Australian standard setter issues 'domestic' standard for superannuation entities

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12 Jun 2014

The Australian Accounting Standards Board (AASB) has issued a new 'domestic' standard which prescribes the requirements for general purpose financial statements prepared by Australian superannuation entities. Consistent with the AASB's conclusions when Australia first adopted International Financial Reporting Standards (IFRS) from 2005, the AASB has decided against the adoption of an Australian equivalent to IAS 26 'Accounting and Reporting by Retirement Benefit Plans' in favour of a specific domestic standard.

The new standard, AASB 1056 Superannuation Entities, results from a long running AASB project, and replaces an existing domestic Australian Accounting Standard, AAS 25 Financial Reporting by Superannuation Plans which was originally issued in March 1993. The new standard introduces a number of significant changes from AAS 25, including more integration with other standards, new definitions, revised composition of the primary financial statements, use of 'fair value' instead of 'net market value', the recognition and measurement of member liabilities and disclosure.

AASB 1056 applies to Australian superannuation entities that are 'reporting entities' (as defined), or which prepare financial statements that are held out to be general purpose financial statements. Superannuation entities comprise superannuation plans and approved deposit funds, which include entities regulated under the Australian Superannuation Industry (Supervision) Act 1993 and other entities established and maintained to receive superannuation contributions for the primary purpose of providing benefits to members upon their retirement, death, disablement or other event that qualifies as a condition of release for member benefits.

The recognition, measurement and disclosure principles and other requirements of AASB 1056 effectively override the requirements of other Australian Accounting Standards, and accordingly, superannuation entities are not required to apply those other standards in preparing financial reports. However, where the requirements of other standards are applied by a superannuation entity due to AASB 1056 not dealing with the topic, the disclosure principles and other requirements of those other standards are applied, e.g. superannuation entities would apply AASB 7 Financial Instruments: Disclosures (equivalent to IFRS 7 Financial Instruments: Disclosures), AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (equivalent to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors) and AASB 124 Related Party Disclosures (equivalent to IAS 24 Related Party Disclosures).

The Basis for Conclusions on AASB 1056 notes the following in relation to the AASB developing a domestic standard, rather than adopting IAS 26 in the Australian context:

In 2004, when the AASB was implementing the decision to adopt IFRS, it considered the merits of IAS 26 Accounting and Reporting by Retirement Benefit Plans, which was originally issued in 1987 and has changed little since that time. The AASB concluded that IAS 26 should not be adopted in Australia because its application by Australian superannuation entities would be unlikely to result in financial statements that meet users’ information needs and would potentially reduce the quality of financial reporting by superannuation entities...

In particular, the AASB considered that IAS 26 would not result in useful information on the capacity of a superannuation entity to meet its member liabilities...

In contrast to IAS 26, AAS 25 required all assets held by a superannuation plan to be measured at a current value (consistent with Australian prudential measurement requirements). The AASB also considered other relevant IFRS being adopted in Australia and noted that the requirements of IAS 26 are highly dissimilar from the requirements of most other IFRS. For example, in contrast to IAS 26, IAS 19 Employee Benefits (AASB 119 Employee Benefits) requires plan assets attributable to defined benefit obligations to be measured at fair value in determining an employer-sponsor’s net defined benefit obligations.

The AASB concluded that "the reasons identified for not adopting IAS 26 (and retaining AAS 25) remain valid in respect of AASB 1056".   Whilst this means that Australian superannuation entities are unable to make a statement of compliance with IFRS (consistent with current outcomes under AAS 25), it does not undermine the ability of for-profit entities which are not superannuation entities from making such a statement where they fully comply with Australian Accounting Standards, as IAS 26 only applies to financial statements of retirement benefit plans and not more broadly.

The revised standard applies to annual reporting periods beginning on or after 1 July 2016, but may be applied early. Click for AASB press release (link to AASB website).

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