New accounting standards for 30 June 2023 and beyond
Standards effective for the first time for 30 June reporters
There are two minor standards that are effective for the first time for 30 June reporters.
(Note: 31 December year ends were subject to AASB 2020-3 for their 2022 annual report)
| The changes arising under this standard are minor and narrow scope in nature: | |
| AASB 1 First Time Adoption of Australian Accounting Standards | Simplifies the application of AASB 1 by a subsidiary that becomes a first-time adopter after its parent in relation to the measurement of cumulative translation differences |
| AASB 3 Business Combinations | Updates a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations |
| AASB 9 Financial Instruments | Clarifies the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability |
| AASB 116 Property, Plant and Equipment | Requires an entity to recognise the sales proceeds from selling items produced while preparing property, plant and equipment for its intended use and the related cost in profit or loss, instead of deducting the amounts received from the cost of the asset |
| AASB 137 Provisions, Contingent Liabilities and Contingent Assets | Specifies the costs that an entity includes when assessing whether a contract will be loss-making |
| AASB 141 Agriculture | Removes the requirement to exclude cash flows from taxation when measuring fair value, thereby aligning the fair value measurement requirements in AASB 141 with those in other Australian Accounting Standards |
| This standard: •Adds Illustrative Example 7A to AASB 15 to clarify the accounting for upfront fees •Amends the basis of conclusion to AASB 15 to note that the option for NFP private sector entities to initially recognise right of use assets arising from concessionary leases at cost will remain on an ongoing basis |
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Standards available for early adoption
There are a number of standards which have been issued but are not effective. We encourage all clients to review these and understand the likely impact since this disclosure will be required in your 30 June 2023 financial statements.
The AASB has also recently issued AASB 2022-3 Amendments to Australian Accounting Standards – Illustrative Examples for Not-for-Profit Entities accompanying AASB 15. Includes an additional example on factors to consider when accounting for upfront fees as well as an amendment to the Basis of Conclusions to allow private sector not-for-profit entities to use cost or fair value for the measurement of the right of use assets arising from concessionary leases on a permanent basis.
AASB 17 Insurance Contracts and associated amending standards
Although AASB 17 is aimed primarily at insurance companies, there are a number of non-insurance entities that issue contracts that may fall into the definition of an insurance contract. Therefore the scope element of AASB 17 needs to be carefully considered.
An insurance contract is defined as a ‘contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.’
For non-insurance entities, this involves considering transactions such as warranties, financial guarantee contracts and fixed fee service contracts to determine if they meet the definition of an insurance contract.
This may include:
- Product warranties;
- Travel service contracts including compensation for cancellations;
- Prepaid plans such as funeral plans;
- Fixed fee contracts offering unlimited repairs or visits which are common in the following industries:
- automotive (e.g., roadside assistance)
- certain health services
AASB 17 does include scope exemptions for certain contracts and therefore entities need to understand whether any contract that meets the definition of an insurance contract is within the scope of AASB 17.
Given the complexity within this standard in relation to scope and associated accounting, we highly recommend all entities who suspect they may have an insurance contract speak to their advisor as soon as possible.
AASB 17 is effective for financial years commencing on or after 1 January 2023.
AASB 2022-6 Amendments to Australian Accounting Standards: Non-current Liabilities with Covenants
AASB 2022-6 amends AASB 101 and provides clarity around the substance of an entity’s right to defer the settlement of a liability for at least twelve months after the reporting period (AASB 101. 72A). This clarification is especially relevant for loan arrangements containing covenants.
- Covenant is based on numbers on or before reporting date: The covenant affects whether the deferral right exists at the end of the reporting period, even if compliance is assessed only after the reporting period.
- Covenant is based on numbers after the reporting date: If compliance with the covenant is required only after the reporting period, it does not affect whether the right to defer settlement exists at the end of the reporting period.
These amendments may mean that certain borrowings that were previously classified as entirely current may be able to be split into current / non-current portions and we encourage our clients to review their bank agreements.
AASB 2022-10 Amendments to Australian Accounting Standards – Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities
The AASB has released a standard to provide additional guidance to the NFP Public Sector on measuring the fair value of certain assets. This standard was issued in December 2022 as AASB 2022-10 and is relevant to non-financial assets that are not primarily held for their ability to generate cash inflows.
The standard includes guidance on the following:
- Highest and best use of an asset: The entity only needs to consider whether the highest and best use of an asset is different from its current use under two scenarios: either when it’s being readied for sale or distribution (in line with AASB 5) or when it’s highly likely that the asset will be repurposed.
- Determining ‘financial feasibility’: An alternative use is considered ‘financially feasible’ if there are willing investors for the asset’s service capacity. This includes considering both the capability of the asset to provide goods or services and the cost associated with those goods or services.
- Developing unobservable inputs: If the market selling price of a similar asset is not observable, or the data needed to measure the fair value of the asset isn’t available, an entity starts by using its own assumptions. These assumptions are then adjusted as necessary based on reasonably available information that suggests that other market participants (including other not-for-profit public sector entities) would use different data.
- Applying the cost approach to measure fair value: The standard provides guidance on how to apply the cost approach, including what costs to include when calculating the replacement cost of a reference asset and how to identify economic obsolescence (the loss in value due to factors like technological advancements or changes in market preference).
Overall, these changes are not expected to have a fundamental impact to the fair value measurement for many entities and the standard is effective for annual reporting periods commencing on or after 1 January 2024. Further information on this standard can be found by watching the video on the AASB YouTube channel.