New Accounting Standards For 31 December 2023

Standards effective for the first time for annual reporting periods ending on or after 31 December 2023

The good news is that there are no major new standards effective from 31 December 2023, however a revised standard provides us with a great opportunity to declutter the financial statements in the area of accounting policies as discussed below:

1. ASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates (AASB 2021-6 Tier 2 equivalent)

This standard:

• introduces a definition of accounting estimates as ‘monetary amounts in financial statements that are subject to measurement uncertainty’
• requires the disclosure of material accounting policy information rather than significant accounting policies. Accounting policy information is considered to be material if it relates to material transactions, other events or conditions AND:
  • Relates to a change in accounting policy during the reporting period
  • Documentation of choice made by management from the accounting standards
  • Documents an accounting policy developed in the absence of an explicit accounting standard requirement (per AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors)
  • Relates to an area of significant judgement or estimation where these disclosures are made in accordance with AASB 101 Presentation of Financial Statements or
  • The related transaction is complex and the accounting policy information is needed to explain treatment.

The adoption of AASB 2021-2 which amends AASB 101 and AASB 108 should result in significantly less accounting policies being included in the financial statements.

2. AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates (AASB 2021-6 Tier 2 equivalent)

AASB 17 is not limited to insurance companies – and therefore entities who have contracts that may include an insurance component need to consider whether they are in the scope of this standard.  Some examples of relevant contracts include:

• Product warranties;
• Financial guarantees;
• 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.

3. AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction

AASB 112.15 includes an exemption from recognising deferred tax which at the time of the transaction, affects neither accounting profit or taxable profit’.

AASB 2021-5 clarifies that in order to use this exemption, the transaction should not give rise to equal taxable and deductible temporary differences.

The impact of adopting this standard will be that entities are likely to recognise more deferred tax, particularly in relation to transactions such as:

• Leases
• Rehabilitation / make good provisions.

4. AASB 2023-2 Amendments to Australian Accounting Standards – International Tax Reform – Pillar Two Model Rules (AASB 2023-4 is the equivalent Tier 2 standard)

This standard is relevant for entities affected by the implementation of the Pillar Two Model rules published by the Organisation for Economic Co-operation and Development and amends AASB 112 Income Taxes to introduce:

•  a mandatory temporary exception to accounting for deferred taxes arising from the implementation of the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD); and
• targeted disclosure requirements to help financial statement users better understand an entity’s exposure to income taxes arising from the reform, particularly in periods before legislation implementing the rules is in effect.

If you are affected by the implementation of the Pillar Two Model rules then you should consider the requirements of this standard.

5. AASB 2022-7 Editorial Corrections to Australian Accounting Standards and Repeal of Superseded and Redundant Standards

This standard is an administrative standard and will not have impact for any entity.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.