Federal Register of Legislation - Australian Government

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AASB 2017-6 Standards/Accounting & Auditing as made
This standard amends AASB 9 to permit entities to measure at amortised cost or fair value through other comprehensive income particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of a prepayment feature.
Administered by: Treasury
Exempt from sunsetting by the Legislation (Exemptions and Other Matters) Regulation 2015 s12 item 18
Made 12 Dec 2017
Registered 30 Jan 2018
Tabled HR 05 Feb 2018
Tabled Senate 05 Feb 2018


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© Commonwealth of Australia 2017

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ISSN 1036-4803


Contents

Preface

Accounting Standard

AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation

 

from page

Objective                                                                                                                                                                              5

Application                                                                                                                                                                         5

Amendments to AASB 9                                                                                                                                                 5

Commencement of the legislative instrument                                                                                  8

 

Available on the AASB website

Basis for Conclusions on IFRS 9 – Amendments

 

 

Australian Accounting Standard AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation is set out on pages 5 – 8. All the paragraphs have equal authority.

 


Preface

Standards amended by AASB 2017-6

This Standard makes amendments to AASB 9 Financial Instruments (December 2014).

These amendments arise from the issuance of International Financial Reporting Standard Prepayment Features with Negative Compensation (Amendments to IFRS 9) by the International Accounting Standards Board (IASB) in October 2017.

Main features of this Standard

Main requirements

This Standard amends AASB 9 to permit entities to measure at amortised cost or fair value through other comprehensive income particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of a prepayment feature. This is subject to meeting other conditions, such as the nature of the business model relevant to the financial asset. Otherwise, the financial assets would be measured at fair value through profit or loss.

Application date

This Standard applies to annual periods beginning on or after 1 January 2019.  Earlier application is permitted.

 


Accounting Standard AASB 2017-6

The Australian Accounting Standards Board makes Accounting Standard AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation under section 334 of the Corporations Act 2001.

 

Kris Peach

Dated 12 December 2017

Chair – AASB

Accounting Standard AASB 2017-6

Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation

Objective

This Standard amends Australian Accounting Standard AASB 9 Financial Instruments (December 2014) as a consequence of the issuance of International Financial Reporting Standard Prepayment Features with Negative Compensation (Amendments to IFRS 9) by the International Accounting Standards Board in October 2017.

Application

The amendments set out in this Standard apply to entities and financial statements in accordance with the application of AASB 9 set out in AASB 1057 Application of Australian Accounting Standards (as amended).

This Standard applies to annual periods beginning on or after 1 January 2019.

This Standard may be applied to annual periods beginning before 1 January 2019.  When an entity applies this Standard to such an annual period, it shall disclose that fact.

This Standard uses underlining, striking out and other typographical material to identify some of the amendments to a Standard, in order to make the amendments more understandable.  However, the amendments made by this Standard do not include that underlining, striking out or other typographical material.  Ellipses (…) are used to help provide the context within which amendments are made and also to indicate text that is not amended.

Amendments to AASB 9

Paragraph 7.1.7 is added. A new heading and paragraphs 7.2.29–7.2.34 are added.

Chapter 7 Effective date and transition

                

7.1.7        AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation, issued in December 2017, added paragraphs 7.2.29–7.2.34 and B4.1.12A and amended paragraphs B4.1.11(b) and B4.1.12(b). An entity shall apply these amendments for annual periods beginning on or after 1 January 2019. Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact.

                

Transition for Prepayment Features with Negative Compensation

7.2.29      An entity shall apply AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation retrospectively in accordance with AASB 108, except as specified in paragraphs 7.2.30–7.2.34.

7.2.30      An entity that first applies these amendments at the same time it first applies this Standard shall apply paragraphs 7.2.1–7.2.28 instead of paragraphs 7.2.31–7.2.34.

7.2.31      An entity that first applies these amendments after it first applies this Standard shall apply paragraphs 7.2.32–7.2.34. The entity shall also apply the other transition requirements in this Standard necessary for applying these amendments. For that purpose, references to the date of initial application shall be read as referring to the beginning of the reporting period in which an entity first applies these amendments (date of initial application of these amendments).

7.2.32      With regard to designating a financial asset or financial liability as measured at fair value through profit or loss, an entity:

(a)            shall revoke its previous designation of a financial asset as measured at fair value through profit or loss if that designation was previously made in accordance with the condition in paragraph 4.1.5 but that condition is no longer satisfied as a result of the application of these amendments;

(b)            may designate a financial asset as measured at fair value through profit or loss if that designation would not have previously satisfied the condition in paragraph 4.1.5 but that condition is now satisfied as a result of the application of these amendments;

(c)             shall revoke its previous designation of a financial liability as measured at fair value through profit or loss if that designation was previously made in accordance with the condition in paragraph 4.2.2(a) but that condition is no longer satisfied as a result of the application of these amendments; and

(d)            may designate a financial liability as measured at fair value through profit or loss if that designation would not have previously satisfied the condition in paragraph 4.2.2(a) but that condition is now satisfied as a result of the application of these amendments.

Such a designation and revocation shall be made on the basis of the facts and circumstances that exist at the date of initial application of these amendments. That classification shall be applied retrospectively.

7.2.33      An entity is not required to restate prior periods to reflect the application of these amendments. The entity may restate prior periods if, and only if, it is possible without the use of hindsight and the restated financial statements reflect all the requirements in this Standard. If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application of these amendments in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application of these amendments.

7.2.34      In the reporting period that includes the date of initial application of these amendments, the entity shall disclose the following information as at that date of initial application for each class of financial assets and financial liabilities that were affected by these amendments:

(a)            the previous measurement category and carrying amount determined immediately before applying these amendments;

(b)            the new measurement category and carrying amount determined after applying these amendments;

(c)             the carrying amount of any financial assets and financial liabilities in the statement of financial position that were previously designated as measured at fair value through profit or loss but are no longer so designated; and

(d)            the reasons for any designation or de-designation of financial assets or financial liabilities as measured at fair value through profit or loss.


 

In Appendix B, paragraphs B4.1.11(b) and B4.1.12(b) are amended. Paragraph B4.1.12A is added. Paragraph B4.1.10 has not been amended but has been included for ease of reference. New text is underlined and deleted text is struck through.

Classification of financial assets (Section 4.1)

                

Contractual cash flows that are solely payments of principal and interest on the principal amount outstanding

                

Contractual terms that change the timing or amount of contractual cash flows

B4.1.10   If a financial asset contains a contractual term that could change the timing or amount of contractual cash flows (for example, if the asset can be prepaid before maturity or its term can be extended), the entity must determine whether the contractual cash flows that could arise over the life of the instrument due to that contractual term are solely payments of principal and interest on the principal amount outstanding. To make this determination, the entity must assess the contractual cash flows that could arise both before, and after, the change in contractual cash flows. The entity may also need to assess the nature of any contingent event (ie the trigger) that would change the timing or amount of the contractual cash flows. While the nature of the contingent event in itself is not a determinative factor in assessing whether the contractual cash flows are solely payments of principal and interest, it may be an indicator. For example, compare a financial instrument with an interest rate that is reset to a higher rate if the debtor misses a particular number of payments to a financial instrument with an interest rate that is reset to a higher rate if a specified equity index reaches a particular level. It is more likely in the former case that the contractual cash flows over the life of the instrument will be solely payments of principal and interest on the principal amount outstanding because of the relationship between missed payments and an increase in credit risk. (See also paragraph B4.1.18.)

B4.1.11   The following are examples of contractual terms that result in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding:

(a)            a variable interest rate that consists of consideration for the time value of money, the credit risk associated with the principal amount outstanding during a particular period of time (the consideration for credit risk may be determined at initial recognition only, and so may be fixed) and other basic lending risks and costs, as well as a profit margin;

(b)            a contractual term that permits the issuer (ie the debtor) to prepay a debt instrument or permits the holder (ie the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for the early termination of the contract; and

(c)             a contractual term that permits the issuer or the holder to extend the contractual term of a debt instrument (ie an extension option) and the terms of the extension option result in contractual cash flows during the extension period that are solely payments of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for the extension of the contract.

B4.1.12   Despite paragraph B4.1.10, a financial asset that would otherwise meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b) but does not do so only as a result of a contractual term that permits (or requires) the issuer to prepay a debt instrument or permits (or requires) the holder to put a debt instrument back to the issuer before maturity is eligible to be measured at amortised cost or fair value through other comprehensive income (subject to meeting the condition in paragraph 4.1.2(a) or the condition in paragraph 4.1.2A(a)) if:

(a)            the entity acquires or originates the financial asset at a premium or discount to the contractual par amount;

(b)            the prepayment amount substantially represents the contractual par amount and accrued (but unpaid) contractual interest, which may include reasonable additional compensation for the early termination of the contract; and

(c)             when the entity initially recognises the financial asset, the fair value of the prepayment feature is insignificant.

B4.1.12A               For the purpose of applying paragraphs B4.1.11(b) and B4.1.12(b), irrespective of the event or circumstance that causes the early termination of the contract, a party may pay or receive reasonable compensation for that early termination. For example, a party may pay or receive reasonable compensation when it chooses to terminate the contract early (or otherwise causes the early termination to occur).

Commencement of the legislative instrument

For legal purposes, this legislative instrument commences on 31 December 2018.