Accounting Standards arising from AASB 13 Tier 2 Proposals.doc

Accounting Standards arising from AASB 13 Tier 2 ProposalsAASB Exposure Draft ED 219 September 2011 AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13: Tier 2 Proposals Comments to AASB by 5 December 2011 Invitation to Comment Comments on this Tier 2 AASB Exposure Draft ED 219 AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13: Tier 2 Proposals are requested by 5 December 2011. Comments for Part A and B of this Exposure Draft should be provided separately. Comments should be addressed to: The Chairman Australian Accounting Standards Board PO Box 204 Collins Street West Victoria 8007 AUSTRALIA E-mail: standardaasb.gov.au All submissions on possible, proposed or existing financial reporting requirements, or on the standard-setting process, will be placed on the public record unless the Chairman of the AASB agrees to those submissions being treated as confidential. The latter will only occur if the public interest warrants such treatment. Obtaining a Copy of this Tier 2 AASB Exposure Draft This Tier 2 AASB Exposure Draft ED 219 is available on the AASB website: .aasb.gov.au. Alternatively, printed copies of this Exposure Draft are available by contacting: The Customer Service Officer Phone: (03) 9617 7637 Australian Accounting Standards Board Fax: (03) 9617 7608 Level 7 E-mail: publicationsaasb.gov.au 600 Bourke Street Postal address: Melbourne Victoria PO Box 204 AUSTRALIA Collins Street West Victoria 8007 Other Enquiries Phone: (03) 9617 7600 Fax: (03) 9617 7608 E-mail: standardaasb.gov.au COPYRIGHT ? Commonwealth of Australia 2011 This document 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 .ifrs.org. ISSN 1030-5882 Tier 2 AASB ED 219 2 Reduced Disclosure Requirements AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards; and (b) Tier 2: Australian Accounting Standards Reduced Disclosure Requirements (RDR). Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. In May 2011, the International Accounting Standards Board (IASB) published IFRS 13 Fair Value Measurement. IFRS 13 defines fair value, sets out in a single International Financial Reporting Standard (IFRS) a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 incorporates existing fair value measurement disclosure requirements from various IFRSs. However, some other IFRSs still retain some fair value related disclosures. Consistent with its policy of adopting IFRSs, in September 2011 the AASB published AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13, which incorporate IFRS 13. AASB 13 includes some new disclosure requirements and some disclosure requirements carried forward from existing Standards. AASB 13 also gives rise to amendments to other Standards, which are implemented through AASB 2011-8. This Tier 2 Exposure Draft includes Tier 2 proposals in relation to disclosure requirements in AASB 13 and consequential amendments to disclosure requirements of other Standards under AASB 2011-8. It comprises two parts: (a) Part A addresses the Tier 2 proposals in respect of the disclosures required by AASB 13; and (b) Part B addresses the Tier 2 proposals in respect of AASB 13 consequential amendments to disclosure requirements in other Standards implemented through AASB 2011-8. Analysis of proposed disclosures The AASBs conclusions in relation to the proposed Tier 2 disclosure requirements in Parts A and B of this Exposure Draft have been reached after applying its usual approach to the analysis of the disclosures required by AASB 13 and AASB 2011-8 compared with the disclosures set out in the IASBs IFRS for SMEs and application of the Tier 2 Disclosure Principles. Those principles and that analysis are available on the AASB website under Work in Progress/Reduced Disclosure Requirements. AASB Specific Matters for Comment The purpose of this Tier 2 AASB ED 219 AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13: Tier 2 Proposals is to seek comment on the disclosure requirements in AASB 13 that are proposed to apply to entities applying Tier 2 requirements (Part A) and on the proposed changes to Tier 2 disclosure requirements of other Standards arising from the AASB 13 consequential amendments to these Standards (Part B). Submissions play an important role in the decisions that the AASB will make in regard to a Standard. The AASB would prefer that respondents supplement their opinions with detailed Tier 2 AASB ED 219 3 comments, whether supportive or critical, on the major issues. The AASB regards both critical and supportive comments as essential to a balanced review and will consider all submissions, whether they address all specific matters, additional issues or only one issue. The AASB would particularly value comments on the following. Please comment on Part A and Part B separately: 1. whether you agree with the AASB disclosure proposals in relation to entities applying Tier 2 requirements as set out in the Proposed Reduced Disclosure Requirements sections in Parts A and B below; 2. whether there are any regulatory issues or other issues arising in the Australian environment that may affect the implementation of these proposals, particularly any issues relating to: (a) not-for-profit entities; and (b) public sector entities; 3. whether, overall, these proposals would result in financial statements that would be useful to users; 4. whether these proposals are in the best interests of the Australian economy; and 5. unless already provided in response to specific matters for comment 1-4 above, the costs and benefits of the proposals, whether quantitative (financial or non-financial) or qualitative. PART A ? Tier 2 proposals in respect of the disclosures required by AASB 13 The purpose of Part A is to seek comment on the disclosure requirements in AASB 13 that are proposed to apply to entities applying Tier 2 requirements. There is no equivalent section in the IFRS for SMEs for AASB 13, although in some sections of the IFRS for SMEs there is fair value measurement guidance and disclosure requirements. The basis of measurement in AASB 13 is fair value, which does not differ from the related fair value measurement basis applied in various sections of the IFRS for SMEs. Proposed Reduced Disclosure Requirements Under the proposals in Part A of this Exposure Draft, entities applying Tier 2 requirements would be exempt from making the disclosure requirements in paragraphs 91(b), 93(b)-93(i), 95 and 97-99 of AASB 13. The disclosure requirements in AASB 13 are provided below. Entities applying Tier 2 requirements are proposed to be exempted from applying disclosure requirements shown as shaded text. Proposed Reduced Disclosure Requirements: AASB 13 Fair Value Measurement 91. An entity shall disclose information that helps users of its financial statements assess both of the following: (a) for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements. (b) for recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period. Tier 2 AASB ED 219 4 92. To meet the objectives in paragraph 91, an entity shall consider all the following: (a) the level of detail necessary to satisfy the disclosure requirements; (b) how much emphasis to place on each of the various requirements; (c) how much aggregation or disaggregation to undertake; and (d) whether users of financial statements need additional information to evaluate the quantitative information disclosed. If the disclosures provided in accordance with this Standard and other Australian Accounting Standards are insufficient to meet the objectives in paragraph 91, an entity shall disclose additional information necessary to meet those objectives. 93. To meet the objectives in paragraph 91, an entity shall disclose, at a minimum, the following information for each class of assets and liabilities (see paragraph 94 for information on determining appropriate classes of assets and liabilities) measured at fair value (including measurements based on fair value within the scope of this Standard) in the statement of financial position after initial recognition: (a) for recurring and non-recurring fair value measurements, the fair value measurement at the end of the reporting period, and for non-recurring fair value measurements, the reasons for the measurement. Recurring fair value measurements of assets or liabilities are those that other Australian Accounting Standards require or permit in the statement of financial position at the end of each reporting period. Non-recurring fair value measurements of assets or liabilities are those that other Australian Accounting Standards require or permit in the statement of financial position in particular circumstances (eg when an entity measures an asset held for sale at fair value less costs to sell in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations because the assets fair value less costs to sell is lower than its carrying amount). (b) for recurring and non-recurring fair value measurements, the level of the fair value hierarchy within which the fair value measurements are categorised in their entirety (Level 1, 2 or 3). (c) for assets and liabilities held at the end of the reporting period that are measured at fair value on a recurring basis, the amounts of any transfers between Level 1 and Level 2 of the fair value hierarchy, the reasons for those transfers and the entitys policy for determining when transfers between levels are deemed to have occurred (see paragraph 95). Transfers into each level shall be disclosed and discussed separately from transfers out of each level. (d) for recurring and non-recurring fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation technique(s) and the inputs used in the fair value measurement. If there has been a change in valuation technique (eg changing from a market approach to an income approach or the use of an additional valuation technique), the entity shall disclose that change and the reason(s) for making it. For fair value measurements categorised within Level 3 of the fair value hierarchy, an entity shall provide quantitative information about the significant unobservable inputs used in the fair value measurement. An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (eg when an entity uses prices from prior transactions or third-party pricing information without adjustment). However, when providing this disclosure an entity cannot ignore quantitative unobservable inputs that are significant to the fair value measurement and are reasonably available to the entity. (e) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, a reconciliation from the opening balances to the closing balances, disclosing separately changes during the period attributable to the following: (i) total gains or losses for the period recognised in profit or loss, and the line item(s) in profit or loss in which those gains or losses are recognised. (ii) total gains or losses for the period recognised in other comprehensive income, and the line item(s) in other comprehensive income in which those gains or losses are recognised. (iii) purchases, sales, issues and settlements (each of those types of changes disclosed separately). (iv) the amounts of any transfers into or out of Level 3 of the fair value hierarchy, the reasons for those transfers and the entitys policy for determining when transfers between levels are deemed to have occurred (see paragraph 95). Transfers into Level 3 shall be disclosed and discussed separately from transfers out of Level 3. Tier 2 AASB ED 219 5 (7><f) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, the amount of the total gains or losses for the period in (e)(i) included in profit or loss that is attributable to the change in unrealised gains or losses relating to those assets and liabilities held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised. (g) for recurring and non-recurring fair value measurements categorised within Level 3 of the fair value hierarchy, a description of the valuation processes used by the entity (including, for example, how an entity decides its valuation policies and procedures and analyses changes in fair value measurements from period to period). (h) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy: (i) for all such measurements, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. If there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, an entity shall also provide a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. To comply with that disclosure requirement, the narrat