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Clarity in corporate reporting – June 2024 monthly newsletter

AASB goes “back to baseline” with sustainability standards, climate bill passes House of Representatives and more

Our monthly Clarity in corporate reporting newsletter informs you of key focus areas in financial reporting for the month: actions, developments, and dates.

Be aware of the latest Australian sustainability reporting standard developments

The AASB made some important decisions at its meeting held on 6-7 June 2024. In particular, the AASB moved towards progressing Australian Sustainability Reporting Standards (ASRSs) in closer alignment with IFRS® Sustainability Disclosure Standards published by the ISSB.

In particular, the AASB agreed:

  • As signalled at its May 2024 meeting, to issue a non-mandatory ASRS 1 that incorporates all the content of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. Entities could voluntarily apply ASRS 1 and report on aspects of sustainability other than climate-related financial disclosures and possibly state compliance with IFRS Sustainability Disclosure Standards
  • To form a subcommittee to develop a stand-alone ASRS 2 that functions as a mandatory climate-related financial disclosure standard. This could take the form of a separate appendix to ASRS 2 that contains necessary parts of IFRS S1, cross references to the voluntary standard or another method
  • To remove the Australian amendments to limit the scope of ASRS 2, thereby aligning with IFRS S2 on requiring the disclosure of all climate-related risks and opportunities (rather than only risks and opportunities in relation to climate change)
  • To retain the proposals for climate-related metrics (including disclosure about internal carbon prices) in alignment with IFRS S2
  • To prioritise the Greenhouse Gas Protocol (GHG Protocol), instead of the National Greenhouse and Energy Reporting (NGER) legislation, as the default framework to measure greenhouse gas emissions (whilst permitting NGER entities to use the NGER legislation). In addition, the seven greenhouse gases in the GHG Protocol would be adopted (consistent with the original proposals) and greenhouse gas global warming potential values would be aligned with IFRS S2 (rather than the NGER legislation)
  • To require entities to disclose their scope 3 greenhouse gas emissions using the 15 categories in the GHG Protocol (aligned with IFRS S2, noting the GHG Protocols may permit additional categories)
  • To remove the mandatory requirement for entities to disclose market-based greenhouse gas emissions and align with the requirements of IFRS S2 (entities could choose to provide this information if they wished and NGER reporters would be required to disclose this measure if required by the NGER legislation in the future).

These developments reflect the feedback received from the consultation process and takes the AASB in a different direction to their original proposals. We welcome the closer alignment with ISSB standards.

The AASB will continue to debate outstanding issues with a view to finalising the ASRSs as soon as possible. Based on public discussions at recent meetings, it is likely the AASB will schedule additional meetings in July and August 2024 to continue discussions. 

More information:

House of Representatives passes sustainability reporting Bill – one step to go!

On 6 June 2024, the House of Representatives passed a Bill which would implement mandatory sustainability reporting in Australia.

The Bill, Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, if finally made law, will amend the Corporations Act 2001 to require entities to prepare a sustainability report as part of their annual reporting.

Interestingly, the Opposition proposed an amendment that effectively would have stalled the Bill. This amendment was defeated. The Opposition voted against the Bill on the final vote and it appears likely the Opposition will not support the Bill in the Senate. Most independents voted in favour of the Bill (although there were amendments proposed around the modified liability provisions which were not supported).

It is likely the Bill will need the support of the Greens and the cross-bench in the Senate in order to be passed by the Senate and made law. Any amendments made by the Senate would return the Bill to the House.

The Senate next sits from 24 June to 4 July 2024. Whether the Bill will be considered by the Senate in this sitting will be known closer to the sitting dates when the draft legislation programme is released.

IASB issues amendments to financial instruments standards

The IASB has announced amendments to the classification and measurement of financial instruments under IFRS 9 Financial Instruments and related disclosures in IFRS 7 Financial Instruments: Disclosures.

The key amendments are:

  • Electronic transfers – allowing the derecognition of a financial liability that will be settled in cash through an electronic payment system provided certain criteria are met. This effectively maintains the existing accounting policy adopted by many entities
  • Financial assets with environmental, social and corporate governance (ESG) and similar features assessed for the purposes of classification and measurement – clarifying how contractual cash flows on such loans should be assessed
  • Disclosures – amending disclosures in relation to investments in equity instruments designated at fair value through other comprehensive income and requiring disclosure of contractual terms that could change the timing or amount of contractual cash flows on contingent events.

Importantly, the electronic transfer amendments relate to the settlement of financial liabilities only. The basis for conclusions accompanying the amendments outlines that respondents to the exposure draft noted “not permitting the derecognition of a trade receivable before the settlement date would require a change in industry practice, particularly when considering payment methods such as cheques and credit card receivables”.

The IASB decided not to extend the exception for financial liabilities to financial assets, concluding that a right to receive cash for a receivable only expires when the cash is received. This many be a change in practice for some entities, and those entities should consider the impacts of the amendments and consider disclosure in June 2024 financial reports if those impacts are expected to be material.

The amendments are applicable to annual reporting periods beginning on or after 1 January 2026, but may be applied earlier. Entities can also apply the amendments relating to the classification of financial assets with ESG and similar features early in isolation.

For more information, see iGAAP in Focus IASB issues amendments to the classification and measurement requirements of financial instruments.

AASB makes new presentation and disclosure standard

The AASB made AASB 18 Presentation and Disclosure in Financial Statements at its 6-7 June 2024 meeting. The Standard replaces AASB 101 Presentation of Financial Statements and will be effective for annual reporting periods beginning on or after 1 January 2027. However, for not-for-profit, superannuation entities and public sector entities, the Standard will be effective for annual reporting periods beginning on or after 1 January 2028. The deferral for these entities is to permit consultation on whether any amendments are required for these entities. 

ASX updates continuous disclosure guidance for cyber incidents

The ASX has updated Guidance Note 8 Continuous Disclosure: Listing Rules 3.1-3.1B to include a new data breach example (a mark-up of changes is also available). The Guidance Note assists listed entities in understanding and complying with the continuous disclosure obligations under the ASX Listing Rules (and by extension the Corporations Act 2001).

The new example (Example I) works through a hypothetical data breach and illustrates when disclosure to the market would be required. The thought process in the example may also inform whether, and if so when, any contingent liability or provision would arise under accounting standards.

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