Clarity in financial reporting – November 2021 monthly newsletter

Client financial reporting update podcasts now available

Key actions: Our podcasts are ideal to obtain a quick update key matters on for the upcoming reporting season.

Our November 2021 Client financial reporting update is provided in podcast form. There is a podcast focused on for-profit entities, and a separate podcast for not-for-profit entities.  Each 15 minute podcast walks through some common messages around effective communication through financial reporting.

The topics covered in the for-profit podcast are:

• Profitability and whether it is adequately reflected
• Asset values and whether they are appropriately measured
• Liquidity and whether it is meaningfully disclosed.

The topics covered in the not-for-profit podcast are:

• Ongoing post-implementation issues for income recognition
• Removal of aged care bed licences from 2024
• Cloud computing (Software-as-a-Service arrangements).

There is a placemat for each podcast providing a summary of the discussion and links to publications mentioned.

Listen to the podcasts to hear leading specialists in financial reporting from our Accounting Technical team and audit practice share thoughts and lessons learnt from the recent reporting season as well as discussing current and emerging reporting issues.
The podcasts can be accessed here.

Director identification number registrations open

Key actions: Most directors need to act to ensure they are registered under new requirements, with registration opening this month.

Background

In 2020, the Federal Parliament passed legislation that established a new Commonwealth business registry scheme.  The legislation has the effect of transferring the administration of various business registers maintained by ASIC and the Commissioner of Taxation to a new body, Australian Business Registry Services (ABRS).  Existing registers will be progressively transferred over a period of time.

As part of the legislation, the Corporations Act 2001 and Corporations (Aboriginal and Torres Strait Islander) Act 2006 were amended to require directors to be registered and obtain a Director Identification Number (Director ID).  In early November 2021, ABRS launched new facilities to begin the registration of directors.

The creation of Director IDs is designed to address fraudulent activities by directors (such as illegal phoenix activity which is also subject to an ASIC phoenix surveillance campaign) and to assist regulators and external administrators in performing their duties.  Each director is required to undergo an identity verification process and obtain a unique Director ID, which remains with the person for life.

Which directors need to be registered?

A person appointed as a director of a body corporate registered under the Corporations Act 2001 or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 must apply to the ABRS for a Director ID.  This includes alternate directors acting in that capacity but does not include other officers such as company secretaries or ‘shadow directors’.  Registration is required regardless of the director’s title.

Directors of the following entities are required to apply for a Director ID:

• Companies incorporated under the Corporations Act 2001
• Registered foreign companies registered under Part 5B.2 of the Corporations Act 2001
• Registered Australian bodies, where registration is required under the Corporations Act 2001 (i.e. it has an ABRN)
• Aboriginal and Torres Strait Islander corporations incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006.

Directors of all entities listed above are required to register.  For example, this includes executives acting as directors of subsidiaries within groups, directors of charities and not-for-profit entities incorporated as companies limited by guarantee (or otherwise), directors of companies that are responsible for managed investment schemes, and directors of entities that do not have a reporting obligation under the Corporations Act 2001 (e.g. certain small proprietary companies).

When is registration required?

Registration is subject to a transitional process:

• If the person became a director on or before 31 October 2021, the deadline to apply is 30 November 2022
• If the person becomes a director between 1 November 2021 and 4 April 2022, the deadline to apply is within 28 days of appointment
• If the person becomes a director from 5 April 2022, the person must apply before being appointed.

Note that different dates apply for directors of entities under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (transition begins from 31 October 2022).

More information: Australian Business Registry Services website.

IFRS Foundation announces International Sustainability Standards Board

Why does it matter?  Entities need to respond to a continuing global push for standardised environmental, social and governance (ESG) reporting.

New ISSB

On 3 November 2021, the IFRS Foundation announced the creation of its new International Sustainability Standards Board (ISSB) that will develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.

The IFRS Foundation Constitution has been updated to accommodate the new board which will sit alongside the IASB.  The ISSB will sit in Frankfurt with regional hubs, have 14 members and will be overseen by the IFRS Trustees. The ISSB’s work will follow the IFRS Foundation’s established due process and produce a series of ‘IFRS Sustainability Disclosures Standards’.

The Climate Disclosure Standards Board (CDSB—an initiative of CDP) and the Value Reporting Foundation (VRF—which houses the Integrated Reporting Framework and the SASB Standards) have announced a commitment to merge with the new ISSB by June 2022.  This will reduce fragmentation and send a clear signal to the market that the ISSB is emerging as the global sustainability standard-setter.

Prototype pronouncements

The IFRS Foundation created the Technical Readiness Working Group (TRWG) in March 2021 to facilitate a running start of the ISSB.  The TRWG was designed to integrate and build on the work of relevant initiatives focused on meeting investors’ information needs, with the purpose of providing technical recommendations for consideration by the ISSB.

Two documents from the TRWG's have been published and will be considered by the incoming ISSB:

• Climate-related Disclosures Prototype  - This prototype is structured around the four pillars of governance, strategy, risk management, and metrics and targets under the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations
• General Requirements for Disclosure of Sustainability-related Financial Information Prototype – This prototype is inspired by IAS 1 Presentation of Financial Statements and sets out the overall requirements for sustainability-related disclosures to investors.

Impacts

The International Organization of Securities Commissions (IOSCO) has welcomed the announcement of the formation of the ISSB and the publication of the Climate-related Disclosures Prototype.  IOSCO will consider the draft  standard (developed from the prototype) to be issued by the ISSB during 2022  and intends by the end of calendar 2022 to consider endorsing a final Standard.  If endorsed, it is expected that IOSCO’s 130 members will consider ways “they might adopt, apply or be informed by the Standard”.

More information:

• Purpose-driven Business Reporting in Focus IFRS Foundation creates new board to set global sustainability standards
• IFRS Foundation announcement
• Deloitte statement of support
• IAS Plus summary

Two minute update

Why does it matter?  Ensure you are aware of the latest developments.

A summary of recent developments:

AASB 9 spotlight – considerations going into 2022

We’ve published a new blog, which discusses the issues and trends that entities should consider in their calculation of expected credit losses (ECL) under AASB 9 Financial Instruments going into the new year.

New IFRIC agenda decisions

The IFRS Interpretations Committee has published two new agenda decisions after no objection was raised by the IASB:

• Non-refundable value added tax on lease payments (IFRS 16)
• Accounting for warrants that are classified as financial liabilities on initial recognition (IAS 32).

In addition, a fifth compilation volume of recent agenda decisions has been released.

ASX updates requirements for oil and gas entities

The ASX has published Consultation Response Proposed changes to the oil and gas reporting requirements in the ASX Listing Rules, which outlines final rule changes in respect of reporting by oil and gas entities of their reserves and resources.

Chapter 5 of the ASX Listing Rules is currently drafted based on the 2007 edition of the Petroleum Resources Management System sponsored by the Society of Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum Council and the Society of Petroleum Evaluation Engineers (SPE-PRMS).  The SPE-PRMS was revised in July 2018, introducing a revised resources classification framework, and the final listing rule changes made by the ASX give effect to the revised framework (with some exceptions).

The revised Chapter 5 of the ASX Listing Rules comes into effect on 1 July 2022.  The ASX notes that entities are encouraged to apply the revised rules before their effective date.