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AASB 1 Standards/Accounting & Auditing as amended, taking into account amendments up to AASB 2009-11 - Amendments to Australian Accounting Standards arising from AASB 9 - December 2009
Administered by: Treasury
General Comments: This compilation represents the Standard as at the making date of the last Amending Standard shown in the Table of Standards.
Registered 19 Mar 2014
Start Date 23 Dec 2009

Compiled Accounting Standard

AASB 1

 

First-time Adoption of Australian Equivalents to International Financial Reporting Standards

 

 

This compiled Standard applies to annual reporting periods beginning on or after 1 January  2013.  Early application is permitted.  It incorporates relevant amendments made up to and including 7 December 2009.

 

Prepared on 4 March 2014 by the staff of the Australian Accounting Standards Board.


Obtaining Copies of Accounting Standards

Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: www.aasb.gov.au.

Printed copies of original Standards and amending Standards are available for purchase by contacting:

The Customer Service Officer

Australian Accounting Standards Board

Level 7

600 Bourke Street

Melbourne   Victoria

AUSTRALIA

 

 

Postal address:

PO Box 204 Collins Street West

Victoria   8007

AUSTRALIA

 

Phone:       (03) 9617 7637

Fax:            (03) 9617 7608

E-mail:       publications@aasb.gov.au

Website:    www.aasb.gov.au

 

Other Enquiries

Phone:       (03) 9617 7600

Fax:            (03) 9617 7608

E-mail:       standard@aasb.gov.au

 

 

COPYRIGHT

 

© 2014 Commonwealth of Australia

 

This compiled AASB Standard contains IFRS Foundation copyright material.  Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source.  Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.

All existing rights in this material are reserved outside Australia.

Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only.  Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at www.ifrs.org.


CONTENTS

COMPILATION DETAILS

Comparison With IFRS 1

Accounting Standard

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Paragraphs

Objective                                                                                                                       1

Application                                                                                        Aus1.1 – Aus1.5

Scope                                                                                                                       2 – 5

Recognition and Measurement                                                                                  

Opening Australian-equivalents-to-IFRSs statement of financial position 6

Accounting policies                                                                                     7 – 12

Exemptions from other Australian equivalents to IFRSs                 13 – 14

Business combinations                                                                              15

Fair value or revaluation as deemed cost                                     16 – 19

Employee benefits                                                                         20 – 20A

Cumulative translation differences                                               21 – 22

Compound financial instruments                                                           23

Investments in subsidiaries, jointly controlled entities and associates 23A – 23B

Assets and liabilities of subsidiaries, associates
and joint ventures                                                                         24 – 25

Designation of previously recognised financial instruments           25A

Share-based payment transactions                                         25B – 25C

Insurance contracts                                                                                25D

Changes in existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment                                                                                     25E

Leases                                                                                                        25F

Fair value measurement of financial assets or financial liabilities 25G

Service concession arrangements                                                        25H

Borrowing costs                                                                                         25I

Exceptions to retrospective application of other Australian equivalents to IFRSs         26

Derecognition of financial assets and financial liabilities       27 – 27A

Hedge accounting                                                                             28 – 30

Estimates                                                                                            31 – 34

Assets classified as held for sale and discontinued operations 34A – 34B

Non-controlling interests                                                                        34C

Presentation and Disclosure                                                                                    35

Comparative information                                                                                36

Non-Australian-equivalents-to-IFRSs comparative information and historical summaries 37

Explanation of transition to Australian equivalents to IFRSs                  38

Reconciliations                                                                                  39 – 43

Designation of financial assets or financial liabilities                       43A

Use of fair value as deemed cost                                                            44

Use of deemed cost for investments in subsidiaries, jointly controlled entities and associates             44A

Interim financial reports                                                                  45 – 46

Effective Date                                                                                             47K – 47L

Appendices:

A  Defined terms                                                                                             Page 40

B  Business combinations                                                                             Page 42

 

IMPLEMENTATION GUIDANCE                                                             Page 47

ENDNOTES                                                                                                     Page 87

 

BASIS FOR CONCLUSIONS ON IFRS 1
(available on the AASB website)


Australian Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (as amended) is set out in paragraphs 1 – 47L and Appendices A – B and the Endnotes.  All the paragraphs have equal authority.  Paragraphs in bold type state the main principles.  Terms defined in this Standard are in italics the first time they appear in the Standard.  AASB 1 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations.  In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.


COMPILATION DETAILS

Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards as amended

This compiled Standard applies to annual reporting periods beginning on or after 1 January  2013.  It takes into account amendments up to and including 7 December 2009 and was prepared on 4 March 2014 by the staff of the Australian Accounting Standards Board (AASB).

This compilation is not a separate Accounting Standard made by the AASB.  Instead, it is a representation of AASB 1 (July 2004) as amended by other Accounting Standards, which are listed in the Table below.

 

Table of Standards

Standard

Date made

Application date
(annual reporting periods … on or after …)

Application, saving or transitional provisions

AASB 1

15 Jul 2004

(beginning) 1 Jan 2005

 

Erratum

1 Nov 2004

(beginning) 1 Jan 2005

AASB 2004-1

9 Dec 2004

(beginning) 1 Jan 2005

-

AASB 2004-2

22 Dec 2004

(beginning) 1 Jan 2005

-

AASB 2004-3

22 Dec 2004

(beginning) 1 Jan 2006

see (a) below

AASB 2005-4

9 Jun 2005

(beginning) 1 Jan 2006

see (b) below

AASB 2005-5

9 Jun 2005

(beginning) 1 Jan 2006

see (c) below

AASB 2005-8

30 Jun 2005

(ending) 31 Dec 2005

see (d) below

AASB 2005-10

5 Sep 2005

(beginning) 1 Jan 2007

see (e) below

AASB 2006-2

21 Mar 2006

(ending) 30 Jun 2006

see (f) below

AASB 2007-2a

15 Feb 2007

(ending) 28 Feb 2007

see (g) below

AASB 2007-2b

15 Feb 2007

(beginning) 1 Jan 2008

see (h) below

AASB 2007-4

30 Apr 2007

(beginning) 1 Jul 2007

see (i) below

AASB 2007-6

14 Jun 2007

(beginning) 1 Jan 2009

see (j) below

AASB 2007-7

28 Jun 2007

(beginning) 1 Jul 2007

see (i) below

AASB 2007-8

24 Sep 2007

(beginning) 1 Jan 2009

see (k) below

AASB 2007-10

13 Dec 2007

(beginning) 1 Jan 2009

see (k) below

AASB 2008-3

6 Mar 2008

(beginning) 1 Jul 2009

see (l) below

AASB 2008-6

24 Jul 2008

(beginning) 1 Jul 2009

see (m) below

AASB 2008-7

25 Jul 2008

(beginning) 1 Jan 2009

see (n) below

AASB 2009-1

22 Apr 2009

(beginning) 1 Jan 2009
and (ending) 30 Apr 2009

see (o) below

AASB 2009-6

25 Jun 2009

(beginning) 1 Jan 2009
and (ending) 30 Jun 2009

see (p) below

Erratum

5 Oct 2009

(beginning) 1 Jan 2009
and (ending) 30 Jun 2009

see (q) below

AASB 2009-11

7 Dec 2009

(beginning) 1 Jan 2013

see (r) below

 

(a)       Entities that elect to apply AASB 119 Employee Benefits (December 2004) to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006 must also apply the amendments made to AASB 1 by AASB 2004-3 to such periods.

(b)       Entities that elect to apply the amendments in AASB 2005-4 in respect of AASB 139 Financial Instruments: Recognition and Measurement to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006 must also apply the amendments made to AASB 1 by AASB 2005-4 to such periods.

(c)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006, provided that Interpretation 4 Determining whether an Arrangement contains a Lease is also applied to such periods.

(d)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 that end before 31 December 2005.

(e)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2007.

(f)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 that end before 30 June 2006.

(g)       Entities may elect to apply the relevant amendments to annual reporting periods beginning on or after 1 January 2005 that end before 28 February 2007.

(h)       Entities may elect to apply the relevant amendments to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2008, provided that Interpretation 12 Service Concession Arrangements is also applied to such periods.

(i)        Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2007.

(j)        Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 123 Borrowing Costs (June 2007) is also applied to such periods.

(k)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods.

(l)        Entities may elect to apply this Standard to annual reporting periods beginning on or after 30 June 2007 but before 1 July 2009 provided that AASB 3 Business Combinations (March 2008) and the amended AASB 127 Consolidated and Separate Financial Statements (March 2008) are also applied to such periods.

(m)      Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2009 provided that AASB 127 Consolidated and Separate Financial Statements (as amended by AASB 2008-5 in July 2008) is also applied to such periods.

(n)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009.

(o)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2009 that end before 30 April 2009, provided that AASB 123 Borrowing Costs (June 2007) is also applied to such periods.

(p)       Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods, and to annual reporting periods beginning on or after 1 January 2009 that end before 30 June 2009.

(q)       Entities may elect to apply this Erratum to annual reporting periods beginning on or after 1 January 2005, provided that AASB 2009-6 Amendments to Australian Accounting Standards is also applied to such periods.

(r)       Entities may elect to apply this Standard  to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2013, provided that AASB 9 Financial Instruments is also applied to such periods.

Table of Amendments to Standard

Paragraph affected

How affected

By …   [paragraph]

1

amended

AASB 2007-10 [15]

2

amended

AASB 2007-10 [15]

3

amended

AASB 2007-10 [15]

Aus3.1

amended

AASB 2007-10 [15]

Aus3.2

added

AASB 2006-2 [5]

4

amended

AASB 2007-10 [15]

6

amended

AASB 2007-8 [9]

7

amended

amended

AASB 2007-4 [17]

AASB 2007-8 [9]

8 (example)

amended

AASB 2007-8 [10]

9

amended

amended

amended

AASB 2007-2b [5]

AASB 2007-4 [17]

AASB 2007-6 [6]

10

amended

amended

AASB 2007-4 [17]

AASB 2007-8 [11]

12

amended

amended

amended

amended

amended

amended

AASB 2005-5 [7]

AASB 2007-2b [6]

AASB 2007-4 [17]

AASB 2007-6 [6]

AASB 2007-7 [6]

AASB 2007-8 [11]

13(c)

added

AASB 2004-3 [11]

13(ea)

added

AASB 2008-7 [5]

13(i)

amended

amended

AASB 2005-5 [8]

AASB 2007-4 [17]

13(j)

amended

AASB 2005-5 [8]

13(k)

added

amended

amended

AASB 2004-2 [7]

AASB 2005-5 [8]

AASB 2007-2b [7]

13(l)

added

amended

amended

AASB 2004-2 [7]

AASB 2007-2b [7]

AASB 2007-6 [6]

13(m)

added

amended

AASB 2007-2b [7]

AASB 2007-6 [6]

13(n)

added

AASB 2007-6 [6]

14

amended

AASB 2008-3 [10]

20

added

AASB 2004-3 [11]

20A

added

amended

AASB 2004-3 [11]

AASB 2007-4 [17]

21

amended

AASB 2007-8 [11]

Heading above 23A

added

AASB 2008-7 [6]

23A

added

AASB 2008-7 [7]

23B

added

amended

AASB 2008-7 [7]

Erratum, Oct 2009 [1]

25

amended

AASB 2007-4 [11]

25A

amended

amended

amended

AASB 2005-4 [19]

AASB 2008-7 [8]

AASB 2009-11 [12]

25AA

added

AASB 2009-11 [12]

Aus25D.1

amended

deleted

AASB 2005-8 [6]

AASB 2007-4 [12]

25E

amended

AASB 2007-2a [10]

25F (and preceding headings)

added

amended

amended

AASB 2005-5 [9]

AASB 2007-2a [10]

AASB 2007-4 [17]

25G (and preceding heading)

added

AASB 2004-2 [8]

25H (and preceding heading)

added

AASB 2007-2b [8]

25I (and preceding heading)

added

AASB 2007-6 [7]

26

amended

amended

amended

AASB 2007-4 [17]

AASB 2008-3 [11]

AASB 2009-11 [12]

32

amended

amended

AASB 2007-8 [6, 12, 13]

AASB 2009-6 [11]

34A

amended

AASB 2007-7 [7]

34B

added

AASB 2007-4 [13]

Aus34B.1

deleted

AASB 2007-4 [12]

34C (preceding heading)

added

 

AASB 2008-3 [12]

 

34C

added

amended

AASB 2008-3 [12]

AASB 2008-6 [5]

34D-34G (and preceding heading)

added

 

AASB 2009-11 [12]

35

amended

amended

AASB 2007-4 [17]

AASB 2007-8 [13]

36

amended

amended

AASB 2007-4 [17]

AASB 2007-8 [13]

Aus36.1

deleted

AASB 2007-4 [12]

36A

amended

amended

amended

deleted (including heading)

AASB 2005-8 [7]

AASB 2005-10 [34]

AASB 2007-4 [17]

AASB 2007-8 [14]

 

36B (and preceding heading)

added

amended

deleted

AASB 2004-1 [6]

AASB 2005-8 [8, 9]

AASB 2007-8 [14]

36C (and preceding heading)

added

deleted

AASB 2005-10 [35]

AASB 2007-8 [14]

36D-36E (and preceding heading)

added

 

AASB 2009-11 [12]

37 (preceding heading)

amended

AASB 2007-4 [17]

39

amended

AASB 2007-8 [15]

43A (preceding heading)

amended

AASB 2005-4 [19]

43A

amended

amended

AASB 2005-4 [19]

AASB 2009-11 [12]

Heading above 44A

added

AASB 2008-7 [9]

44A

added

AASB 2008-7 [10]

45

amended

amended

amended

AASB 2007-4 [17]

AASB 2007-8 [15]

AASB 2007-10 [17]

46

amended

AASB 2007-10 [15]

47 (preceding heading)

amended

AASB 2008-6 [6]

47A-47B

notes added

AASB 2007-6 [8]

47C

note added

note amended

AASB 2007-6 [8]

AASB 2007-8 [16]

47D-47G

notes added

AASB 2007-6 [8]

47H

note added

AASB 2007-8 [17]

47I-47J

note added

AASB 2008-3 [13]

47K

added

AASB 2008-7 [11]

47L

added

AASB 2008-6 [7]

47M

added

AASB 2009-11 [12]

Appendix A, definition of ‘Australian equivalents to IFRSs’

amended

AASB 2007-2a [12]

Appendix A, definition of ‘end of the reporting period’

amended

deleted

AASB 2007-10 [20]

AASB 2009-6 [12]

Appendix A, definition of ‘first Australian-equivalents-to-IFRSs reporting period’

amended

 

AASB 2007-8 [18]

 

Appendix A, definition of ‘International Financial Reporting Standards (IFRSs)’

amended

AASB 2007-8 [18]

Appendix A, definition of ‘opening Australian-equivalents-to-IFRSs statement of financial position’

amended

AASB 2007-8 [18]

Appendix A, defined term ‘reporting date’

amended

 

AASB 2007-8 [6]

 

B1

amended

AASB 2008-3 [14]

B2(c) of Appendix B

amended

amended

AASB 2007-4 [14, 15]

AASB 2008-3 [8]

B2(f) of Appendix B

amended

AASB 2008-3 [14]

B2(g) of Appendix B

amended

amended

AASB 2007-4 [17]

AASB 2008-3 [8, 14]

B2(i) of Appendix B

added

amended

AASB 2007-4 [16]

AASB 2007-8 [19]

B2(k) of Appendix B

amended

AASB 2008-3 [8]

 

 

Table of Amendments to Implementation Guidance

Paragraph affected

How affected

By …   [paragraph]

IG2 (preceding heading)

amended

AASB 2007-8 [6]

IG2

amended

AASB 2009-6 [13]

IG3 (Example 1)

amended

amended

AASB 2007-10 [21, 22]

AASB 2009-6 [14-16]

AIG10.1

deleted

AASB, Apr 2006 *

AIG Example A1

deleted

AASB, Apr 2006

AIG10.2

deleted

AASB, Apr 2006

IG10

amended

AASB 2009-6 [17]

IG13

amended

amended

Erratum, Nov 2004

AASB 2007-2a [10]

IG16

amended

AASB 2007-2a [10]

IG18

amended

AASB 2004-3 [12]

IG20

amended

AASB 2007-4 [17]

IG21

amended

AASB 2009-6 [18]

IG22 (Example 2)

amended

amended

amended

AASB 2007-4 [17]

AASB 2007-10 [21]

AASB 2009-6 [14, 15]

IG22 (Example 3)

amended

amended

AASB 2007-10 [21]

AASB 2009-6 [14, 15]

IG22 (Example 4)

amended

amended

AASB 2007-10 [21]

AASB 2009-6 [14, 15]

IG22 (Example 6)

amended

AASB 2009-6 [15]

IG23

amended

footnote added

AASB 2007-6 [9]

AASB 2009-1 [5]

IG24

amended

AASB 2007-6 [9]

IG25

deleted

AASB 2007-6 [10]

AIG25.1

deleted

AASB, Apr 2006

IG26

amended

AASB 2007-4 [17]

IG29 (Examples 8, 9)

amended

AASB 2009-6 [15]

AIG29.1

deleted

AASB, Apr 2006

IG31

amended

amended

AASB 2007-10 [23]

AASB 2009-6 [19]

IG36

amended

AASB 2009-6 [20]

IG37

amended

AASB 2007-10 [24]

IG38

amended

AASB 2007-10 [24]

IG38 (Example 10)

amended

amended

AASB 2007-10 [25]

AASB 2009-6 [14, 15, 21]

IG39

amended

AASB 2007-10 [26]

IG43

amended

AASB 2009-6 [22]

IG52

amended

AASB 2009-6 [23]

IG56

amended

amended

AASB 2005-4 [20]

AASB 2007-4 [17]

IG58A

amended

AASB 2007-4 [17]

IG59

amended

AASB 2009-6 [23]

IG60B

amended

AASB 2009-6 [23]

AIG62.1

deleted

AASB, Apr 2006

AIG62.2

deleted

AASB, Apr 2006

IG63

amended

AASB 2009-6 [24]

IG63 (Example 11)

 

amended

amended

amended

AASB 2007-4 [17]

AASB 2007-10 [26]

AASB 2009-6 [15, 25]

AIG100.1

deleted

AASB, Apr 2006

AIG100.2

deleted

AASB, Apr 2006

AIG100.3

amended

deleted

Erratum, Nov 2004

AASB, Apr 2006

AIG Example A100

amended

deleted

Erratum, Nov 2004

AASB, Apr 2006

Heading and note preceding IG201

amended

AASB 2007-2a [11]

IG201

amended

Erratum, Nov 2004

IG202

amended

amended

Erratum, Nov 2004

AASB 2007-2a [10]

IG203

amended

Erratum, Nov 2004

IG203 (Example 201)

amended

amended

amended

Erratum, Nov 2004

AASB 2007-10 [21]

AASB 2009-6 [15, 26]

IG204

deleted

added (with heading)

amended

Erratum, Nov 2004

AASB 2005-5 [10]

 

AASB 2007-2a [10]

IG205

added

amended

AASB 2005-5 [10]

AASB 2007-2a [10]

IG205 (Example 202)

added

amended

amended

amended

AASB 2005-5 [10]

AASB 2007-2a [10]

AASB 2007-10 [21]

AASB 2009-6 [26, 27]

 

*  The AASB decided at its meeting on 6 April 2006 to delete all the Australian paragraphs in the Implementation Guidance accompanying, but not part of, AASB 1.  The decision had immediate effect.

General Terminology Amendments

The following amendments are not shown in the above Tables of Amendments:

References to ‘financial report(s)’ were amended to ‘financial statements’ by AASB 2007-8 and AASB 2007-10, except in relation to specific Corporations Act references and interim financial reports.

References to ‘income statement’ and ‘balance sheet’ were amended to ‘statement of comprehensive income’ and ‘statement of financial position’ respectively by AASB 2007-8.

 


Comparison with IFRS 1

AASB 1 and IFRS 1

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards as amended incorporates IFRS 1 First-time Adoption of International Financial Reporting Standards as issued and amended by the IASB.  Paragraphs that have been added to this Standard (and do not appear in the text of IFRS 1) are identified with the prefix “Aus”, followed by the number of the preceding IASB paragraph and decimal numbering.

Compliance with IFRS 1

Entities that comply with AASB 1 as amended will simultaneously be in compliance with IFRS 1 as amended, with the exception of not-for-profit public sector entities applying paragraph Aus3.2.

 

 


aCCOUNTING STANDARD AASB 1

The Australian Accounting Standards Board made Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards under section 334 of the Corporations Act 2001 on 15 July 2004.

 

This compiled version of AASB 1 applies to annual reporting periods beginning on or after 1 January  2013.  It incorporates relevant amendments contained in other AASB Standards made by the AASB and other decisions of the AASB up to and including 7 December 2009 (see Compilation Details).

 

aCCOUNTING STANDARD AASB 1

First-time Adoption of Australian Equivalents to International Financial Reporting Standards

Objective

1         The objective of this Standard is to ensure that an entity’s first Australian-equivalents-to-IFRSs financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a)      is transparent for users and comparable over all periods presented;

(b)      provides a suitable starting point for accounting under Australian equivalents to IFRSs; and

(c)       can be generated at a cost that does not exceed the benefits to users.

Application

Aus1.1          This Standard applies to:

(a)      each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;

(b)      general purpose financial statements of each other reporting entity; and

(c)       financial statements that are, or are held out to be, general purpose financial statements.

Aus1.2          This Standard applies to annual reporting periods beginning on or after 1 January 2005.
[Note:  For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]

Aus1.3          This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.

Aus1.4          The requirements specified in this Standard apply to the financial statements where information resulting from their application is material in accordance with AASB 1031 Materiality.

Aus1.5          Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004.

Scope

2         An entity shall apply this Standard in:

(a)      its first Australian-equivalents-to-IFRSs financial statements; and

(b)      each interim financial report, if any, that it presents under AASB 134 Interim Financial Reporting for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements.

3         An entity’s first Australian-equivalents-to-IFRSs financial statements are the first annual financial statements in which the entity adopts Australian equivalents to IFRSs, by an explicit and unreserved statement in those financial statements of compliance with Australian equivalents to IFRSs.  Financial statements under Australian equivalents to IFRSs are an entity’s first Australian-equivalents-to-IFRSs financial statements if, for example, the entity:

(a)      presented its most recent previous financial statements:

(i)        under national requirements that were not consistent with International Financial Reporting Standards (IFRSs) in all respects;

(ii)       in conformity with IFRSs or Australian equivalents to IFRSs in all respects, except that the financial statements did not contain an explicit and unreserved statement that it complied with IFRSs or Australian equivalents to IFRSs; 

(iii)      containing an explicit statement of compliance with some, but not all, IFRSs or Australian equivalents to IFRSs;

(iv)     under national requirements inconsistent with IFRSs, using some individual IFRSs or Australian equivalents to IFRSs to account for items for which national requirements did not exist; or

(v)      under national requirements, with a reconciliation of some amounts to the amounts determined under IFRSs or Australian equivalents to IFRSs;

(b)      prepared financial statements under IFRSs for internal use only, without making them available to the entity’s owners or any other external users;

(c)       prepared a reporting package under IFRSs for consolidation purposes without preparing a complete set of financial statements as defined in AASB 101 Presentation of Financial Statements; or

(d)      did not present financial statements for previous periods.

Aus3.1          The conditions specified in paragraph 3 for the application of this Standard are satisfied when the first financial statements after this Standard becomes effective contain a statement that the financial statements comply with Australian Accounting Standards, in accordance with paragraph Aus15.2 of AASB 101.

Aus3.2          In rare circumstances, a not-for-profit public sector entity may experience extreme difficulties in complying with the requirements of certain Australian equivalents to IFRSs due to information deficiencies that have caused the entity to state non-compliance with previous GAAP.  In these cases, the conditions specified in paragraph 3 for the application of this Standard are taken to be satisfied provided the entity:

(a)      discloses in its first Australian-equivalents-to-IFRSs financial statements:

(i)        an explanation of information deficiencies and its strategy for rectifying those deficiencies; and

(ii)       the Australian equivalents to IFRSs that have not been complied with; and

(b)      makes an explicit and unreserved statement of compliance with other Australian equivalents to IFRSs for which there are no information deficiencies.

4         This Standard applies when an entity first adopts Australian equivalents to IFRSs.  It does not apply when, for example, an entity:

(a)      stops presenting financial statements under national requirements, having previously presented them as well as another set of financial statements that contained an explicit and unreserved statement of compliance with IFRSs;

(b)      presented financial statements in the previous year under national requirements and those financial statements contained an explicit and unreserved statement of compliance with IFRSs; or

(c)       presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with IFRSs, even if the auditors qualified their audit report on those financial statements. 

5         This Standard does not apply to changes in accounting policies made by an entity that already applies Australian equivalents to IFRSs.  Such changes are the subject of:

(a)      requirements on changes in accounting policies in AASB 108  Accounting Policies, Changes in Accounting Estimates and Errors; and

(b)      specific transitional requirements in other Australian equivalents to IFRSs.

Recognition and Measurement

Opening Australian-equivalents-to-IFRSs statement of financial position

6         An entity shall prepare and present an opening Australian-equivalents-to-IFRSs statement of financial position at the date of transition to Australian equivalents to IFRSs.  This is the starting point for its accounting under Australian equivalents to IFRSs. 

Accounting policies

7         An entity shall use the same accounting policies in its opening Australian-equivalents-to-IFRSs statement of financial position and throughout all periods presented in its first Australian-equivalents-to-IFRSs financial statementsThose accounting policies shall comply with each of the Australian equivalents to IFRSs effective at the end of its first Australian-equivalents-to-IFRSs reporting period, except as specified in paragraphs 13-34B and 37.

8         An entity shall not apply different versions of Australian equivalents to IFRSs that were effective at earlier dates.  An entity may apply a new Standard that is not yet mandatory if it permits early application.

Example: Consistent application of latest version of Australian equivalents to IFRSs

BACKGROUND

The end of entity A’s first Australian-equivalents-to-IFRSs reporting period is 31 December 20X5.  Entity A decides to present comparative information in those financial statements for one year only (see paragraph 36).  Therefore, its date of transition to Australian equivalents to IFRSs is the beginning of business on 1 January 20X4 (or, equivalently, close of business on 31 December 20X3).  Entity A presented financial statements under its previous GAAP annually to 31 December each year up to, and including, 31 December 20X4.

continued


 

APPLICATION OF REQUIREMENTS

Entity A is required to apply AASB 1 effective for periods ending on 31 December 20X5 in:

(a)       preparing and presenting its opening Australian-equivalents-to-IFRSs statement of financial position at 1 January 20X4; and

(b)       preparing and presenting its statement of financial position for 31 December 20X5 (including comparative amounts for 20X4), statement of comprehensive income, statement of changes in equity and statement of cash flows for the year to 31 December 20X5 (including comparative amounts for 20X4) and disclosures (including comparative information for 20X4).

If a new Standard is not yet mandatory for the period ending 31 December 20X5 but permits early application, entity A is permitted, but not required, to apply that Standard in its first Australian-equivalents-to-IFRSs financial statements.

9         The transitional provisions in other Australian equivalents to IFRSs apply to changes in accounting policies made by an entity that already uses Australian equivalents to IFRSs; they do not apply to a first-time adopter’s transition to Australian equivalents to IFRSs, except as specified in paragraphs 25D, 25H, 25I, 34A and 34B.

10       Except as described in paragraphs 13-34B, an entity shall, in its opening Australian-equivalents-to-IFRSs statement of financial position:

(a)      recognise all assets and liabilities whose recognition is required by Australian equivalents to IFRSs;

(b)      not recognise items as assets or liabilities if Australian equivalents to IFRSs do not permit such recognition;

(c)       reclassify items that it recognised under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under Australian equivalents to IFRSs; and

(d)      apply Australian equivalents to IFRSs in measuring all recognised assets and liabilities.

11       The accounting policies that an entity uses in its opening Australian-equivalents-to-IFRSs statement of financial position may differ from those that it used for the same date using its previous GAAP.  The resulting adjustments arise from events and transactions before the date of transition to Australian equivalents to IFRSs.  Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Australian equivalents to IFRSs.

12       This Standard establishes two categories of exceptions to the principle that an entity’s opening Australian-equivalents-to-IFRSs statement of financial position shall comply with each of the Australian equivalents to IFRSs:

(a)      paragraphs 13-25I grant exemptions from some requirements of other Australian equivalents to IFRSs; and

(b)      paragraphs 26-34B prohibit retrospective application of some aspects of other Australian equivalents to IFRSs.

Exemptions from other Australian equivalents to IFRSs

13       An entity may elect to use one or more of the following exemptions:

(a)      business combinations (paragraph 15);

(b)      fair value or revaluation as deemed cost (paragraphs 16-19);

(c)       employee benefits (paragraphs 20 and 20A);

(d)      cumulative translation differences (paragraphs 21 and 22);

(e)       compound financial instruments (paragraph 23);

(ea)    investments in subsidiaries, jointly controlled entities and associates (paragraphs 23A and 23B);

(f)       assets and liabilities of subsidiaries, associates and joint ventures (paragraphs 24 and 25);

(g)       designation of previously recognised financial instruments (paragraph 25A);

(h)      share-based payment transactions (paragraphs 25B and 25C);

(i)        insurance contracts (paragraph 25D);

(j)       decommissioning liabilities included in the cost of property, plant and equipment (paragraph 25E);

(k)      leases (paragraph 25F);

(l)        fair value measurement of financial assets or financial liabilities at initial recognition (paragraph 25G);

(m)     a financial asset or an intangible asset accounted for in accordance with Interpretation 12 Service Concession Arrangements, identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 12 (paragraph 25H); and

(n)      borrowing costs (paragraph 25I).

An entity shall not apply these exemptions by analogy to other items.

14       Some exemptions below refer to fair value.  In determining fair values in accordance with this Standard, an entity shall apply the definition of fair value in Appendix A and any more specific guidance in other Australian equivalents to IFRSs on the determination of fair values for the asset or liability in question. Those fair values shall reflect conditions that existed at the date for which they were determined.

Business combinations

15       An entity shall apply the requirements in Appendix B to business combinations that the entity recognised before the date of transition to Australian equivalents to IFRSs.

Fair value or revaluation as deemed cost

16       An entity may elect to measure an item of property, plant and equipment at the date of transition to Australian equivalents to IFRSs at its fair value and use that fair value as its deemed cost at that date.

17       A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to Australian equivalents to IFRSs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:

(a)      fair value; or

(b)      cost or depreciated cost under Australian equivalents to IFRSs, adjusted to reflect, for example, changes in a general or specific price index.

18       The elections in paragraphs 16 and 17 are also available for:

(a)      investment property, if an entity elects to use the cost model in AASB 140 Investment Property; and

(b)      intangible assets that meet:

(i)        the recognition criteria in AASB 138 Intangible Assets (including reliable measurement of original cost); and

(ii)       the criteria in AASB 138 for revaluation (including the existence of an active market).

An entity shall not use these elections for other assets or for liabilities.

19       A first-time adopter may have established a deemed cost under previous GAAP for some or all of its assets and liabilities by measuring them at their fair value at one particular date because of an event such as a privatisation or initial public offering.  It may use such event-driven fair value measurements as deemed cost for Australian equivalents to IFRSs at the date of that measurement.

Employee benefits

20       Under AASB 119 Employee Benefits as issued in December 2004, an entity may elect to use a ‘corridor’ approach that leaves some actuarial gains and losses unrecognised.  Retrospective application of this approach requires an entity to split the cumulative actuarial gains and losses from the inception of the plan until the date of transition to Australian equivalents to IFRSs into a recognised portion and an unrecognised portion.  However, a first-time adopter may elect to recognise all cumulative actuarial gains and losses at the date of transition to Australian equivalents to IFRSs, even if it uses the corridor approach for later actuarial gains and losses.  If a first-time adopter uses this election, it shall apply it to all plans.

20A    An entity may disclose the amounts required by paragraph 120A(p) of AASB 119 as the amounts are determined for each annual reporting period prospectively from the date of transition to Australian equivalents to IFRSs.

Cumulative translation differences

21       AASB 121 The Effects of Changes in Foreign Exchange Rates requires an entity:

(a)      to recognise some translation differences in other comprehensive income and accumulate these in a separate component of equity; and

(b)      on disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) from equity to profit or loss as part of the gain or loss on disposal.

22       However, a first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to Australian equivalents to IFRSs.  If a first-time adopter uses this exemption:

(a)      the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Australian equivalents to IFRSs; and

(b)      the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to Australian equivalents to IFRSs and shall include later translation differences.

Compound financial instruments

23          AASB 132 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components.  If the liability component is no longer outstanding, retrospective application of AASB 132 involves separating two portions of equity.  The first portion is in retained earnings and represents the cumulative interest accreted on the liability component.  The other portion represents the original equity component.  However, under this Standard, a first-time adopter need not separate these two portions if the liability component is no longer outstanding at the date of transition to Australian equivalents to IFRSs.

Investments in subsidiaries, jointly controlled entities and associates

23A    When an entity prepares separate financial statements, AASB 127 Consolidated and Separate Financial Statements requires it to account for its investments in subsidiaries, jointly controlled entities and associates either:

(a)      at cost; or

(b)      in accordance with AASB 139 Financial Instruments: Recognition and Measurement.

23B    If a first-time adopter measures such an investment at cost in accordance with paragraph 23A(a), it shall measure that investment at one of the following amounts in its separate opening Australian-equivalents-to-IFRSs statement of financial position:

(a)      cost determined in accordance with AASB 127; or

(b)      deemed cost. The deemed cost of such an investment shall be its:

(i)        fair value (determined in accordance with AASB 139) at the entity’s date of transition to Australian equivalents to IFRSs in its separate financial statements; or

(ii)       previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, jointly controlled entity or associate that it elects to measure using a deemed cost.

Assets and liabilities of subsidiaries, associates and joint ventures

24       If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its financial statements, measure its assets and liabilities at either:

(a)      the carrying amounts that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to Australian equivalents to IFRSs, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary; or

(b)      the carrying amounts required by the rest of this Standard, based on the subsidiary’s date of transition to Australian equivalents to IFRSs.  These carrying amounts could differ from those described in (a):

(i)        when the exemptions in this Standard result in measurements that depend on the date of transition to Australian equivalents to IFRSs; or

(ii)       when the accounting policies used in the subsidiary’s financial statements differ from those in the consolidated financial statements.  For example, the subsidiary may use as its accounting policy the cost model in AASB 116 Property, Plant and Equipment, whereas the group may use the revaluation model.

A similar election is available to an associate or joint venture that becomes a first-time adopter later than an entity that has significant influence or joint control over it.

25       However, if an entity becomes a first-time adopter later than its subsidiary (or associate or joint venture), the entity shall, in its consolidated financial statements, measure the assets and liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in the financial statements of the subsidiary (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the business combination in which the entity acquired the subsidiary.  Similarly, if a parent becomes a first‑time adopter for its separate financial statements earlier or later than for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, except for consolidation adjustments.

Designation of previously recognised financial instruments

25A    AASB 139 Financial Instruments: Recognition and Measurement permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provided it meets certain criteria) to be designated as a financial asset or financial liability at fair value through profit or loss.  Despite this requirement exceptions apply in the following circumstances:

(a)      any entity is permitted to make an available-for-sale designation at the date of transition to Australian equivalents to IFRSs;

(b)      an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 September 2006 – such an entity is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at that date;

(c)       an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 January 2006 and before 1 September 2006 – such an entity is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at that date.  When the date of transition to Australian equivalents to IFRSs is before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the date of transition to Australian equivalents to IFRSs and 1 September 2005;

(d)      an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning before 1 January 2006 and applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the amendments made to paragraphs 9, 12 and 13 of AASB 139 by AASB 2005-4 Amendments to Australian Accounting Standards – such an entity is permitted at the start of its first Australian-equivalents-to-IFRSs reporting period to designate as at fair value through profit or loss any financial asset or financial liability that qualifies for such designation in accordance with these new and amended paragraphs at that date.  When the entity’s first Australian-equivalents-to-IFRSs reporting period begins before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the beginning of that period and 1 September 2005.  If the entity restates comparative information for AASB 139 it shall restate that information for the financial assets, financial liabilities, or group of financial assets, financial liabilities or both, designated at the start of its first Australian-equivalents-to-IFRSs reporting period.  Such restatement of comparative information shall be made only if the designated items or groups would have met the criteria for such designation in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at the date of transition to Australian equivalents to IFRSs or, if acquired after the date of transition to Australian equivalents to IFRSs, would have met the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A at the date of initial recognition; and

(e)       for an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning before 1 September 2006 – notwithstanding paragraph 91 of AASB 139, any financial assets and financial liabilities of such an entity designated as at fair value through profit or loss in accordance with subparagraph (c) or (d) above that were previously designated as the hedged item in fair value hedge accounting relationships shall be de-designated from those relationships at the same time they are designated as at fair value through profit or loss.

Share-based payment transactions

25B    A first-time adopter is encouraged, but not required, to apply AASB 2 Share-based Payment to equity instruments that were granted on or before 7 November 2002.  A first-time adopter is also encouraged, but not required, to apply AASB 2 to equity instruments that were granted after 7 November 2002 that vested before the later of (a) the date of transition to Australian equivalents to IFRSs and (b) 1 January 2005.  However, if a first-time adopter elects to apply AASB 2 to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in AASB 2.  For all grants of equity instruments to which AASB 2 has not been applied (e.g. equity instruments granted on or before 7 November 2002), a first-time adopter shall nevertheless disclose the information required by paragraphs 44 and 45 of AASB 2.  If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which AASB 2 has not been applied, the entity is not required to apply paragraphs 26-29 of AASB 2 if the modification occurred before the later of (a) the date of transition to Australian equivalents to IFRSs and (b) 1 January 2005.

25C    A first-time adopter is encouraged, but not required, to apply AASB 2 to liabilities arising from share-based payment transactions that were settled before the date of transition to Australian equivalents to IFRSs.  A first-time adopter is also encouraged, but not required, to apply AASB 2 to liabilities that were settled before 1 January 2005.  For liabilities to which AASB 2 is applied, a first-time adopter is not required to restate comparative information to the extent that the information relates to a period or date that is earlier than 7 November 2002.

Insurance contracts

25D    A first-time adopter may apply the transitional provisions in AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts.  AASB 4 restricts changes in accounting policies for insurance contracts, including changes made by a first-time adopter.

Changes in existing decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment

25E    The Interpretation identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities requires specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life.  A first-time adopter need not comply with these requirements for changes in such liabilities that occurred before the date of transition to Australian equivalents to IFRSs.  If a first-time adopter uses this exemption, it shall:

(a)      measure the liability as at the date of transition to Australian equivalents to IFRSs in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets;

(b)      to the extent that the liability is within the scope of the Interpretation identified in AASB 1048 as corresponding to IFRIC 1, estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using its best estimate of the historical risk-adjusted discount rate(s) that would have applied for that liability over the intervening period; and

(c)       calculate the accumulated depreciation on that amount, as at the date of transition to Australian equivalents to IFRSs, on the basis of the current estimate of the useful life of the asset, using the depreciation policy adopted by the entity under Australian equivalents to IFRSs.

Leases

25F    A first-time adopter may apply the transitional provisions in Interpretation 4 Determining whether an Arrangement contains a Lease identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 4.  Therefore, a first-time adopter may determine whether an arrangement existing at the date of transition to Australian equivalents to IFRSs contains a lease on the basis of facts and circumstances existing at that date.

Fair value measurement of financial assets or financial liabilities

25G    Notwithstanding the requirements of paragraphs 7 and 9, an entity may apply the requirements in the last sentence of AASB 139 paragraph AG76, and paragraph AG76A, in either of the following ways:

(a)      prospectively to transactions entered into after 25 October 2002; or

(b)      prospectively to transactions entered into after 1 January 2004.

Service concession arrangements

25H   A first-time adopter may apply the transitional provisions in Interpretation 12 Service Concession Arrangements, identified in AASB 1048 as corresponding to IFRIC 12.

Borrowing costs

25I     A first-time adopter may apply the transitional provisions set out in paragraphs 27 and 28 of AASB 123 Borrowing Costs.  In those paragraphs references to the application date shall be interpreted as 1 January 2009 or the date of transition to Australian equivalents to IFRSs, whichever is later.

Exceptions to retrospective application of other Australian equivalents to IFRSs

26       This Standard prohibits retrospective application of some aspects of other Australian equivalents to IFRSs relating to:

(a)      derecognition of financial assets and financial liabilities (paragraphs 27 and 27A);

(b)      hedge accounting (paragraphs 28-30);

(c)       estimates (paragraphs 31-34);

(d)      assets classified as held for sale and discontinued operations (paragraphs 34A and 34B); and

(e)       some aspects of accounting for non-controlling interests (paragraph 34C).

Derecognition of financial assets and financial liabilities

27       Except as permitted by paragraph 27A, a first-time adopter shall apply the derecognition requirements in AASB 139 prospectively for transactions occurring on or after 1 January 2004.  In other words, if a first-time adopter derecognised financial assets or non-derivative financial liabilities under its previous GAAP as a result of a transaction that occurred before 1 January 2004, it shall not recognise those assets and liabilities under Australian equivalents to IFRSs (unless they qualify for recognition as a result of a later transaction or event).

27A    Notwithstanding paragraph 27, an entity may apply the derecognition requirements in AASB 139 retrospectively from a date of the entity’s choosing, provided that the information needed to apply AASB 139 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

Hedge accounting

28       As required by AASB 139, at the date of transition to Australian equivalents to IFRSs, an entity shall:

(a)      measure all derivatives at fair value; and

(b)      eliminate all deferred losses and gains arising on derivatives that were reported under previous GAAP as if they were assets or liabilities.

29       An entity shall not reflect in its opening Australian-equivalents-to-IFRSs statement of financial position a hedging relationship of a type that does not qualify for hedge accounting under AASB 139 (for example, many hedging relationships where the hedging instrument is a cash instrument or written option; where the hedged item is a net position; or where the hedge covers interest risk in a held-to-maturity investment).  However, if an entity designated a net position as a hedged item under previous GAAP, it may designate an individual item within that net position as a hedged item under Australian equivalents to IFRSs, provided that it does so no later than the date of transition to Australian equivalents to IFRSs.

30       If, before the date of transition to Australian equivalents to IFRSs, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting in AASB 139, the entity shall apply paragraphs 91 and 101 of AASB 139 to discontinue hedge accounting.  Transactions entered into before the date of transition to Australian equivalents to IFRSs shall not be retrospectively designated as hedges.

Estimates

31       An entity’s estimates under Australian equivalents to IFRSs at the date of transition to Australian equivalents to IFRSs shall be consistent with estimates made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

32       An entity may receive information after the date of transition to Australian equivalents to IFRSs about estimates that it had made under previous GAAP.  Under paragraph 31, an entity shall treat the receipt of that information in the same way as non-adjusting events after the end of the reporting period under AASB 110 Events after the Reporting Period.  For example, assume that an entity’s date of transition to Australian equivalents to IFRSs is 1 January 20X4 and new information on 15 July 20X4 requires the revision of an estimate made under previous GAAP at 31 December 20X3.  The entity shall not reflect that new information in its opening Australian-equivalents-to-IFRSs statement of financial position (unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error).  Instead, the entity shall reflect that new information in profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 December 20X4.

33       An entity may need to make estimates under Australian equivalents to IFRSs at the date of transition to Australian equivalents to IFRSs that were not required at that date under previous GAAP.  To achieve consistency with AASB 110, those estimates under Australian equivalents to IFRSs shall reflect conditions that existed at the date of transition to Australian equivalents to IFRSs.  In particular, estimates at the date of transition to Australian equivalents to IFRSs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

34       Paragraphs 31-33 apply to the opening Australian-equivalents-to-IFRSs statement of financial position.  They also apply to a comparative period presented in an entity’s first Australian-equivalents-to-IFRSs financial statements, in which case the references to the date of transition to Australian equivalents to IFRSs are replaced by references to the end of that comparative period.

Assets classified as held for sale and discontinued operations

34A    AASB 5 Non-current Assets Held for Sale and Discontinued Operations requires that it shall be applied prospectively to non-current assets (or disposal groups) that meet the criteria to be classified as held for sale and operations that meet the criteria to be classified as discontinued after the application date of that Standard.  AASB 5 permits an entity to apply the requirements of the Standard to all non-current assets (or disposal groups) that meet the criteria to be classified as held for sale and operations that meet the criteria to be classified as discontinued after any date before its application date, provided the valuations and other information needed to apply the Standard were obtained at the time those criteria were originally met.

34B    An entity with a date of transition to Australian equivalents to IFRSs before 1 January 2005 shall apply the transitional provisions of AASB 5.  An entity with a date of transition to Australian equivalents to IFRSs on or after 1 January 2005 shall apply AASB 5 retrospectively.

Non-controlling interests

34C    A first-time adopter shall apply the following requirements of AASB 127 Consolidated and Separate Financial Statements (as amended in July 2008) prospectively from the date of transition to Australian equivalents to IFRSs:

(a)      the requirement in paragraph 28 that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance;

(b)      the requirements in paragraphs 30 and 31 for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and

(c)       the requirements in paragraphs 34-37 for accounting for a loss of control over a subsidiary, and the related requirements of paragraph 8A of AASB 5.

           However, if a first-time adopter elects to apply AASB 3 (as revised in 2008) retrospectively to past business combinations, it shall also apply AASB 127 (as amended in July 2008) in accordance with paragraph B1 of this Standard.

Presentation and Disclosure

35       Except as described in paragraph 37, this Standard does not provide exemptions from the presentation and disclosure requirements in other Australian equivalents to IFRSs.

Comparative information

36       To comply with AASB 101, an entity’s first Australian-equivalents-to-IFRSs financial statements shall include at least three statements of financial position, two statements of comprehensive income, two separate income statements (if presented), two statements of cash flows and two statements of changes in equity and related notes, including comparative information.

Non-Australian-equivalents-to-IFRSs comparative information and historical summaries

37       Some entities present historical summaries of selected data for periods before the first period for which they present full comparative information under Australian equivalents to IFRSs.  This Standard does not require such summaries to comply with the recognition and measurement requirements of Australian equivalents to IFRSs.  Furthermore, some entities present comparative information under previous GAAP as well as the comparative information required by AASB 101.  In any financial statements containing historical summaries or comparative information under previous GAAP, an entity shall:

(a)      label the previous GAAP information prominently as not being prepared under Australian equivalents to IFRSs; and

(b)      disclose the nature of the main adjustments that would make it comply with Australian equivalents to IFRSs.  An entity need not quantify those adjustments.

Explanation of transition to Australian equivalents to IFRSs

38       An entity shall explain how the transition from previous GAAP to Australian equivalents to IFRSs affected its reported financial position, financial performance and cash flows.

Reconciliations

39       To comply with paragraph 38, an entity’s first Australian-equivalents-to-IFRSs financial statements shall include:

(a)      reconciliations of its equity reported under previous GAAP to its equity under Australian equivalents to IFRSs for both of the following dates:

(i)        the date of transition to Australian equivalents to IFRSs; and

(ii)       the end of the latest period presented in the entity’s most recent annual financial statements under previous GAAP;

(b)      a reconciliation to its total comprehensive income under Australian equivalents to IFRSs for the latest period in the entity’s most recent annual financial statements.  The starting point for that reconciliation shall be total comprehensive income under previous GAAP for the same period or, if an entity did not report such a total, profit or loss under previous GAAP; and

(c)       if the entity recognised or reversed any impairment losses for the first time in preparing its opening Australian-equivalents-to-IFRSs statement of financial position, the disclosures that AASB 136 Impairment of Assets would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to Australian equivalents to IFRSs.

40       The reconciliations required by paragraph 39(a) and (b) shall give sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income.  If an entity presented a statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows.

41       If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 39(a) and (b) shall distinguish the correction of those errors from changes in accounting policies.

42       AASB 108 does not deal with changes in accounting policies that occur when an entity first adopts Australian equivalents to IFRSs.  Therefore, AASB 108’s requirements for disclosures about changes in accounting policies do not apply in an entity’s first Australian-equivalents-to-IFRSs financial statements.

43       If an entity did not present financial statements for previous periods, its first Australian-equivalents-to-IFRSs financial statements shall disclose that fact.

Designation of financial assets or financial liabilities

43A    An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or a financial asset as available for sale in accordance with paragraph 25A.  The entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements.

Use of fair value as deemed cost

44       If an entity uses fair value in its opening Australian-equivalents-to-IFRSs statement of financial position as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset (see paragraphs 16 and 18), the entity’s first Australian-equivalents-to-IFRSs financial statements shall disclose, for each line item in the opening Australian-equivalents-to-IFRSs statement of financial position:

(a)      the aggregate of those fair values; and

(b)      the aggregate adjustment to the carrying amounts reported under previous GAAP.

Use of deemed cost for investments in subsidiaries, jointly controlled entities and associates

44A    Similarly, if an entity uses a deemed cost in its opening Australian-equivalents-to-IFRSs statement of financial position for an investment in a subsidiary, jointly controlled entity or associate in its separate financial statements (see paragraph 23B), the entity’s first Australian-equivalents-to-IFRSs separate financial statements shall disclose:

(a)      the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount;

(b)      the aggregate deemed cost of those investments for which deemed cost is fair value; and

(c)       the aggregate adjustment to the carrying amounts reported under previous GAAP.

Interim financial reports

45       To comply with paragraph 38, if an entity presents an interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements, the entity shall satisfy the following requirements in addition to the requirements of AASB 134.

(a)      Each such interim financial report shall, if the entity presented an interim financial report for the comparable interim period of the immediately preceding financial year, include:

(i)        a reconciliation of its equity under previous GAAP at the end of that comparable interim period to its equity under Australian equivalents to IFRSs at that date; and

(ii)       a reconciliation to its total comprehensive income under Australian equivalents to IFRSs for that comparable interim period (current and year-to-date).  The starting point for that reconciliation shall be total comprehensive income under previous GAAP for that period or, if an entity did not report such a total, profit or loss under previous GAAP.

 (b)     In addition to the reconciliations required by (a), an entity’s first interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements shall include the reconciliations described in paragraph 39(a) and (b) (supplemented by the details required by paragraphs 40 and 41) or a cross-reference to another published document that includes these reconciliations.

46       AASB 134 requires minimum disclosures, which are based on the assumption that users of the interim financial report also have access to the most recent annual financial statements.  However, AASB 134 also requires an entity to disclose ‘any events or transactions that are material to an understanding of the current interim period’.  Therefore, if a first-time adopter did not, in its most recent annual financial statements under previous GAAP, disclose information material to an understanding of the current interim period, its interim financial report shall disclose that information or include a cross-reference to another published document that includes it. 

Effective Date

47       [Deleted by the AASB]

47A    [Deleted by the AASB]

47B    [Deleted by the AASB]

47C    [Deleted by the IASB]

47D    [Deleted by the AASB]

47E    [Deleted by the AASB]

47F    [Deleted by the AASB]

47G    [Deleted by the AASB]

47H   [Deleted by the AASB]

47I     [Deleted by the AASB]

47J     [Deleted by the AASB]

47K    AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, issued in July 2008, added paragraphs 13(ea), 23A, 23B and 44A.  An entity shall apply those paragraphs for annual reporting periods beginning on or after 1 January 2009.  Earlier application is permitted.  If an entity applies the paragraphs for an earlier period, it shall disclose that fact.

47L    Paragraph 34C was amended by AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project issued in July 2008.  An entity shall apply those amendments for annual reporting periods beginning on or after 1 July 2009.  If an entity applies AASB 127 (as amended in 2008) for an earlier period, the amendments shall be applied for that earlier period.


APPENDIX A

Defined terms

This appendix is an integral part of AASB 1.

Australian equivalents to IFRSs

Australian equivalents to IFRSs comprise:

(a)      Accounting Standards issued by the Australian Accounting Standards Board (AASB) that are equivalent to Standards issued by the International Accounting Standards Board (IASB), being AASBs 1 – 99 corresponding to the IFRS series and AASBs 101 – 199 corresponding to the IAS series; and

(b)      Interpretations issued by the AASB corresponding to the Interpretations adopted by the IASB, as listed in AASB 1048 Interpretation and Application of Standards.

date of transition to Australian equivalents to IFRSs

The beginning of the earliest annual reporting period for which an entity presents full information under Australian equivalents to IFRSs as comparative information in its first Australian-equivalents-to-IFRSs financial statements.

deemed cost

An amount used as a surrogate for cost or depreciated cost at a given date.  Subsequent depreciation or amortisation assumes that the entity had initially recognised the asset or liability at the given date and that its cost was equal to the deemed cost.

fair value

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

first Australian-equivalents-to-IFRSs financial statements

The first annual financial statements in which an entity adopts Australian equivalents to IFRSs, by an explicit and unreserved statement of compliance with Australian equivalents to IFRSs.

first Australian-equivalents-to-IFRSs reporting period

The latest reporting period covered by an entity’s first Australian-equivalents-to-IFRSs financial statements.

first-time adopter

An entity that presents its first Australian-equivalents-to-IFRSs financial statements.

International Financial Reporting Standards (IFRSs)

Standards and Interpretations adopted by the International Accounting Standards Board (IASB).  They comprise:

(a)      International Financial Reporting Standards;

(b)      International Accounting Standards; and

(c)       Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).

opening Australian-equivalents-to-IFRSs statement of financial position

An entity’s statement of financial position at the date of transition to Australian equivalents to IFRSs.

previous GAAP

The basis of accounting that a first-time adopter used immediately before adopting Australian equivalents to IFRSs.

 

 


APPENDIX B

Business combinations

This appendix is an integral part of AASB 1.

 

B1      A first-time adopter may elect not to apply AASB 3 Business Combinations retrospectively to past business combinations (business combinations that occurred before the date of transition to Australian equivalents to IFRSs).  However, if a first-time adopter restates any business combination to comply with AASB 3, it shall restate all later business combinations and shall also apply AASB 127 (as amended in March 2008) from that same date.  For example, if a first-time adopter elects to restate a business combination that occurred on 30 June 20X6, it shall restate all business combinations that occurred between 30 June 20X6 and the date of transition to Australian equivalents to IFRSs, and it shall also apply AASB 127 (as amended in March 2008) from 30 June 20X6.

B1A   An entity need not apply AASB 121 The Effects of Changes in Foreign Exchange Rates retrospectively to fair value adjustments and goodwill arising in business combinations that occurred before the date of transition to Australian equivalents to IFRSs.  If the entity does not apply AASB 121 retrospectively to those fair value adjustments and goodwill, it shall treat them as assets and liabilities of the entity rather than as assets and liabilities of the acquiree.  Therefore, those goodwill and fair value adjustments either are already expressed in the entity’s functional currency or are non-monetary foreign currency items, which are reported using the exchange rate applied under previous GAAP.

B1B   An entity may apply AASB 121 retrospectively to fair value adjustments and goodwill arising in either:

(a)      all business combinations that occurred before the date of transition to Australian equivalents to IFRSs; or

(b)      all business combinations that the entity elects to restate to comply with AASB 3, as permitted by paragraph B1 above.

B2      If a first-time adopter does not apply AASB 3 retrospectively to a past business combination, this has the following consequences for that business combination.

(a)      The first-time adopter shall keep the same classification (as an acquisition by the legal acquirer or a uniting of interests) as in its previous GAAP financial statements.

(b)      The first-time adopter shall recognise all its assets and liabilities at the date of transition to Australian equivalents to IFRSs that were acquired or assumed in a past business combination, other than:

(i)        some financial assets and financial liabilities derecognised under previous GAAP (see paragraph 27); and

(ii)       assets, including goodwill, and liabilities that were not recognised in the acquirer’s consolidated statement of financial position under previous GAAP and also would not qualify for recognition under Australian equivalents to IFRSs in the separate statement of financial position of the acquiree (see paragraphs B2(f)-B2(i)).

The first-time adopter shall recognise any resulting change by adjusting retained earnings (or, if appropriate, another category of equity), unless the change results from the recognition of an intangible asset that was previously subsumed within goodwill (see paragraph B2(g)(i)).

(c)       The first-time adopter shall exclude from its opening Australian-equivalents-to-IFRSs statement of financial position any item recognised under previous GAAP that does not qualify for recognition as an asset or liability under Australian equivalents to IFRSs.  The first-time adopter shall account for the resulting change as follows:

(i)        the first‑time adopter may have classified a past business combination as an acquisition and recognised as an intangible asset an item that does not qualify for recognition as an asset under AASB 138.  It shall reclassify that item (and, if any, the related deferred tax and non-controlling interests) as part of goodwill (unless it deducted goodwill directly from equity under previous GAAP, see paragraph B2(g)(i) and B2(i));

(ii)       the first-time adopter shall recognise all other resulting changes in retained earnings.[1]

(d)      Australian equivalents to IFRSs require subsequent measurement of some assets and liabilities on a basis that is not based on original cost, such as fair value.  The first-time adopter measures these assets and liabilities on that basis in its opening Australian-equivalents-to-IFRSs statement of financial position, even if they were acquired or assumed in a past business combination.  It shall recognise any resulting change in the carrying amount by adjusting retained earnings (or, if appropriate, another category of equity), rather than goodwill.

(e)       Immediately after the business combination, the carrying amount under previous GAAP of assets acquired and liabilities assumed in that business combination shall be their deemed cost under Australian equivalents to IFRSs at that date.  If Australian equivalents to IFRSs require a cost-based measurement of those assets and liabilities at a later date, that deemed cost shall be the basis for cost-based depreciation or amortisation from the date of the business combination.

(f)       If an asset acquired, or liability assumed, in a past business combination was not recognised under previous GAAP, it does not have a deemed cost of zero in the opening Australian-equivalent-to-IFRS statement of financial position.  Instead, the acquirer shall recognise and measure it in its consolidated statement of financial position on the basis that Australian equivalents to IFRSs would require in the statement of financial position of the acquiree.  To illustrate: if the acquirer had not, under its previous GAAP, capitalised finance leases acquired in a past business combination, it shall capitalise those leases in its consolidated financial statements, as AASB 117 Leases would require the acquiree to do in its Australian-equivalents-to-IFRSs statement of financial position.  Similarly, if the acquirer had not, under its previous GAAP, recognised a contingent liability that still exists at the date of transition to Australian equivalents to IFRSs, the acquirer shall recognise that contingent liability at that date unless AASB 137 would prohibit its recognition in the financial statements of the acquiree.  Conversely, if an asset or liability was subsumed in goodwill under previous GAAP but would have been recognised separately under AASB 3, that asset or liability remains in goodwill unless Australian equivalents to IFRSs would require its recognition in the financial statements of the acquiree.

(g)       The carrying amount of goodwill in the opening Australian-equivalents-to-IFRSs statement of financial position shall be its carrying amount under previous GAAP at the date of transition to Australian equivalents to IFRSs, after the following two adjustments:

(i)        If required by paragraph B2(c)(i) above, the first-time adopter shall increase the carrying amount of goodwill when it reclassifies an item that it recognised as an intangible asset under previous GAAP.  Similarly, if paragraph B2(f) requires the first-time adopter to recognise an intangible asset that was subsumed in recognised goodwill under previous GAAP, the first-time adopter shall decrease the carrying amount of goodwill accordingly (and, if applicable, adjust deferred tax and non-controlling interests).

(ii)       [Deleted by the IASB]

(iii)      Regardless of whether there is any indication that the goodwill may be impaired, the first-time adopter shall apply AASB 136 in testing the goodwill for impairment at the date of transition to Australian equivalents to IFRSs and in recognising any resulting impairment loss in retained earnings (or, if so required by AASB 136, in revaluation surplus).  The impairment test shall be based on conditions at the date of transition to Australian equivalents to IFRSs.

(h)      No other adjustments shall be made to the carrying amount of goodwill at the date of transition to Australian equivalents to IFRSs.  For example, the first-time adopter shall not restate the carrying amount of goodwill:

(i)        to exclude in-process research and development acquired in that business combination (unless the related intangible asset would qualify for recognition under AASB 138 in the statement of financial position of the acquiree);

(ii)       to adjust previous amortisation of goodwill; or

(iii)      to reverse adjustments to goodwill that AASB 3 would not permit, but were made under previous GAAP because of adjustments to assets and liabilities between the date of the business combination and the date of transition to Australian equivalents to IFRSs.

(i)        If the first-time adopter recognised goodwill under previous GAAP as a deduction from equity:

(i)        it shall not recognise that goodwill in its opening Australian-equivalents-to-IFRSs statement of financial position.  Furthermore, it shall not reclassify that goodwill to profit or loss if it disposes of the subsidiary or if the investment in the subsidiary becomes impaired;

(ii)       adjustments resulting from the subsequent resolution of a contingency affecting the purchase consideration shall be recognised in retained earnings.

(j)       Under its previous GAAP, the first-time adopter may not have consolidated a subsidiary acquired in a past business combination (for example, because the parent did not regard it as a subsidiary under previous GAAP or did not prepare consolidated financial statements).  The first-time adopter shall adjust the carrying amounts of the subsidiary’s assets and liabilities to the amounts that Australian equivalents to IFRSs would require in the subsidiary’s statement of financial position.  The deemed cost of goodwill equals the difference at the date of transition to Australian equivalents to IFRSs between:

(i)        the parent’s interest in those adjusted carrying amounts; and

(ii)       the cost in the parent’s separate financial statements of its investment in the subsidiary.

(k)      The measurement of non-controlling interests and deferred tax follows from the measurement of other assets and liabilities.  Therefore, the above adjustments to recognised assets and liabilities affect non-controlling interests and deferred tax.

B3      The exemption for past business combinations also applies to past acquisitions of investments in associates and of interests in joint ventures.  Furthermore, the date selected for paragraph B1 applies equally for all such acquisitions.

 


Implementation Guidance

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

CONTENTS

Paragraphs

Introduction                                                                                                             IG1

AASB 110 Events after the Reporting Period                                       IG2 – IG4

AASB 112 Income Taxes                                                                            IG5 – IG6

AASB 116 Property, Plant and Equipment                                         IG7 – IG13

AASB 117 Leases                                                                                   IG14 – IG16

AASB 119 Employee Benefits                                                              IG18 – IG21

AASB 121 The Effects of Changes in Foreign Exchange Rates              IG21A

AASB 3 Business Combinations                                                                       IG22

AASB 123 Borrowing Costs                                                                 IG23 – IG25

AASB 127 Consolidated and Separate Financial Statements      IG26 – IG31

AASB 129 Financial Reporting in Hyperinflationary Economies IG32 – IG34

AASB 132 Financial Instruments: Presentation                              IG35 – IG36

AASB 134 Interim Financial Reporting                                            IG37 – IG38

AASB 136 Impairment of Assets and AASB 137 Provisions, Contingent Liabilities and Contingent Assets  IG39 – IG43

AASB 138 Intangible Assets                                                                IG44 – IG51

AASB 139 Financial Instruments: Recognition and Measurement           IG52

Recognition                                                                       IG53 – IG54

Embedded derivatives                                                                  IG55

Measurement                                                                    IG56 – IG58

Transition adjustments                                                IG58A – IG59

Hedge accounting                                                         IG60 – IG60B

AASB 140 Investment Property                                                           IG61 – IG62

Explanation of transition to Australian equivalents to IFRSs                     IG63

AASB 2 Share-based Payment                                                             IG64 – IG65

AASB 3 Business Combinations                                                                       IG22

Australian Interpretations Corresponding to IASB Interpretations

Changes in existing decommissioning, restoration and similar liabilities IG201 – IG203

Determining whether an arrangement contains a lease     IG204 – IG205

 

 

List of examples

After Paragraph

1  Estimates                                                                                                              IG3

2  Business combination                                                                                     IG22

3  Business combination – restructuring provision                                         IG22

4  Business combination – intangible assets                                                    IG22

5  Business combination – treatment of intangible assets                            IG22

6  Business combination – subsidiary not consolidated under previous GAAP IG22

7  Business combination – finance lease not capitalised under previous GAAP     IG22

8  Parent adopts Australian equivalents to IFRSs before foreign subsidiary IG29

9  Foreign subsidiary adopts IFRSs before parent                                          IG29

10  Interim financial reporting                                                                           IG38

11  Reconciliation of equity and profit or loss                                                IG63

201  Changes in existing decommissioning, restoration and similar liabilities IG203

202  Determining whether an arrangement contains a lease                     IG205

 

 


IMPLEMENTATION GUIDANCE

AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards

This guidance accompanies, but is not part of, AASB 1.

 

Introduction

IG1    This implementation guidance has been adapted from that accompanying IFRS 1 (June 2003) to reflect the Australian context, where “previous GAAP” means the financial reporting regime that applied prior to the introduction of Australian equivalents to IFRSs.  To assist Australian users, the calendar year used in the illustrative examples has been changed to refer to July/June years.  It includes amendments made by the IASB to its Guidance in IFRSs issued since June 2003 up to 31 March 2004.  It:

(a)      explains how the requirements of AASB 1 interact with the requirements of some other Australian equivalents to IFRSs.  This explanation addresses those Australian equivalents to IFRSs that are most likely to involve questions that are specific to first-time adopters; and

(b)      includes an illustrative example to show how a first-time adopter might disclose how the transition to Australian equivalents to IFRSs affected its reported financial position, financial performance and cash flows, as required by paragraphs 39(a) and (b), 40 and 41 of AASB 1 (paragraph IG63).

AASB 110 Events after the Reporting Period

IG2    Except as described in paragraph IG3, an entity applies AASB 110 in determining whether:

(a)      its opening Australian-equivalents-to-IFRSs statement of financial position reflects an event that occurred after the date of transition to Australian equivalents to IFRSs; and

(b)      comparative amounts in its first Australian-equivalents-to-IFRSs financial statements reflect an event that occurred after the end of that comparative period.

IG3    Paragraphs 31-34 of AASB 1 require some modifications to the principles in AASB 110 when a first-time adopter determines whether changes in estimates are adjusting or non-adjusting events at the date of transition to Australian equivalents to IFRSs (or, when applicable, the end of the comparative period).  Cases 1 and 2 below illustrate those modifications.  In case 3 below, paragraphs 31-34 of AASB 1 do not require modifications to the principles in AASB 110.

(a)      Case 1 – Previous GAAP required estimates of similar items for the date of transition to Australian equivalents to IFRSs, using an accounting policy that is consistent with Australian equivalents to IFRSs.  In this case, the estimates under Australian equivalents to IFRSs need to be consistent with estimates made for that date under previous GAAP, unless there is objective evidence that those estimates were in error (see AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors).  The entity reports later revisions to those estimates as events of the period in which it makes the revisions, rather than as adjusting events resulting from the receipt of further evidence about conditions that existed at the date of transition to Australian equivalents to IFRSs.

(b)      Case 2 – Previous GAAP required estimates of similar items for the date of transition to Australian equivalents to IFRSs, but the entity made those estimates using accounting policies that are not consistent with its accounting policies under Australian equivalents to IFRSs.  In this case, the estimates under Australian equivalents to IFRSs need to be consistent with the estimates required under previous GAAP for that date (unless there is objective evidence that those estimates were in error), after adjusting for the difference in accounting policies.  The opening Australian-equivalents-to-IFRSs statement of financial position reflects those adjustments for the difference in accounting policies.  As in case 1, the entity reports later revisions to those estimates as events of the period in which it makes the revisions.

For example, previous GAAP may have required an entity to recognise and measure provisions on a basis consistent with AASB 137 Provisions, Contingent Liabilities and Contingent Assets, except that the previous GAAP measurement was on an undiscounted basis.  In this example, the entity uses the estimates under previous GAAP as inputs in making the discounted measurement required by AASB 137.

(c)       Case 3 – Previous GAAP did not require estimates of similar items for the date of transition to Australian equivalents to IFRSs.  Estimates under Australian equivalents to IFRSs for that date reflect conditions existing at that date.  In particular, estimates of market prices, interest rates or foreign exchange rates at the date of transition to Australian equivalents to IFRSs reflect market conditions at that date.  This is consistent with the distinction in AASB 110 between adjusting events after the end of the reporting period and non-adjusting events after the end of the reporting period.

IG Example 1:  Estimates

BACKGROUND

Entity A’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 30 June 20X6 and include comparative information for one year.  In its previous GAAP financial statements for 30 June 20X4 and 20X5, entity A:

(a)      made estimates of accrued expenses and provisions at those dates;

(b)      accounted on a cash basis for a defined benefit pension plan; and

(c)       did not recognise a provision for a court case arising from events that occurred in March 20X5.  When the court case was concluded on 31 December 20X5, entity A was required to pay 1,000 and paid this on 10 January 20X6.

In preparing its first Australian-equivalents-to-IFRSs financial statements, entity A concludes that its estimates under previous GAAP of accrued expenses and provisions at 30 June 20X4 and 20X5 were made on a basis consistent with its accounting policies under Australian equivalents to IFRSs.  Although some of the accruals and provisions turned out to be overestimates and others to be underestimates, entity A concludes that its estimates were reasonable and that, therefore, no error had occurred.  As a result, accounting for those overestimates and underestimates involves the routine adjustment of estimates under AASB 108.

APPLICATION OF REQUIREMENTS

In preparing its opening Australian-equivalents-to-IFRSs statement of financial position at 1 July 20X4 and in its comparative statement of financial position at 30 June 20X5, entity A:

continued

(a)      does not adjust the previous estimates for accrued expenses and provisions; and

(b)      makes estimates (in the form of actuarial assumptions) necessary to account for the pension plan under AASB 119 Employee Benefits

           Entity A’s actuarial assumptions at 1 July 20X4 and 30 June 20X5 do not reflect conditions that arose after those dates.  For example, entity A’s:

(i)        discount rates at 1 July 20X4 and 30 June 20X5 for the pension plan and for provisions reflect market conditions at those dates; and

(ii)       actuarial assumptions at 1 July 20X4 and 30 June 20X5 about future employee turnover rates do not reflect conditions that arose after those dates – such as a significant increase in estimated employee turnover rates as a result of a curtailment of the pension plan in 20X5/6.

(c)       The treatment of the court case at 30 June 20X5 depends on the reason why entity A did not recognise a provision under previous GAAP at that date.  Previous GAAP was consistent with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

ASSUMPTION 1 –  Entity A concluded that the recognition criteria were not met, as evidence only became available after the date the 20X4/5 financial statements were authorised for issue.  In this case, entity A’s assumptions under Australian equivalents to IFRSs are consistent with its assumptions under previous GAAP.  Therefore, entity A does not recognise a provision at 30 June 20X5.

ASSUMPTION 2 –  The entity did not follow the previous GAAP and non-recognition of the provision was an error (since sufficient evidence existed at 30 June 20X5).  Therefore, entity A recognises a provision at 30 June 20X5 in accordance with AASB 108.

IG4    Paragraphs 31-34 of AASB 1 do not override requirements in other Australian equivalents to IFRSs that base classifications or measurements on circumstances existing at a particular date.  Examples include:

(a)      the distinction between finance leases and operating leases (see AASB 117 Leases);

(b)      the restrictions in AASB 138 Intangible Assets that prohibit capitalisation of expenditure on an internally generated intangible asset if the asset did not qualify for recognition when the expenditure was incurred; and

(c)       the distinction between financial liabilities and equity instruments (see AASB 132 Financial Instruments: Presentation).

AASB 112 Income Taxes

IG5    An entity applies AASB 112 to temporary differences between the carrying amount of the assets and liabilities in its opening Australian-equivalents-to-IFRSs statement of financial position and their tax bases.

IG6    Under AASB 112, the measurement of current and deferred tax reflects tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.  An entity accounts for the effect of changes in tax rates and tax laws when those changes are enacted or substantively enacted.

AASB 116 Property, Plant and Equipment

IG7    If an entity’s depreciation methods and rates under previous GAAP are acceptable under Australian equivalents to IFRSs, it accounts for any change in estimated useful life or depreciation pattern prospectively from when it makes that change in estimate (paragraphs 31 and 32 of AASB 1 and paragraph 61 of AASB 116).  However, in some cases, an entity’s depreciation methods and rates under previous GAAP may differ from those that would be acceptable under Australian equivalents to IFRSs.  If those differences have a material effect on the financial statements, the entity adjusts accumulated depreciation in its opening Australian-equivalents-to-IFRSs statement of financial position retrospectively so that it complies with Australian equivalents to IFRSs.

IG8    An entity may elect to use one of the following amounts as the deemed cost of an item of property, plant and equipment:

(a)      fair value at the date of transition to Australian equivalents to IFRSs (paragraph 16 of AASB 1), in which case the entity gives the disclosures required by paragraph 44 of AASB 1;

(b)      a revaluation under previous GAAP that meets the criteria in paragraph 17 of AASB 1; or

(c)       fair value at the date of an event such as a privatisation or initial public offering (paragraph 19 of AASB 1).

IG9    Subsequent depreciation is based on that deemed cost and starts from the date for which the entity established the fair value measurement or revaluation.

IG10  In the case of a for-profit entity that chooses as its accounting policy the revaluation model in AASB 116 for some or all classes of property, plant and equipment, it presents the cumulative revaluation surplus as a separate component of equity.  The revaluation surplus at the date of transition to Australian equivalents to IFRSs is based on a comparison of the carrying amount of the asset at that date with its cost or deemed cost.  If the deemed cost is the fair value at the date of transition to Australian equivalents to IFRSs, the entity gives the disclosures required by paragraph 44 of AASB 1.

IG11  If revaluations under previous GAAP did not satisfy the criteria in paragraph 17 or 19 of AASB 1, an entity measures the revalued assets in its opening statement of financial position on one of the following bases:

(a)      cost (or deemed cost) less any accumulated depreciation and any accumulated impairment losses under the cost model in AASB 116;

(b)      deemed cost, being the fair value at the date of transition to Australian equivalents to IFRSs (paragraph 16 of AASB 1); or

(c)       revalued amount, if the entity adopts the revaluation model in AASB 116 as its accounting policy under Australian equivalents to IFRSs for all items of property, plant and equipment in the same class.

IG12  AASB 116 requires each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item to be depreciated separately.  However, AASB 116 does not prescribe the unit of measure for recognition of an asset, that is, what constitutes an item of property, plant and equipment.  Thus, judgement is required in applying the recognition criteria to an entity’s specific circumstances (see AASB 116, paragraphs 9 and 43).

IG13  In some cases, the construction or commissioning of an asset results in an obligation for an entity to dismantle or remove the asset and restore the site on which the asset stands.  An entity applies AASB 137 Provisions, Contingent Liabilities and Contingent Assets in recognising and measuring any resulting provision.  The entity applies AASB 116 in determining the resulting amount included in the cost of the asset, before depreciation and impairment losses.  Items such as depreciation and, when applicable, impairment losses cause differences between the carrying amount of the liability and the amount included in the carrying amount of the asset.  An entity accounts for changes in such liabilities in accordance with Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities identified in AASB 1048 Interpretation and Application of Standards as corresponding to IFRIC 1.  However, paragraph 25E of AASB 1 provides an exemption for changes that occurred before the date of transition to Australian equivalents to IFRSs, and prescribes an alternative treatment where the exemption is used.  An example of the first-time adoption of this Interpretation, which illustrates the use of this exemption, is given at paragraphs IG201-IG203.

AASB 117 Leases

IG14  At the date of transition to Australian equivalents to IFRSs, a lessee or lessor classifies leases as operating leases or finance leases on the basis of circumstances existing at the inception of the lease (AASB 117, paragraph 13).  In some cases, the lessee and the lessor may agree to change the provisions of the lease, other than by renewing the lease, in a manner that would have resulted in a different classification in accordance with AASB 117 had the changed terms been in effect at the inception of the lease.  If so, the revised agreement is considered as a new agreement over its term.  However, changes in estimates (for example, changes in estimates of the economic life or of the residual value of the leased property) or changes in circumstances (for example, default by the lessee) do not give rise to a new classification of a lease.

IG15  [Deleted by the AASB]

IG16  SIC-15 Operating Leases—Incentives is an IASB Interpretation that applies to lease terms beginning on or after 1 January 1999.  However, a first-time Australian-equivalents-to-IFRSs adopter applies the Interpretation identified in AASB 1048 as equivalent to SIC-15 to all leases, whether they started before or after that date.

AASB 118 Revenue

IG17  [Deleted by the AASB]

AASB 119 Employee Benefits

IG18  At the date of transition to Australian equivalents to IFRSs, an entity applies AASB 119 as issued in July 2004 or may early adopt AASB 119 as issued in December 2004 in measuring net employee benefit assets or liabilities under defined benefit plans, but it may elect to recognise all cumulative actuarial gains or losses from the inception of the plan until the date of transition to Australian equivalents to IFRSs even if its accounting policy under AASB 119 as issued in December 2004 will involve leaving some later actuarial gains and losses unrecognised (paragraph 20 of AASB 1).  The transitional provisions in AASB 119 as issued in December 2004 do not apply to an entity’s opening Australian-equivalents-to-IFRSs statement of financial position (paragraph 9 of AASB 1).

IG19  An entity’s actuarial assumptions at the date of transition to Australian equivalents to IFRSs are consistent with actuarial assumptions made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those assumptions were in error (paragraph 31 of AASB 1).  The impact of any later revisions to those assumptions is an actuarial gain or loss of the period in which the entity makes the revisions.

IG20  An entity may need to make actuarial assumptions at the date of transition to Australian equivalents to IFRSs that were not necessary under its previous GAAP.  Such actuarial assumptions do not reflect conditions that arose after the date of transition to Australian equivalents to IFRSs.  In particular, discount rates and the fair value of plan assets at the date of transition to Australian equivalents to IFRSs reflect market conditions at that date.  Similarly, the entity’s actuarial assumptions at the date of transition to Australian equivalents to IFRSs about future employee turnover rates do not reflect a significant increase in estimated employee turnover rates as a result of a curtailment of the pension plan that occurred after the date of transition to Australian equivalents to IFRSs (paragraph 33 of AASB 1).

IG21  In many cases, an entity’s first Australian-equivalents-to-IFRSs financial statements will reflect measurements of employee benefit obligations at three dates: the end of the first Australian-equivalents-to-IFRSs reporting period, the date of the comparative statement of financial position and the date of transition to Australian equivalents to IFRSs.  AASB 119 encourages an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations.  To minimise costs, an entity may request a qualified actuary to carry out a detailed actuarial valuation at one or two of these dates and roll the valuation(s) forward or back to the other date(s).  Any such roll forward or roll back reflects any material transactions and other material events (including changes in market prices and interest rates) between those dates (AASB 119, paragraph 57).

AASB 121 The Effects of Changes in Foreign Exchange Rates

IG21A    An entity may, under previous GAAP, have treated goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation as assets and liabilities of the entity rather than as assets and liabilities of the foreign operation.  If so, the entity is permitted to apply prospectively the requirements of paragraph 47 of AASB 121 to all acquisitions occurring after the date of transition to Australian equivalents to IFRSs.

AASB 3 Business Combinations

IG22  The following examples illustrate the effect of Appendix B of AASB 1, assuming that a first-time adopter uses the exemption.

IG Example 2:  Business combination

BACKGROUND

Entity B’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 30 June 20X6 and include comparative information for 20X4/5 only.  On 1 January 20X2, entity B acquired 100 per cent of subsidiary C.  Under its previous GAAP, entity B:

(a)      classified the business combination as an acquisition by entity B;

(b)      measured the assets acquired and liabilities assumed at the following amounts under previous GAAP at 30 June 20X4 (date of transition to Australian equivalents to IFRSs):

(i)       identifiable assets less liabilities for which Australian equivalents to IFRSs require cost-based measurement at a date after the business combination: 200 (with a tax base of 150 and an applicable tax rate of 30 per cent);

(ii)      pension liability: nil (because entity B used a pay-as-you-go cash method of accounting for pensions under its previous GAAP).  The present value of the defined benefit obligation measured under AASB 119 Employee Benefits is 130 and the fair value of plan assets is 100.  The tax base of the pension liability is also nil; and

continued

(iii)     goodwill: 180; and

(c)       did not, at the acquisition date, recognise deferred tax arising from temporary differences associated with the identifiable assets acquired and liabilities assumed.

APPLICATION OF REQUIREMENTS

In its opening (consolidated) Australian-equivalents-to-IFRSs statement of financial position, entity B:

(a)      classifies the business combination as an acquisition by entity B even if the business combination would have qualified under AASB 3 as a reverse acquisition by subsidiary C (paragraph B2(a) of AASB 1);

(b)      does not adjust the accumulated amortisation of goodwill.  Entity B tests the goodwill for impairment under AASB 136 Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Australian equivalents to IFRSs (1 July 20X4).  If no impairment exists, the carrying amount of the goodwill remains at 180 (paragraph B2(g));

(c)       for those net identifiable assets acquired for which Australian equivalents to IFRSs require cost-based measurement at a date after the business combination, treats their carrying amount under previous GAAP immediately after the business combinations as their deemed cost at that date (paragraph B2(e));

(d)      does not restate the accumulated depreciation and amortisation of the net identifiable assets in (c), unless the depreciation methods and rates under previous GAAP result in amounts that differ materially from those required under Australian equivalents to IFRSs.  If no such restatement is made, the carrying amount of those assets in the opening Australian-equivalents-to-IFRSs statement of financial position equals their carrying amount under previous GAAP at the date of transition to Australian equivalents to IFRSs (200) (paragraph IG7);

(e)       if there is any indication that identifiable assets are impaired, tests those assets for impairment, based on conditions that existed at the date of transition to Australian equivalents to IFRSs (see AASB 136);

continued

(f)       recognises the pension liability, and measures it, at the present value of the defined benefit obligation (130) less the fair value of the plan assets (100), giving a carrying amount of 30, with a corresponding debit of 30 to retained earnings (paragraph B2(d)); and

(g)       recognises a net deferred tax liability of 6 (20 at 30 per cent) arising from:

(i)        the taxable temporary difference of 50 (200 less 150) associated with the identifiable assets acquired and non-pension liabilities assumed, less

(ii)       the deductible temporary difference of 30 (30 less nil) associated with the pension liability.

The entity recognises the resulting increase in the deferred tax liability as a deduction from retained earnings (paragraph B2(k), Appendix B, AASB 1).  If a taxable temporary difference arises from the initial recognition of the goodwill, entity B does not recognise the resulting deferred tax liability (paragraph 15(a) of AASB 112 Income Taxes).

 

IG Example 3:  Business combination – restructuring provision

BACKGROUND

Entity D’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 30 June 20X6 and include comparative information for 20X4/5 only.  On 1 January 20X4, entity D acquired 100 per cent of subsidiary E.  Under its previous GAAP, entity D recognised an (undiscounted) restructuring provision of 100 that would not have qualified as an identifiable liability under AASB 3.  The recognition of this restructuring provision increased goodwill by 100.  At 1 July 20X4 (date of transition to Australian equivalents to IFRSs), entity D:

(a)      had paid restructuring costs of 60; and

(b)      estimated that it would pay further costs of 40 in 20X5, and that the effects of discounting were immaterial.  At 30 June 20X4, those further costs did not qualify for recognition as a provision under AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

continued

APPLICATION OF REQUIREMENTS

In its opening Australian-equivalents-to-IFRSs statement of financial position, entity D:

(a)      does not recognise a restructuring provision (paragraph B2(c), Appendix B, AASB 1);

(b)      does not adjust the amount assigned to goodwill.  However, entity D tests the goodwill for impairment under AASB 136 Impairment of Assets, and recognises any resulting impairment loss (paragraph B2(g), Appendix B, AASB 1); and

(c)       as a result of (a) and (b), reports retained earnings in its opening Australian-equivalents-to-IFRSs statement of financial position that are higher by 40 (before income taxes, and before recognising any impairment loss) than in the statement of financial position at the same date under previous GAAP.

 

IG Example 4:  Business combination – intangible assets

BACKGROUND

Entity F’s first Australian-equivalents-to-IFRSs financial statements have a end of the reporting period of 30 June 20X6 and include comparative information for 20X4/5 only.  On 1 January 20X2, entity F acquired 75 per cent of subsidiary G.  Under its previous GAAP, entity F assigned an initial carrying amount of 200 to intangible assets that would not have qualified for recognition under AASB 138 Intangible Assets.  The tax base of the intangible assets was nil, giving rise to a deferred tax liability (at 30 per cent) of 60.

On 1 July 20X4 (the date of transition to Australian equivalents to IFRSs), the carrying amount of the intangible assets under previous GAAP was 160, and the carrying amount of the related deferred tax liability was 48 (30 per cent of 160).

continued

APPLICATION OF REQUIREMENTS

Because the intangible assets do not qualify for recognition as separate assets under AASB 138, entity F transfers them to goodwill, together with the related deferred tax liability (48) and non-controlling interests (paragraph B2(g)(i), Appendix B, AASB 1).  The related non-controlling interests amount to 28 (25 per cent of [160 - 48 = 112]).  Thus, the increase in goodwill is 84 – intangible assets (160) less deferred tax liability (48) less non-controlling interests (28).

Entity F tests the goodwill for impairment under AASB 136 Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Australian equivalents to IFRSs (paragraph B2(g)(iii), Appendix B, AASB 1).

 

IG Example 5:  Business combination – treatment of intangible assets

BACKGROUND

Entity H acquired a subsidiary before the date of transition to Australian equivalents to IFRSs.  Under its previous GAAP, entity H:

(a)      recognised an intangible asset of the subsidiary that does not qualify for recognition as an asset under AASB 138 Intangible Assets; and

(b)      did not recognise an intangible asset of the subsidiary that would qualify under AASB 138 for recognition as an asset in the financial statements of the subsidiary.  The subsidiary held the asset at the date of its acquisition by entity H.

APPLICATION OF REQUIREMENTS

In its opening Australian-equivalents-to-IFRSs statement of financial position, entity H:

(a)      does not recognise the intangible asset that does not qualify for recognition as an asset under AASB 138.  The elimination of this intangible asset (together with any related deferred tax balance) increases goodwill (paragraphs B2(c)(i) and B2(g)(i), Appendix B); and

continued

(b)      recognises the intangible asset that qualifies under AASB 138 for recognition as an asset in the financial statements of the subsidiary, even though the amount assigned to it under previous GAAP in entity H’s consolidated financial statements was nil (paragraph B2(f), Appendix B).  The recognition criteria in AASB 138 include the availability of a reliable measurement of cost (paragraphs IG45-IG48) and entity H measures the asset at cost less accumulated depreciation and less any impairment losses identified under AASB 136.  Since this intangible asset was subsumed in goodwill, recognition of this intangible asset decreases the carrying amount of goodwill accordingly (and, if applicable, adjusted deferred tax and non-controlling interests) (paragraph B2(g)(i), Appendix B).

 

IG Example 6:  Business combination – subsidiary not consolidated under previous GAAP

BACKGROUND

Parent J’s date of transition to Australian equivalents to IFRSs is 1 July 20X4.  Under its previous GAAP, parent J did not consolidate its 75 per cent subsidiary K, acquired in a business combination on 15 January 20X2.  On 1 July 20X4:

(a)      the cost of parent J’s investment in subsidiary K is 180; and

(b)      under Australian equivalents to IFRSs, subsidiary K would measure its assets at 500 and its liabilities (including deferred tax under AASB 112) at 300.  On this basis, subsidiary K’s net assets are 200 under Australian equivalents to IFRSs.

APPLICATION OF REQUIREMENTS

Parent J consolidates subsidiary K.  The consolidated statement of financial position at 1 July 20X4 includes:

(a)      subsidiary K’s asset at 500 and liabilities at 300;

(b)      non-controlling interests of 50 (25 per cent of [500-300]); and

continued

(c)       goodwill of 30 (cost of 180 less 75 per cent of [500-300]) (paragraph B2(j), Appendix B).  Parent J tests the goodwill for impairment under AASB 136 Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Australian equivalents to IFRSs (paragraph B2(g)(iii), Appendix B).

 

IG Example 7:  Business combination – finance lease not capitalised under previous GAAP

[Deleted:  superseded AASB 1008 Leases required finance leases to be capitalised]

 

AASB 123 Borrowing Costs

IG23  On first adopting Australian equivalents to IFRSs, an entity begins capitalising borrowing costs (AASB 123).[2]  In accordance with paragraph 25I of AASB 1, an entity:

(a)      capitalises borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009 or the date of transition to Australian equivalents to IFRSs (whichever is later);

(b)      may elect to designate any date before 1 January 2009 or the date of transition to Australian equivalents to IFRSs (whichever is later) and to capitalise borrowing costs relating to all qualifying assets for which the commencement date for capitalisation is on or after that date.

However, if the entity established a deemed cost for an asset, the entity does not capitalise borrowing costs incurred before the date of the measurement that established the deemed cost.

IG24  AASB 123 requires disclosure of interest capitalised during the period.  Neither AASB 123 nor AASB 1 require disclosure of the cumulative amount capitalised.

IG25  [Deleted by the IASB]

AASB 127 Consolidated and Separate Financial Statements

IG26  A first-time adopter consolidates all subsidiaries (as defined in AASB 127), unless AASB 127 requires otherwise.

IG27  If a first-time adopter did not consolidate a subsidiary under previous GAAP, then:

(a)      in its consolidated financial statements, the first-time adopter measures the subsidiary’s assets and liabilities at the same carrying amounts as in the Australian-equivalents-to-IFRSs financial statements of the subsidiary, after adjusting for consolidation procedures and for the effects of the business combination in which it acquired the subsidiary (paragraph 25, AASB 1).  If the subsidiary has not adopted Australian equivalents to IFRSs in its financial statements, the carrying amounts described in the previous sentence are those that Australian equivalents to IFRSs would require in those financial statements (paragraph B2(j), Appendix B, AASB 1);

(b)      if the parent acquired the subsidiary in a business combination before the date of transition to Australian equivalents to IFRSs, the parent recognises goodwill, as explained in IG Example 6; or

(c)       if the parent did not acquire the subsidiary in a business combination because it created the subsidiary, the parent does not recognise goodwill.

IG28  When a first-time adopter adjusts the carrying amounts of assets and liabilities of its subsidiaries in preparing its opening Australian-equivalents-to-IFRSs statement of financial position, this may affect non-controlling interests and deferred tax.

IG29  IG Examples 8 and 9 illustrate paragraphs 24 and 25 of AASB 1, which address cases where a parent and its subsidiary become first-time adopters at different dates.

IG Example 8:  Parent adopts Australian equivalents to IFRSs before foreign subsidiary

BACKGROUND

Parent N presents its (consolidated) first Australian-equivalents-to-IFRSs financial statements in 20X5/6.  Its foreign subsidiary O, wholly owned by parent N since formation, prepares information under Australian equivalents to IFRSs for internal consolidation purposes from that date, but subsidiary O does not present its first IFRS financial statements until 20X7/8.

APPLICATION OF REQUIREMENTS

If subsidiary O applies paragraph 24(a) of IFRS 1, the carrying amounts of its assets and liabilities are the same in both its opening IFRS statement of financial position at 1 July 20X6 and parent N’s consolidated statement of financial position (except for adjustments for consolidation procedures) and are based on parent N’s date of transition to Australian equivalents to IFRSs.

Alternatively, subsidiary O may, under paragraph 24(b) of IFRS 1, measure all its assets or liabilities based on its own date of transition to IFRSs (1 July 20X6).  However, the fact that subsidiary O becomes a first-time adopter in 20X7/8 does not change the carrying amounts of its assets and liabilities in parent N’s consolidated financial statements.

 

IG Example 9:  Foreign subsidiary adopts IFRSs before parent

BACKGROUND

Parent P presents its (consolidated) first Australian-equivalents-to-IFRSs financial statements in 20X5/6.  Its foreign subsidiary Q, wholly owned by parent P since formation, presented its first IFRS financial statements in 20X3/4.  Until 20X5/6, subsidiary Q prepared information for internal consolidation purposes under parent P’s previous GAAP.

continued

APPLICATION OF REQUIREMENTS

The carrying amounts of subsidiary Q’s assets and liabilities at 1 July 20X4 are the same in both parent P’s (consolidated) opening Australian-equivalents-to-IFRSs statement of financial position and subsidiary Q’s financial statements (except for adjustments for consolidation procedures) and are based on subsidiary Q’s date of transition to IFRSs.  The fact that parent P becomes a first-time adopter in 20X5/6 does not change those carrying amounts (paragraph 25 of AASB 1).

 

IG30  Paragraphs 24 and 25 of AASB 1 do not override the following requirements:

(a)      to apply Appendix B of AASB 1 to assets acquired, and liabilities assumed, in a business combination that occurred before the acquirer’s date of transition to Australian equivalents to IFRSs.  However, the acquirer applies paragraph 25 to new assets acquired, and liabilities assumed, by the acquiree after that business combination and still held at the acquirer’s date of transition to Australian equivalents to IFRSs;

(b)      to apply the rest of AASB 1 in measuring all assets and liabilities for which paragraphs 24 and 25 are not relevant; and

(c)       to give all disclosures required by AASB 1 as of the first-time adopter’s own date of transition to Australian equivalents to IFRSs.

IG31  Paragraph 24 of AASB 1 applies if a subsidiary becomes a first-time adopter later than its parent, for example if the subsidiary previously prepared a reporting package under Australian equivalents to IFRSs for consolidation purposes but did not present a full set of financial statements under Australian equivalents to IFRSs.  This may be relevant not only when a subsidiary’s reporting package complies fully with the recognition and measurement requirements of Australian equivalents to IFRSs, but also when it is adjusted centrally for matters such as review of events after the reporting period and central allocation of pension costs.  For the disclosure required by paragraph 41 of AASB 1, adjustments made centrally to an unpublished reporting package are not corrections of errors.  However, paragraph 24 does not permit that subsidiary to ignore misstatements that are immaterial to the consolidated financial statements of its parent but material to its own financial statements.

AASB 129 Financial Reporting in Hyperinflationary Economies

IG32  An entity complies with AASB 121 The Effects of Changes in Foreign Exchange Rates in determining its functional currency and presentation currency.  When the entity prepares its opening Australian-equivalents-to-IFRSs statement of financial position, it applies AASB 129 to any periods during which the economy of the functional currency or presentation currency was hyperinflationary.

IG33  An entity may elect to use the fair value of an item of property, plant and equipment at the date of transition to Australian equivalents to IFRSs as its deemed cost at that date (paragraph 16 of AASB 1), in which case it gives the disclosures required by paragraph 44 of AASB 1.

IG34  If an entity elects to use the exemptions in paragraphs 16-19 of AASB 1, it applies AASB 129 to periods after the date for which the revalued amount or fair value was determined.

AASB 132 Financial Instruments: Presentation

IG35  In its opening Australian-equivalents-to-IFRSs statement of financial position, an entity applies the criteria in AASB 132 to classify financial instruments issued (or components of compound instruments issued) as either financial liabilities or equity instruments in accordance with the substance of the contractual arrangement when the instrument first satisfied the recognition criteria in AASB 132 (paragraphs 15 and 30), without considering events after that date (other than changes to the terms of the instruments).

IG36  For compound instruments outstanding at the date of transition to Australian equivalents to IFRSs, an entity determines the initial carrying amounts of the components on the basis of circumstances existing when the instrument was issued (AASB 132, paragraph 30).  An entity determines those carrying amounts using the version of AASB 132 effective at the end of its first Australian-equivalents-to-IFRSs reporting period.  If the liability component is no longer outstanding at the date of transition to Australian equivalents to IFRSs, a first-time adopter need not separate the initial equity component of the instrument from the cumulative interest accreted on the liability component (paragraph 23 of AASB 1).

AASB 134 Interim Financial Reporting

IG37  AASB 134 applies if an entity is required, or elects, to present an interim financial report in accordance with Australian equivalents to IFRSs.  Accordingly, neither AASB 134 nor AASB 1 requires an entity:

(a)      to present interim financial reports that comply with AASB 134; or

(b)      to prepare new versions of interim financial reports presented under previous GAAP.  However, if an entity does prepare an interim financial report under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements, the entity restates the comparative information presented in that report so that it complies with Australian equivalents to IFRSs.

IG38  An entity applies AASB 1 in each interim financial report that it presents under AASB 134 for part of the period covered by its first Australian-equivalents-to-IFRSs financial statements.  In particular, paragraph 45 of AASB 1 requires an entity to disclose various reconciliations (see IG Example 10).

IG Example 10:  Interim financial reporting

BACKGROUND

Entity R’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 30 June 20X6, and its first interim financial report under AASB 134 is for the quarter ended 30 September 20X5.  Entity R prepared previous GAAP annual financial statements for the year ended 30 June 20X5, and prepared quarterly reports throughout 20X4/5.

APPLICATION OF REQUIREMENTS

In each quarterly interim financial report for 20X5/6, entity R includes reconciliations of:

(a)      its equity under previous GAAP at the end of the comparable quarter of 20X4/5 to its equity under Australian equivalents to IFRSs at that date; and

continued

(b)      its total comprehensive income (or, if it did not report such a total, profit or loss) under previous GAAP for the comparable quarter of 20X4/5 (current and year-to-date) to its total comprehensive income under Australian equivalents to IFRSs.

In addition to the reconciliations required by (a) and (b) and the disclosures required by AASB 134, entity R’s interim financial report for the first quarter of 20X5/6 includes reconciliations of (or a cross-reference to another published document that includes these reconciliations):

(a)      its equity under previous GAAP at 1 July 20X4 and 30 June 20X5 to its equity under Australian equivalents to IFRSs at those dates; and

(b)      its total comprehensive income (or, if it did not report such a total, profit or loss) for 20X4/5 under previous GAAP to its total comprehensive income for 20X4/5 under Australian equivalents to IFRSs.

Each of the above reconciliations gives sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income.  Entity R also explains the material adjustments to the statement of cash flows.

If entity R becomes aware of errors made under previous GAAP, the reconciliations distinguish the correction of those errors from changes in accounting policies.

If entity R did not, in its most recent annual financial statements under previous GAAP, disclose information material to an understanding of the current interim period, its interim financial reports for 20X5/6 disclose that information or include a cross-reference to another published document that includes it (paragraph 46 of AASB 1).

 

AASB 136 Impairment of Assets and AASB 137 Provisions, Contingent Liabilities and Contingent Assets

IG39  An entity applies AASB 136 in:

(a)      determining whether any impairment loss exists at the date of transition to Australian equivalents to IFRSs; and

(b)      measuring any impairment loss that exists at that date, and reversing any impairment loss that no longer exists at that date.  An entity’s first Australian-equivalents-to-IFRSs financial statements include the disclosures that AASB 136 would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to Australian equivalents to IFRSs (paragraph 39(c) of AASB 1).

IG40  The estimates used to determine whether an entity recognises an impairment loss or provision (and to measure any such impairment loss or provision) at the date of transition to Australian equivalents to IFRSs are consistent with estimates made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error (paragraphs 31 and 32 of AASB 1).  The entity reports the impact of any later revisions to those estimates as an event of the period in which it makes the revisions.

IG41  In assessing whether it needs to recognise an impairment loss or provision (and in measuring any such impairment loss or provision) at the date of transition to Australian equivalents to IFRSs, an entity may need to make estimates for that date that were not necessary under its previous GAAP.  Such estimates and assumptions do not reflect conditions that arose after the date of transition to Australian equivalents to IFRSs (paragraph 33 of AASB 1).

IG42  [Deleted by the AASB]

IG43  AASB 136 requires the reversal of impairment losses in some cases.  If an entity’s opening Australian-equivalents-to-IFRSs statement of financial position reflects impairment losses, the entity recognises any later reversal of those impairment losses in profit or loss (except when AASB 136 requires the entity to treat that reversal as a revaluation).  This applies to both impairment losses recognised under previous GAAP and additional impairment losses recognised on transition to Australian equivalents to IFRSs.

AASB 138 Intangible Assets

IG44  An entity’s opening Australian-equivalents-to-IFRSs statement of financial position:

(a)      excludes all intangible assets and other intangible items that do not meet the criteria for recognition under AASB 138 at the date of transition to Australian equivalents to IFRSs; and

(b)      includes all intangible assets that meet the recognition criteria in AASB 138 at that date, except for intangible assets acquired in a business combination that were not recognised in the acquirer’s consolidated statement of financial position under previous GAAP and also would not qualify for recognition under AASB 138 in the separate statement of financial position of the acquiree (see paragraph B2(f), Appendix B of AASB 1).

IG45  The criteria in AASB 138 require an entity to recognise an intangible asset if, and only if:

(a)      it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and

(b)      the cost of the asset can be measured reliably.

AASB 138 supplements these two criteria with further, more specific, criteria for internally generated intangible assets.

IG46  Under paragraphs 65 and 71 of AASB 138, an entity capitalises the costs of creating internally generated intangible assets prospectively from the date when the recognition criteria are met.  AASB 138 does not permit an entity to use hindsight to conclude retrospectively that these recognition criteria are met.  Therefore, even if an entity concludes retrospectively that a future inflow of economic benefits from an internally generated intangible asset is probable and the entity is able to reconstruct the costs reliably, AASB 138 prohibits it from capitalising the costs incurred before the date when the entity both:

(a)      concludes, based on an assessment made and documented at the date of that conclusion, that it is probable that future economic benefits from the asset will flow to the entity; and

(b)      has a reliable system for accumulating the costs of internally generated intangible assets when, or shortly after, they are incurred.

IG47  If an internally generated intangible asset qualifies for recognition at the date of transition to Australian equivalents to IFRSs, an entity recognises the asset in its opening Australian-equivalents-to-IFRSs statement of financial position even if it had recognised the related expenditure as an expense under previous GAAP.  If the asset does not qualify for recognition under AASB 138 until a later date, its cost is the sum of the expenditure incurred from that later date.

IG48  The criteria discussed in paragraph IG45 also apply to an intangible asset acquired separately.  In many cases, contemporaneous documentation prepared to support the decision to acquire the asset will contain an assessment of the future economic benefits.  Furthermore, as explained in paragraph 26 of AASB 138, the cost of a separately acquired intangible asset can usually be measured reliably.

IG49  For an intangible asset acquired in a business combination before the date of transition to Australian equivalents to IFRSs, its carrying amount under previous GAAP immediately after the business combination is its deemed cost under Australian equivalents to IFRSs at that date (paragraph B2(e), Appendix B, AASB 1).  If that carrying amount was zero, the acquirer does not recognise the intangible asset in its consolidated opening Australian-equivalents-to-IFRSs statement of financial position, unless it would qualify under AASB 138, applying the criteria discussed in paragraphs IG45-IG48, for recognition at the date of transition to Australian equivalents to IFRSs in the statement of financial position of the acquiree (paragraph B2(f), Appendix B, AASB 1).  If those recognition criteria are met, the acquirer measures the asset on the basis that AASB 138 would require in the statement of financial position of the acquiree.  The resulting adjustment affects goodwill (paragraph B2(g)(i), Appendix B, AASB 1).

IG50  A first-time adopter may elect to use the fair value of an intangible asset at the date of an event such as a privatisation or initial public offering as its deemed cost at the date of that event (paragraph 19 of AASB 1), provided that the intangible asset qualifies for recognition under AASB 138 (paragraph 10 of AASB 1).  In addition, if, and only if, an intangible asset meets both the recognition criteria in AASB 138 (including reliable measurement of original cost) and the criteria in AASB 138 for revaluation (including the existence of an active market), a first-time adopter may elect to use one of the following amounts as its deemed cost (paragraph 18 of AASB 1):

(a)      fair value at the date of transition to Australian equivalents to IFRSs (paragraph 16 of AASB 1), in which case the entity gives the disclosures required by paragraph 44 of AASB 1; or

(b)      a revaluation under previous GAAP that meets the criteria in paragraph 17 of AASB 1.

IG51  If an entity’s amortisation methods and rates under previous GAAP would be acceptable under Australian equivalents to IFRSs, the entity does not restate the accumulated amortisation in its opening Australian-equivalents-to-IFRSs statement of financial position.  Instead, the entity accounts for any change in estimated useful life or amortisation pattern prospectively from the period when it makes that change in estimate (paragraph 31 of AASB 1 and paragraph 104 of AASB 138).  However, in some cases, an entity’s amortisation methods and rates under previous GAAP may differ from those that would be acceptable under Australian equivalents to IFRSs.  If those differences have a material effect on the financial statements, the entity adjusts the accumulated amortisation in its opening Australian-equivalents-to-IFRSs statement of financial position retrospectively so that it complies with Australian equivalents to IFRSs (paragraph 31 of AASB 1).

AASB 139 Financial Instruments: Recognition and Measurement

IG52  An entity recognises and measures all financial assets and financial liabilities in its opening Australian-equivalents-to-IFRSs statement of financial position in accordance with AASB 139, except as specified in paragraphs 27-30 of AASB 1, which address derecognition and hedge accounting.

Recognition

IG53  An entity recognises all financial assets and financial liabilities (including all derivatives) that qualify for recognition under AASB 139 and have not yet qualified for derecognition under AASB 139, except non-derivative financial assets and non-derivative financial liabilities derecognised under previous GAAP before 1 January 2004, to which the entity does not choose to apply paragraph 27A (see paragraphs 27 and 27A of AASB 1).  For example, an entity that does not apply paragraph 27A does not recognise assets transferred in a securitisation, transfer or other derecognition transaction that occurred before 1 January 2004 if those transactions qualified for derecognition under previous GAAP.  However, if the entity uses the same securitisation arrangement or other derecognition arrangements for further transfers after 1 January 2004, those further transfers qualify for derecognition only if they meet the derecognition criteria of AASB 139.

IG54  An entity does not recognise financial assets and financial liabilities that do not qualify for recognition under AASB 139, or have already qualified for derecognition under AASB 139.

Embedded derivatives

IG55  When AASB 139 requires an entity to separate an embedded derivative from a host contract, the initial carrying amounts of the components at the date when the instrument first satisfies the recognition criteria in AASB 139 reflect circumstances at that date (paragraph 11, AASB 139).  If the entity cannot determine the initial carrying amounts of the embedded derivative and host contract reliably, it treats the entire combined contract as a financial instrument held for trading (paragraph 12, AASB 139).  This results in fair value measurement (except when the entity cannot determine a reliable fair value, see paragraph 46(c), AASB 139), with changes in fair value recognised in profit or loss.

Measurement

IG56  In preparing its opening Australian-equivalents-to-IFRSs statement of financial position, an entity applies the criteria in AASB 139 to identify those financial assets and financial liabilities that are measured at fair value and those that are measured at amortised cost.  In particular:

(a)      to comply with paragraph 51, AASB 139, classification of financial assets as held-to-maturity investments relies on a designation made by the entity in applying AASB 139 reflecting the entity’s intention and ability at the date of transition to Australian equivalents to IFRSs.  It follows that sales or transfers of held-to-maturity investments before the date of transition to Australian equivalents to IFRSs do not trigger the ‘tainting’ rules in paragraph 9, AASB 139;

(b)      to comply with paragraph 9, AASB 139, the category of ‘loans and receivables’ refers to the circumstances when the financial asset first satisfied the recognition criteria in AASB 139;

(c)       under paragraph 9, AASB 139, derivative financial assets and derivative financial liabilities are always deemed held for trading (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).  The result is that an entity measures at fair value all derivative financial assets and derivative financial liabilities that are not financial guarantee contracts;

(d)      to comply with AASB 139, paragraph 50, an entity classifies a non-derivative financial asset or non-derivative financial liability in its opening Australian-equivalents-to-IFRSs statement of financial position as at fair value through profit or loss only if the asset or liability was:

(i)        acquired or incurred principally for the purpose of selling or repurchasing it in the near term;

(ii)       at the date of transition to Australian equivalents to IFRSs, part of a portfolio of identified financial instruments that were managed together and for which there was evidence of a recent actual pattern of short-term profit-taking; or

(iii)      designated as at fair value through profit or loss at the date of transition to Australian equivalents to IFRSs, for an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 January 2006; or

(iv)     designated as at fair value through profit or loss at the start of its first Australian-equivalents-to-IFRSs reporting period, for an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning before 1 January 2006 and applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the amendments made to paragraphs 9, 12 and 13 of AASB 139 by AASB 2005-4 Amendments to Australian Accounting Standards.  If the entity restates comparative information for AASB 139 it shall restate the comparative information only if the financial assets or financial liabilities designated at the start of its first Australian-equivalents-to-IFRSs reporting period would have met the criteria for such designation in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at the date of transition to Australian equivalents to IFRSs or, if acquired after the date of transition to Australian equivalents to IFRSs, would have met the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A at the date of initial recognition.  For groups of financial assets, financial liabilities or both that are designated in accordance with paragraph 9(b)(ii) of AASB 139 at the start of the first Australian-equivalents-to-IFRSs reporting period, the comparative financial statements should be restated for all the financial assets and financial liabilities within the groups at the date of transition to Australian equivalents to IFRSs even if individual financial assets or liabilities within a group were derecognised during the comparative period; and

(e)       to comply with paragraph 9, AASB 139, available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale and those non-derivative financial assets that are not in any of the previous categories.

IG57  For those financial assets and financial liabilities measured at amortised cost in the opening Australian-equivalents-to-IFRSs statement of financial position, an entity determines their cost on the basis of circumstances existing when the assets and liabilities first satisfied the recognition criteria in AASB 139.  However, if the entity acquired those financial assets and financial liabilities in a past business combination, their carrying amount under previous GAAP immediately following the business combination is their deemed cost under Australian equivalents to IFRSs at that date (paragraph B2(e), Appendix B, AASB 1).

IG58  An entity’s estimates of loan impairments at the date of transition to Australian equivalents to IFRSs are consistent with estimates made for the same date under previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those assumptions were in error (paragraph 31 of AASB 1).  The entity treats the impact of any later revisions to those estimates as impairment losses (or, if the criteria in AASB 139 are met, reversals of impairment losses) of the period in which it makes the revisions.

Transition adjustments

IG58A An entity shall treat an adjustment to the carrying amount of a financial asset or financial liability as a transition adjustment to be recognised in the opening balance of retained earnings at the date of transition to Australian equivalents to IFRSs only to the extent that it results from adopting AASB 139.  Because all derivatives, other than those that are financial guarantee contracts or are designated and effective hedging instruments, are classified as held for trading, the differences between the previous carrying amount (which may have been zero) and the fair value of the derivatives are recognised as an adjustment of the balance of retained earnings at the beginning of the financial year in which this Standard is initially applied (other than for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

IG58B AASB 108 applies to adjustments resulting from changes in estimates.  If an entity is unable to determine whether a particular portion of the adjustment is a transition adjustment or a change in estimate, it treats that portion as a change in accounting estimate under AASB 108, with appropriate disclosure (paragraphs 32‑40, AASB 108).

IG59  An entity may, under its previous GAAP, have measured investments at fair value and recognised the revaluation gain outside profit or loss.  If an investment is classified as at fair value through profit or loss, the pre-AASB 139 revaluation gain that had been recognised outside profit or loss is reclassified into retained earnings on initial application of AASB 139.  If, on initial application of AASB 139, an investment is classified as available for sale, then the pre-AASB 139 revaluation gain is recognised in a separate component of equity.  Subsequently, the entity recognises gains and losses on the available-for-sale financial asset in other comprehensive income and accumulates the cumulative gains and losses in that separate component of equity until the investment is impaired, sold, collected or otherwise disposed of.  On subsequent derecognition or impairment of the available-for-sale financial asset, the entity reclassifies to profit or loss the cumulative gain or loss remaining in equity (paragraph 55(b), AASB 139).

Hedge accounting

IG60  Paragraphs 28-30 of AASB 1 deal with hedge accounting.  The designation and documentation of a hedge relationship must be completed on or before the date of transition to Australian equivalents to IFRSs if the hedge relationship is to qualify for hedge accounting from that date.  Hedge accounting can be applied prospectively only from the date that the hedge relationship is fully designated and documented.

IG60A An entity may, under its previous GAAP, have deferred or not recognised gains and losses on a fair value hedge of a hedge item that is not measured at fair value.  For such a fair value hedge, an entity adjusts the carrying amount of the hedged item at the date of transition to Australian equivalents to IFRSs.  The adjustment is the lower of:

(a)      that portion of the cumulative change in the fair value of the hedged item that reflects the designated hedged risk and was not recognised under previous GAAP; and

(b)      that portion of the cumulative change in the fair value of the hedging instrument that reflects the designated hedged risk and, under previous GAAP, was either:

(i)        not recognised; or

(ii)       deferred in the statement of financial position as an asset or liability.

IG60B An entity may, under its previous GAAP, have deferred gains and losses on a cash flow hedge of a forecast transaction.  If, at the date of transition to Australian equivalents to IFRSs, the hedged forecast transaction is not highly probable, but is expected to occur, the entire deferred gain or loss is recognised in equity.  Any net cumulative gain or loss that has been reclassified to equity on initial application of AASB 139 remains in equity until (a) the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, (b) the forecast transaction affects profit or loss or (c) subsequently circumstances change and the forecast transaction is no longer expected to occur, in which case any related net cumulative gain or loss is reclassified from equity to profit or loss.  If the hedging instrument is still held, but the hedge does not qualify as a cash flow hedge under AASB 139, hedge accounting is no longer appropriate starting from the date of transition to Australian equivalents to IFRSs.

AASB 140 Investment Property

IG61  An entity that adopts the fair value model in AASB 140 measures its investment property at fair value at the date of transition to Australian equivalents to IFRSs.

IG62  An entity that adopts the cost model in AASB 140 applies AASB 116 (see paragraphs IG7-IG13 on property, plant and equipment).

Explanation of transition to Australian equivalents to IFRSs

IG63  Paragraphs 39(a) and (b), 40 and 41 of AASB 1 require a first-time adopter to disclose reconciliations that give sufficient detail to enable users to understand the material adjustments to the statement of financial position, statement of comprehensive income and, if applicable, statement of cash flows.  Paragraph 39(a) and (b) requires specific reconciliations of equity and total comprehensive income.  IG Example 11 shows one way of satisfying these requirements.


 

IG Example 11:  Reconciliation of equity and profit or loss

BACKGROUND

An entity first adopted Australian equivalents to IFRSs in 20X5/6, with a date of transition to Australian equivalents to IFRSs of 1 July 20X4.  Its last financial statements under previous GAAP was for the year ended 30 June 20X5.

APPLICATION OF REQUIREMENTS

The entity’s first Australian-equivalents-to-IFRSs financial statements include the reconciliations and related notes shown below.

Among other things, this example includes a reconciliation of equity at the date of transition to Australian equivalents to IFRSs (1 July 20X4).  AASB 1 also requires a reconciliation at the end of the last period presented under previous GAAP (not included in this example).

In practice, it may be helpful to include cross-references to accounting policies and supporting analyses that give further explanation of the adjustments shown in the reconciliations below.

If a first-time adopter becomes aware of errors made under previous GAAP, the reconciliations distinguish the correction of those errors from changes in accounting policies (paragraph 41 of AASB 1).  This example does not illustrate disclosure of a correction of an error.

continued

 


NOTE 2:  RECONCILIATION OF EQUITY AT 1 JULY 20X4
(date of transition to Australian equivalents to IFRSs)

Note

 

Previous
GAAP

1 Jul 20X4

Effect of transition to Australian equivalents to IFRSs

Australian equivalents to IFRSs

1 Jul 20X4

 

Cash and cash equivalents

748

748

 

Trade receivables

3,710

3,710

2.1

Other receivables

333

431

764

 

Inventories

2,962

2,962

 

Total current assets

7,753

431

8,184

 

 

 

 

 

2.2

Financial assets

3,471

420

3,891

 

Property, plant & equipment

8,299

8,299

2.3

Goodwill

1,220

150

1,370

2.3

Intangible assets

208

(150)

58

 

Total non-current assets

13,198

420

13,618

 

Total assets

20,951

851

21,802

 

 

 

 

 

 

Trade payables

4,124

4,124

 

Current other payables

42

42

2.4

Restructuring provision

250

(250)

 

Total current liabilities

4,416

(250)

4,166

 

 

 

 

 

 

Interest-bearing loans

9,396

9,396

2.5

Employee benefits

66

66

2.6

Deferred tax liability

579

310

889

 

Total non-current liabilities

9,975

376

10,351

 

Total liabilities

14,391

126

14,517

 

Net assets

6,560

725

7,285

 

 

 

 

 

 

Issued capital

1,500

1,500

2.2

Other reserves

294

294

2.1

Hedging reserve

302

302

2.7

Retained earnings

5,060

129

5,189

 

Total equity

6,560

725

7,285

 

 

 

 

continued

 

Notes to the reconciliation of equity at 1 July 20X4:

2.1      Unrealised gains of 431 on unmatured forward foreign exchange contracts are recognised under Australian equivalents to IFRSs, but were not recognised under previous GAAP.  The resulting gains of 302 (431, less related deferred tax of 129) are included in the hedging reserve because the contracts hedge forecast sales.

2.2      Financial assets are all classified as available-for-sale under Australian equivalents to IFRSs and are carried at their fair value of 3,891.  They were carried at cost of 3,471 under previous GAAP.  The resulting gains of 294 (420, less related deferred tax of 126) are included in the other reserves.

2.3      Intangible assets under previous GAAP included 150 for items that are transferred to goodwill because they do not qualify for recognition as intangible assets under Australian equivalents to IFRSs.

2.4      A restructuring provision of 250 relating to a detailed formal plan drawn up in the three months following the date of a business acquisition was recognised under previous GAAP, but does not qualify for recognition as a liability under Australian equivalents to IFRSs.

2.5      A pension liability of 66 is recognised under Australian equivalents to IFRSs, but was not recognised under previous GAAP, which used a cash basis.

2.6      The above changes increased the deferred tax liability as follows:

               Other reserves (note 2.2)                                          126

               Hedging reserve (note 2.1)                                       129

               Retained earnings                                                      55

               Increase in deferred tax liability                             310

Because the tax base at 1 July 20X4 of the items reclassified from intangible assets to goodwill (note 2.3) equalled their carrying amount at that date, the reclassification did not affect deferred tax liabilities.

2.7      The adjustments to retained earnings are as follows:

               Pension liability (note 2.5)                                       (66)

               Restructuring provision (note 2.4)                          250

               Tax effect of the above                                            (55)

               Total adjustment to retained earnings                  129

continued

 

NOTE 3:  RECONCILIATION OF TOTAL COMPREHENSIVE INCOME FOR 20X4/5

Note

Year ended 30 June 20X5

 

 

Previous
GAAP

Effect of transition to Australian equivalents to IFRSs

Australian equivalents to IFRSs

 

Revenue

20,910

20,910

3.1

Cost of Sales

(15,283)

(50)

(15,333)

 

Gross Profit

5,627

(50)

5,577

3.1

Distribution costs

(1,907)

(30)

(1,937)

3.1

Administration expenses

(2,842)

(50)

(2,892)

3.2

Restructuring expense

(250)

(250)

 

Finance income

1,446

1,446

 

Finance costs

(1,902)

(1,902)

 

Profit before income tax

422

(380)

42

3.3

Tax expense

(158)

114

(44)

 

Profit (loss) for the year

264

(266)

(2)

3.4

Available-for-sale financial assets

150

150

3.5

Cash flow hedges

(40)

(40)

3.6

Tax relating to other comprehensive income

(29)

(29)

 

Other comprehensive income

81

81

 

Total comprehensive income

264

(185)

79

 

 

 

 

 

Notes to the reconciliation of total comprehensive income for 20X4/5:

3.1      A pension liability is recognised under Australian equivalents to IFRSs, but was not recognised under previous GAAP.  The pension liability increased by 130 during 20X4/5, from 66 at 1 July 20X4 to 196 at 30 June 20X5.  This caused increases in cost of sales (50), distribution costs (30) and administrative expenses (50).

continued

3.2      A restructuring provision of 250 was recognised under previous GAAP at 1 July 20X4, but did not qualify for recognition under Australian equivalents to IFRSs at the date of transition (see note 2.4).  However, in the year ended 30 June 20X5, the provision met the recognition criteria and this increased expenses for 20X4/5 under Australian equivalents to IFRSs.

3.3      Adjustments 3.1 and 3.2 above lead to a reduction of 114 in deferred tax expense.

3.4      Available-for-sale financial assets carried at fair value under Australian equivalents to IFRSs increased in value by 180 during 20X4/5.  They were carried at cost under previous GAAP.  The entity sold available-for-sale financial assets during the year, recognising a gain of 40 in profit or loss.  Of that realised gain, 30 had been included in the revaluation surplus as at 1 July 20X4 and is reclassified from revaluation surplus to profit or loss (as a reclassification adjustment).

3.5      The fair value of forward foreign exchange contracts that are effective hedges of forecast transactions decreased by 40 during 20X4.

3.6      Adjustments 3.4 and 3.5 above lead to an increase of 29 in deferred tax expense.

NOTE 4:  EXPLANATION OF MATERIAL ADJUSTMENTS TO THE STATEMENT OF CASH FLOWS FOR 20X4/5

There are no material differences between the statement of cash flows presented under Australian equivalents to IFRSs and the statement of cash flows presented under previous GAAP.

 

AASB 2 Share-based Payment

IG64  A first-time adopter is encouraged, but not required, to apply AASB 2 Share-based Payment to equity instruments that were granted after 7 November 2002 that vested before the later of (a) the date of transition to Australian equivalents to IFRSs and (b) 1 January 2005.

IG65  For example, if an entity’s date of transition to Australian equivalents to IFRSs is 1 July 2004, the entity applies AASB 2 to shares, share options or other equity instruments that were granted after 7 November 2002 and had not yet vested at 1 January 2005.  Conversely, if an entity’s date of transition to Australian equivalents to IFRSs is 1 July 2010, the entity applies AASB 2 to shares, share options or other equity instruments that were granted after 7 November 2002 and had not yet vested at 1 July 2010.

Australian Interpretations Corresponding to IASB Interpretations

Australian Interpretations corresponding to the IASB Interpretations are identified in AASB 1048 Interpretation and Application of Standards.

Changes in existing decommissioning, restoration and similar liabilities

IG201    AASB 116 Property, Plant and Equipment requires the cost of an item of property, plant and equipment to include the initial estimate of the costs of dismantling and removing the asset and restoring the site on which it is located.  AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires the liability, both initially and subsequently, to be measured at the amount required to settle the present obligation at the end of the reporting period, reflecting a current market-based discount rate.

IG202    Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities, identified in AASB 1048 as corresponding to IFRIC 1, requires that, subject to specified conditions, changes in an existing decommissioning, restoration or similar liability are added to or deducted from the cost of the related asset.  The resulting depreciable amount of the asset is depreciated over its useful life, and the periodic unwinding of the discount on the liability is recognised in profit or loss as it occurs.

IG203    Paragraph 25E of AASB 1 provides a transitional exemption.  Instead of retrospectively accounting for changes in this way, entities can include in the depreciated cost of the asset an amount calculated by discounting the liability at the date of transition to Australian equivalents to IFRSs back to, and depreciating it from, when the liability was first incurred.  IG Example 201 illustrates the effect of applying this exemption, assuming that the entity accounts for its property, plant and equipment using the cost model.

IG Example 201:  Changes in existing decommissioning, restoration and similar liabilities

BACKGROUND

An entity’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 30 June 20X6 and include comparative information for 20X4/X5 only.  Its date of transition to Australian equivalents to IFRSs is therefore 1 July 20X4.

The entity acquired an energy plant on 1 July 20X1, with a life of 40 years.

As at the date of transition to Australian equivalents to IFRSs, the entity estimates the decommissioning cost in 37 years’ time to be 470, and estimates that the appropriate risk-adjusted discount rate for the liability is 5 per cent.  It judges that the appropriate discount rate has not changed since 1 July 20X1.

APPLICATION OF REQUIREMENTS

The decommissioning liability recognised at the transition date is 77 (470 discounted for 37 years at 5 per cent).

Discounting this liability back for a further three years to 1 July 20X1 gives an estimated liability at acquisition, to be included in the cost of the asset, of 67.  Accumulated depreciation on the asset is 67 ´ 3/40 = 5.

The amounts recognised in the opening Australian-equivalents-to-IFRSs statement of financial position on the date of transition to Australian equivalents to IFRSs (1 July 20X4) are, in summary:

Decommissioning cost included in cost of plant                          67

Accumulated depreciation                                                               (5)

Decommissioning liability                                                                 (77)

Net assets/retained earnings                                                             (15)

 

Determining whether an arrangement contains a lease

IG204    Interpretation 4 Determining whether an Arrangement contains a Lease, identified in AASB 1048 as corresponding to IFRIC 4, specifies criteria for determining, at the inception of an arrangement, whether the arrangement contains a lease.  It also specifies when an arrangement should be reassessed subsequently.

IG205    Paragraph 25F of AASB 1 provides a transitional exemption.  Instead of determining retrospectively whether an arrangement contains a lease at the inception of the arrangement and subsequently reassessing that arrangement as required in the periods before transition to Australian equivalents to IFRSs, entities may determine whether arrangements in existence on the date of transition to Australian equivalents to IFRSs contain leases by applying paragraphs 6-9 of Interpretation 4 to those arrangements on the basis of facts and circumstances existing on that date.

IG Example 202:  Determining whether an arrangement contains a lease

BACKGROUND

An entity’s first Australian-equivalents-to-IFRSs financial statements are for a period that ends on 31 December 20Y5 and include comparative information for 20Y4 only.  Its date of transition to Australian equivalents to IFRSs is therefore 1 January 20Y4.

On 1 January 20X5, the entity entered into a take-or-pay arrangement to supply gas.  On 1 January 20Y0, there was a change in the contractual terms of the arrangement.

APPLICATION OF REQUIREMENTS

On 1 January 20Y4, the entity may determine whether the arrangement contains a lease by applying the criteria in paragraphs 6-9 of Interpretation 4 on the basis of facts and circumstances existing on that date.  Alternatively, the entity applies those criteria on the basis of facts and circumstances existing on 1 January 20X5 and reassesses the arrangement on 1 January 20Y0.  If the arrangement is determined to contain a lease, the entity follows the guidance in paragraphs IG14-IG16.

 


endnoteS

Endnotes are part of AASB 1

AASB 2009-11 early application amendments

1         Australian Accounting Standard AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 may be applied early to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2013, provided AASB 9 Financial Instruments (2009) is also applied to such periods.

2         The early application amendments to AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004) are set out in paragraph 3 below for application if AASB 2009-11 is applied in conjunction with AASB 9, provided AASB 1 First-time Adoption of Australian Accounting Standards (May 2009) is not applied to such periods.

3         Paragraphs 25A, 26 and 43A are amended (new text is underlined and deleted text is struck through) and paragraph 25AA, a heading and paragraphs 34D-34G, a heading above paragraph 36D and paragraphs 36D, 36E and 47M are added.

25A    AASB 139 permits a financial asset liability to be designated on initial recognition as available for sale or a financial instrument (provided it meets certain criteria) to be designated as a financial asset or financial liability at fair value through profit or loss provided it meets certain criteria. Despite this requirement, a first-time adopter of Australian Accounting Standards exceptions apply in the following circumstances,

(a)      any entity is permitted to make an available-for-sale designation at the date of transition to Australian equivalents to IFRSs.

(b)      an entity that presents its first Australian-equivalents-to-IFRSs financial statements for an annual period beginning on or after 1 September 2006—such an entity is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9(b)(ii) or 11A of AASB 139 at that date.

(c)       an entity that presents ...

(e)       ... at the same time they are designated as at fair value through profit or loss.

25AA AASB 9 Financial Instruments permits a financial asset to be designated on initial recognition as a financial asset measured at fair value through profit or loss provided that the financial asset meets the criterion in paragraph 4.5 of AASB 9. Despite this requirement, a first-time adopter of Australian equivalents to IFRSs is permitted to designate, at the date of transition to Australian equivalents to IFRSs, any financial asset as measured at fair value through profit or loss provided the asset meets the criterion in paragraph 4.5 of AASB 9 at that date.

26       This Standard prohibits retrospective application of some aspects of other Australian equivalents to IFRSs relating to:

(a)      …

(d)      assets classified as held for sale and discontinued operations (paragraphs 34A and 34B); and

(e)       some aspects of accounting for non-controlling interests (paragraph 34C).; and

(f)       classification and measurement of financial assets (paragraphs 34D-34G).

Classification and measurement of financial assets

34D    An entity shall assess whether a financial asset meets the conditions in paragraph 4.2 of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian equivalents to IFRSs.

34E    An entity may designate a financial asset as measured at fair value through profit or loss in accordance with paragraph 4.5 of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian equivalents to IFRSs.

34F    An entity may designate an investment in an equity instrument as at fair value through other comprehensive income in accordance with paragraph 5.4.4 of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian equivalents to IFRSs.

34G    If it is impracticable (as defined in AASB 108) for an entity to apply retrospectively the effective interest method or the impairment requirements in paragraphs 58-65 and AG84-AG93 of AASB 139, the fair value of the financial asset at the date of transition to IFRSs shall be the new amortised cost of that financial asset at the date of transition to Australian equivalents to IFRSs.

Exemption from the requirement to restate comparative information for AASB 9

36D    In its first Australian-equivalents-to-IFRSs financial statements, an entity that (a) adopts Australian equivalents to IFRSs for annual periods beginning before 1 January 2012 and (b) applies AASB 9 shall present at least one year of comparative information. However, this comparative information need not comply with AASB 9 or AASB 7, to the extent that the disclosures required by AASB 7 relate to assets within the scope of AASB 9. For such entities, references to the ‘date of transition to Australian equivalents to IFRSs’ shall mean, in the case of AASB 9 and AASB 7 only, the beginning of the first Australian-equivalents-to-IFRSs reporting period.

36E    An entity that chooses to present comparative information that does not comply with AASB 9 and AASB 7 in its first year of transition shall:

(a)      apply the recognition and measurement requirements of its previous GAAP in place of the requirements of AASB 139 and AASB 9 to comparative information about assets within the scope of AASB 9.

(b)      disclose this fact together with the basis used to prepare this information.

(c)       treat any adjustment between the statement of financial position at the comparative period’s reporting date (i.e. the statement of financial position that includes comparative information under previous GAAP) and the statement of financial position at the start of the first Australian-equivalents-to-IFRSs reporting period (i.e. the first period that includes information that complies with AASB 9 and AASB 7) as arising from a change in accounting policy and give the disclosures required by paragraph 28(a)-(e) and (f)(i) of AASB 108. Paragraph 28(f)(i) applies only to amounts presented in the statement of financial position at the comparative period’s reporting date.

(d)      apply paragraph 17(c) of AASB 101 to provide additional disclosures when compliance with the specific requirements in Australian equivalents to IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

43A    An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability as measured at fair value through profit or loss in accordance with paragraph 25AA or a previously recognised financial liability as a financial liability at fair value through profit or loss or a financial asset as available for sale in accordance with paragraph 25A. The entity shall disclose the fair value of financial assets or financial liabilities so designated into each category at the date of designation and their classification and carrying amount in the previous financial statements.

47M   AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9, issued in December 2009, amended paragraphs 25A, 26 and 43A and added paragraphs 25AA, 34D–34G, 36D and 36E. An entity shall apply those amendments when it applies AASB 9.

 



[1]      Such changes include reclassifications from or to intangible assets if goodwill was not recognised under previous GAAP as an asset.  This arises if, under previous GAAP, the entity (a) deducted goodwill directly from equity or (b) did not treat the business combination as an acquisition.

[2]      [Aus]  Notwithstanding paragraph IG23 of this Standard, in accordance with AASB 123 (as amended by AASB 2009-1 Amendments to Australian Accounting Standards – Borrowing Costs of Not-for-Profit Public Sector Entities) a not-for-profit public sector entity may choose to expense borrowing costs.