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AASB issues new standards on consolidation, joint arrangements and disclosures

  • AASB (Australian Accounting Standards Board) (lt blue) Image

30 Aug 2011

The Australian Accounting Standards Board (AASB) has issued six new Standards which introduce new requirements for consolidated financial statements, joint arrangements and disclosures.

The new standards, which are equivalent to the suite of five standards issued by the IASB in May 2011, are:

StandardMore information

AASB 10 Consolidated Financial Statements

Equivalent to IFRS 10 Consolidated Financial Statements. Requires a parent to present consolidated financial statements as those of a single economic entity, replacing the requirements previously contained in AASB 127 Consolidated and Separate Financial Statements and Interpretation 112 Consolidation - Special Purpose Entities.

The Standard identifies the principles of control, determines how to identify whether an investor controls an investee and therefore must consolidate the investee, and sets out the principles for the preparation of consolidated financial statements.

The Standard introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e. whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in 'special purpose entities'). Under AASB 10, control is based on whether an investor has:

  • Power over the investee
  • Exposure, or rights, to variable returns from its involvement with the investee, and
  • The ability to use its power over the investee to affect the amount of the returns.

Summary of IFRS 10

IFRS in Focus Newsletter

AASB 11 Joint Arrangements

Equivalent to IFRS 11 Joint Arrangements. Replaces AASB 131 Interests in Joint Ventures. Requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and then account for those rights and obligations in accordance with that type of joint arrangement.

Joint arrangements are either joint operations or joint ventures:

  • A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint operators recognise their assets, liabilities, revenue and expenses in relation to its interest in a joint operation (including their share of any such items arising jointly)
  • A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (joint venturers) have rights to the net assets of the arrangement. A joint venturer applies the equity method of accounting for its investment in a joint venture in accordance with AASB 128 Investments in Associates and Joint Ventures (2011). Unlike AASB 131, the use of 'proportionate consolidation' to account for joint ventures is not permitted.

Summary of IFRS 11

IFRS in Focus Newsletter

AASB 12 Disclosure of Interests in Other Entities

Equivalent to IFRS 12 Disclosure of Interests in Other Entities. Requires the extensive disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

In high-level terms, the required disclosures are grouped into the following broad categories:

  • Significant judgements and assumptions - such as how control, joint control, significant influence has been determined
  • Interests in subsidiaries - including details of the structure of the group, risks associated with structured entities, changes in control, and so on
  • Interests in joint arrangements and associates - the nature, extent and financial effects of interests in joint arrangements and associates (including names, details and summarised financial information)
  • Interests in unconsolidated structured entities - information to allow an understanding of the nature and extent of interests in unconsolidated structured entities and to evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities

AASB 12 lists specific examples and additional disclosures which further expand upon each of these disclosure objectives, and includes other guidance on the extensive disclosures required.

Summary of IFRS 12

IFRS in Focus Newsletter

AASB 127 Separate Financial Statements

Equivalent to IAS 27 Separate Financial Statements (2011). Amended version of AASB 127 which now only deals with the requirements for separate financial statements, which have been carried over largely unamended from AASB 127 Consolidated and Separate Financial Statements. Requirements for consolidated financial statements are now contained in AASB 10 Consolidated Financial Statements.

The Standard requires that when an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either at cost, or in accordance with AASB 9 Financial Instruments.

The Standard also deals with the recognition of dividends, certain group reorganisations and includes a number of disclosure requirements.

Summary of IAS 27 (2011)

AASB 128 Investments in Associates and Joint Ventures

Equivalent to IAS 27 Investments in Associates and Joint Ventures (2011). This Standard supersedes AASB 128 Investments in Associates and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

The Standard defines 'significant influence' and provides guidance on how the equity method of accounting is to be applied (including exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested for impairment.

Summary of IAS 28 (2011)

AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards

This Standard gives effect to many consequential changes arising from the issuance of the standards above. For example, references to AASB 127 Consolidated and Separate Financial Statements are amended to AASB 10 Consolidated Financial Statements or AASB 127 Separate Financial Statements, and references to AASB 131 Interests in Joint Ventures are deleted as that Standard has been superseded by AASB 11 and AASB 128 (August 2011).

The Standards apply to annual reporting periods beginning on or after 1 January 2013. Earlier application is permitted by for-profit entities, but not by not-for-profit entities, for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2013. Prior to 1 January 2013, the AASB will consider whether the Standards should be modified for application by not-for-profit entities. Furthermore, through a separate due process, the AASB will consider the relief from certain disclosure requirements that should be provided to entities that adopt Tier 2 'Reduced Disclosure Requirements' (RDR) (see our later story).

Australian for-profit entities should consider disclosing the information required by paragraph 30 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (where material) in relation to these Standards and should use the new citation (i.e. referring to the AASB pronouncements, not the IASB pronouncements on which they are based) from the date of their issue. The standards are dated 29 August 2011 and were publicly released late on 31 August 2011.

Click for AASB announcement (link to AASB website).

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