold may wish to provide additional disclosure about the impact of Pillar Two - even where there is no current tax impact.
For more information, see Clarity publication Responding to Pillar Two and our December 2024 Tier 1 models and reporting considerations publication.
Consolidated entity disclosure statement amendments
Amendments to the Corporations Act 2001 clarify the tax residency disclosures to be included in the consolidated entity disclosure statement (CEDS), as follows:
- An entity included in the CEDS that is not an Australian tax resident and which is established and operates in a foreign jurisdiction lacking a corporate tax system (e.g. the Cayman Islands) should not list the foreign jurisdiction in the CEDS
- An entity that is an Australian tax resident under Australian tax law and foreign resident under the law of one or more foreign jurisdictions would include details of both the Australian and all foreign jurisdictions in the CEDS
- A partnership included in the CEDS would be listed as having Australian tax residency if at least one member of the partnership is an Australian resident
- A trust included in the CEDS would be considered an Australian resident where the trust is a ‘resident trust estate’ for the purposes of Australian tax law.
These requirements will first apply in public company financial reports at 30 June 2025. However, the changes are largely consistent with best practice under previous law (see Clarity publication New consolidated entity disclosure statement).
Other legislation passed implements new country-by-country reporting requirements on certain entities as part of the Federal Government’s broader tax transparency initiative.
Build to rent tax concessions legislated
The Federal Government’s ‘build to rent’ accelerated capital works deductions will increase depreciation on eligible developments from 2.5% p.a. to 4.0% p.a. Accelerated depreciation will result in the recognition of a deferred tax liability where the building is depreciated faster for tax purposes than accounting purposes.
