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AASB proposes to withdraw Australia-specific Interpretation

24 Aug 2012

The Australian Accounting Standards Board (AASB) has issued an exposure draft which proposes to withdraw Australian Interpretation 1039 'Substantive Enactment of Major Tax Bills in Australia'. Interpretation 1039 is an Australian 'domestic' Interpretation that provides guidance on the application of AASB 112 'Income Taxes' (equivalent to IAS 12) in the Australian context. The proposed withdrawal of the Interpretation is consistent with the AASB's objectives of not amending or interpreting IFRS in the Australian context, save for rare and exceptional circumstances.

The origin of the Interpretation is the previous series of Australian Interpretations produced by the now disbanded Urgent Issues Group under Australian Accounting Standards before Australia's adoption of International Financial Reporting Standards (IFRS).  As part of the implementation of IFRSs in the Australian context, these pre-IFRS Interpretations were reviewed and updated to be made consistent with the requirements of IFRS.

The pre-IFRS version of Interpretation 1039, UIG 39, was put in place partly in response to calls for guidance on how to account for the effects of a series of linked Bills which together enacted Australia's tax-consolidation regime.

Accordingly, Australian Interpretation 1039 provides guidance on when "substantive enactment" referred to in paragraph 48 of AASB 112/IAS 12 is taken to have occurred in an Australian context, concluding it occurs once a non-linked Bill has been tabled in Parliament and there is majority support for the passage of the Bill through both Houses of Parliament, consistent with the operation of Australian constitutional law.

The AASB has decided to propose the withdrawal of Australian Interpretation 1039 on the basis that an Australian Interpretation is not necessary as the issue of whether a tax Bill is substantively enacted is not unique to Australia.

The proposed withdrawal is consistent with the AASB’s policy of IFRS adoption and only issuing a domestic Interpretation of an IFRS adopted for use in Australia in rare and exceptional circumstances, and then only after exploring with the IFRS Interpretations Committee whether that Committee should deal with the matter.  It also follows on from earlier amendments made to Australian Accounting Standards which in effect, undid the changes that the AASB had made to IFRS when it initially adopted them in the Australian context.  A number of other Australian-specific pronouncements remain in place, but these do not undermine the ability of an eligible for-profit entity to make an explicit and unreserved statement of compliance with IFRSs, and in fact, AASB 101 Presentation of Financial Statements (equivalent to IAS 1) requires an entity to make such statement.

The exposure draft notes that AASB Board members would not expect diversity in practice to arise in Australia in the absence of an Australian Interpretation on this topic.

The exposure draft, ED 226 Withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia, is open for comment until 19 November 2012.  Click for access to ED 226 (link to AASB website).