Outcome of ED 302Outcome of ED 302

## Outcome of ED 302 BC30 Following the consultation period, and after considering stakeholder comments, the Board decided to proceed with the proposals in ED 302, but with some significant changes. The Board’s bases for the proposals it decided to retain are articulated in the Basis for Conclusions accompanying ED 302, and are summarised here in paragraphs BC3-BC27. Accordingly, as noted in paragraph BC2(b), after providing an overview of the feedback received on ED 302, the remainder of this Basis for Conclusions focuses primarily on the significant proposals in ED 302 that the Board decided to change, and the rationale for doing so. It also addresses some issues raised by respondents to ED 302 that, although they did not give rise to changes to the proposals, warrant further explanation. Feedback from respondents on ED 302 BC31 The Board received 13 formal comment letters on ED 302, with a mix of views from respondents. BC32 A number of respondents expressed concern that the cost of implementing the ED 302 proposals would exceed any benefits. This was particularly the case for those for-profit private sector entities with a legislative requirement to comply with AAS, given the proposals for these entities were proposed to be effective from 1 July 2020 and therefore would apply for only one year. This was because, as noted above, the amendments in AASB 2020-2 removed the ability of these entities to prepare SPFS for annual reporting periods beginning on or after 1 July 2021. BC33 A number of respondents also expressed concern that the proposed effective date of 1 July 2020 would provide insufficient time for entities to prepare for the new requirements. Furthermore, some respondents suggested delaying the proposed effective date to align with the operative date of AASB 2020-2. This would effectively exclude entities with a legislative requirement to comply with AAS from the scope of the proposals as well. BC34 The Board considered this feedback and decided, for the reasons noted in paragraphs BC38 and BC39, it was appropriate to delay the effective date of the final amendments and in doing so exclude those entities with a legislative requirement to comply with AAS or accounting standards from the scope of the Standard. BC35 Other significant matters considered by the Board in making this and other decisions are addressed below. Scope BC36 The Board decided this Standard should apply only to those for-profit private sector entities required only by their constituting document or another document to prepare financial statements that comply with AAS, provided the relevant document was created before 1 July 2021 and not amended on or after that date. In paragraph BC85 of the Basis for Conclusions on AASB 2020-2, the Board explained that these entities were excluded from the scope of AASB 2020-2 and therefore permitted to continue preparing SPFS because they prepare financial statements for specific users, have no external regulator and the financial statements are not lodged on the public record. However, the Board remained concerned about the lack of transparency of SPFS that continue to refer to AAS. As a result, to help ensure users are adequately informed, it came to the view the SPFS of these entities should be required to disclose information about the extent of their compliance or otherwise with the R&M requirements in AAS. In addition, the Board noted anecdotally there would be some types of entities, such as securitised trading trusts, outside the scope of AASB 2020-2 (and therefore permitted to continue preparing SPFS) but lodging SPFS on the public record that are required only by their constituting document or another document to comply with AAS. Accordingly, in the absence of this Standard, there would be publicly available SPFS that do not necessarily specify whether or not they comply with R&M requirements of AAS, despite being required by a constituting or other document to comply with AAS. The Board was concerned this would not satisfy the needs of users. BC37 The Board also considered whether to broaden the scope of the requirements in this Standard to other entities that are not currently within the application paragraphs of AAS set out in AASB 1057, such as entities voluntarily preparing SPFS or entities preparing SPFS due to a requirement in their constituting document or another document to present a ‘true and fair view’ or to comply with ‘GAAP’ (whether generally accepted accounting principles or generally accepted accounting practices), without those terms being explicitly defined or specified as AAS. However, the Board decided the scope of this Standard should not include such entities for the same reasons it did not include them in the application paragraphs of AAS (see paragraph BC79 of the Basis for Conclusions on AASB 2020-2). BC38 As noted in paragraph BC34, the Board decided to exclude from the scope of this Standard for-profit private sector entities required by legislation to prepare financial statements that comply with either AAS or accounting standards (ie entities within the scope of AASB 2020-2). This acknowledges what would otherwise be a short-term effect of the proposals in ED 302 for these entities, caused by delays in the issue of this Standard due to the COVID-19 pandemic’s impact on the Board’s work program. The Board noted that, at the time of issuing ED 302, the implications of COVID-19 could not have been predicted. The basis for this decision is consistent with the reason for the earlier decision to exclude for-profit private sector entities from the scope of AASB 2019-4 (see paragraph BC47 of the Basis for Conclusions on AASB 2019-4). BC39 The Board concluded that excluding these entities from this Standard would allow them to use the extra time to prepare for transitioning to GPFS in accordance with AASB 2020-2 and it would be a reasonable and pragmatic way of providing some resource relief during the pandemic. The Board also concluded excluding these entities would have a limited adverse effect on users and, on that basis, the Board accepted the practical arguments expressed by some stakeholders that the introduction of new disclosure requirements for these entities would add unreasonable incremental time to prepare and audit SPFS for years ending on or after 30 June 2021. Disclosure regarding the reporting framework and whether the financial statements are general purpose or special purpose BC40 In addition to the proposed disclosure requirements in ED 302 that the Board decided to incorporate into this Standard, as noted in paragraph BC15(d), the Board considered whether selected pre-existing disclosure requirements in AASB 1054 should be required of entities within the scope of this Standard. In particular, the Board considered whether paragraphs 8 and 9 of AASB 1054 (relating to disclosure of the reporting framework under which the financial statements are prepared and whether the financial statements are SPFS or GPFS) should be required. As part of its consideration, the Board noted similar disclosures required by AASB 2019-4 apply only to not-for-profit private sector entities that were already within the scope of AASB 1054, whereas the scope of this Standard includes entities not previously within the scope of AASB 1054. Despite this, the Board concluded paragraphs 8 and 9 of AASB 1054 are consistent with the objective of this Standard and help describe the basis of accounting. Accordingly, the Board decided paragraphs 8 and 9 of AASB 1054 would provide useful information at minimal cost as this information is expected to be readily available to an entity. The Board further noted that in order to make the disclosure required by paragraph 9C(a) of AASB 1054 (ie “to disclose the basis on which the decision to prepare SPFS was made”), the information that is the subject of paragraphs 8 and 9 of AASB 1054 would need to be considered by the entity anyway. Disclosure regarding accounting policies for joint operations BC41 Some respondents to ED 302 expressed a view that joint operations within the scope of AASB 11 Joint Arrangements should be excluded from the requirement to disclose overall compliance with R&M requirements. They argued this by analogy with how ED 302 proposed dealing with disclosures about an entity’s accounting policies relating to subsidiaries, associates and joint ventures. The Board concluded that an exclusion for joint operations (in addition to the exclusion for subsidiaries, associates and joint ventures) is not required and would not be appropriate. This is because paragraph 20 of AASB 11 requires a joint operator, being the entity preparing the financial statements (whether consolidated or unconsolidated), to recognise its share of the assets, liabilities, revenue and expenses in a joint operation – and therefore it is clearly an R&M requirement. The Board also noted paragraph 21 of AASB 11 clarifies that the requirements relating to the entity’s share of those amounts are accounted for in accordance with the requirements (including R&M) of other relevant AAS. The definition of a joint operation also confirms this, on the basis that it refers to the entity’s rights and obligations to the assets and liabilities. Therefore, non-compliance with AASB 11 as it applies to joint operations would be a clear non-compliance with R&M requirements in AAS. BC42 Given the nature of joint operations, their accounting treatment is fundamentally different from that of subsidiaries, associates and joint ventures. As such, it would be inappropriate to also exclude them from the overall R&M disclosure required by this Standard, potentially implying they are not R&M requirements. The Board also noted that paragraphs 9C(e) and 9C(f) of this Standard are consistent with paragraph 9C(d), which also does not refer to AASB 11. Disclosure regarding subsidiaries, investments in associates or investments in joint ventures BC43 The Board considered whether an entity that has no subsidiaries, investments in associates or investments in joint ventures should be required to make an explicit statement to this effect. The Board had considered the same issue in the context of not-for-profit private sector entities in the development of AASB 2019-4. At that time the Board noted entities preparing either Tier 1 or Tier 2 GPFS are not required to make such a statement. Consistent with that, the Board decided an explicit statement would not be required in SPFS of not-for-profit private sector entities, as noted in paragraph BC30 of the Basis for Conclusions on AASB 2019-4. The Board also noted that, in any event, users of financial statements could reasonably be expected to be able to discern from the absence of the other disclosures (eg paragraph 9C(d) of AASB 1054, which results in disclosures only when the entity has interests in other entities) that the entity has no subsidiaries or interests in associates or joint ventures. Therefore, the Board concluded that an explicit statement for entities within the scope of this Standard should not be required. Disclosures regarding compliance with all the R&M requirements in AAS BC44 The Board noted the view that the disclosure requirement in paragraph 9C(f) of this Standard – overall compliance with R&M requirements in AAS – is redundant given the disclosure requirement in paragraph 9C(e) about each material accounting policy that does not comply with AAS R&M requirements. In response, the Board noted that, like AASB 2019-4, this Standard follows a two-step approach (first paragraph 9C(e) and then paragraph 9C(f)) to assessing and disclosing compliance or otherwise with the R&M requirements in AAS (other than AASB 10 and AASB 128). This approach is designed to minimise the burden associated with preparing the disclosures by having entities assess first whether or not their material accounting policies comply with AAS R&M requirements, and then whether the financial statements overall comply with AAS R&M requirements. If all material accounting policies comply with AAS R&M requirements, there is no disclosure to be made under paragraph 9C(e), which is why paragraph 9C(f) is useful as a way to make clear to users the financial statements do in fact comply with all R&M requirements. Although the Board noted AAS usually only require an entity to disclose where they have not complied with AAS requirements, in this case requiring an entity to disclose it has complied is useful for users and is not an onerous requirement. Furthermore, without paragraph 9C(f), if an entity has one or more instances of material non-compliance with R&M requirements, without disclosing overall non-compliance it may not be readily evident to users that this is the case. BC45 The Board reaffirmed its decision to not provide entities within the scope of this Standard an option to state they have not assessed compliance with certain AAS requirements. The Board noted the contrary view that allowing a ‘not assessed’ option might be a means of responding to cost/benefit concerns expressed by respondents to ED 302, whilst still providing useful information that would put users on notice that the financial statements might not comply with all the R&M requirements in AAS. However, consistent with the reasons in paragraph BC25 and the fact the Board had not identified any new arguments in the responses to ED 302, the Board did not accept that contrary view. The Board also noted deferral of the effective date as mentioned in paragraph BC51 would provide entities with sufficient time to consider any possible complexities or challenges in making the disclosures, and therefore the ‘not assessed’ option was not warranted. Disclosures regarding omitted AAS disclosures BC46 Some respondents to ED 302 expressed a view the disclosure requirements in this Standard should be expanded to require an entity’s SPFS to identify AAS where it has elected to omit material disclosures that would otherwise be included in GPFS in accordance with those AAS. For example, where the entity elects to not disclose related party transactions, it should be required to disclose its election not to make any disclosures under AASB 124 Related Party Disclosures. The Board considered that while disclosures regarding omitted AAS disclosures might be useful for users of SPFS, the scope of this Standard and the related amendments are aimed at increasing the transparency and comparability of SPFS in relation to compliance with the R&M requirements in AAS rather than AAS disclosure requirements. The Board also noted this matter was previously considered as part of the feedback received on ED 293 and the Board decided against requiring additional AAS disclosures as it was beyond the scope of the project that resulted in AASB 2019-4. Consistent with AASB 2019-4, the Board considered matters relating to omitted disclosures are beyond the scope of the project that resulted in this Standard. Other issues Consistency with the Standard-Setting Framework BC47 Some respondents to ED 302 expressed a view that a Standard based on the proposals would contradict The AASB’s For-Profit Entity Standard-Setting Framework (the Framework), and therefore this Standard should not be issued. This was on the basis that the Framework states “the AASB currently does not set recognition and measurement requirements for SPFS. This is because SPFS should only be prepared where users can tailor the SPFS to their own information needs and therefore do not need a standard-setter or regulator to specify the accounting policies or require disclosure of the information for them.” BC48 The Board considered this view in light of its decision relating to disclosures in SPFS of not-for-profit private sector entities as reflected in AASB 2019-4. The Board acknowledged that the appropriateness of the justifications noted in the Basis for Conclusions on AASB 2019-4 (in particular paragraph BC40) for rejecting these respondents’ views are less apparent for entities within the scope of this Standard, but nonetheless concluded this Standard is justifiable under the Framework. The Framework notes the Board does not set R&M requirements for SPFS. In this Standard, the Board is adding limited disclosure requirements for SPFS, in the same way as it did for not-for-profit private sector entities under AASB 2019-4. This Standard does not set R&M requirements for SPFS. Overall justification for this Standard BC49 In deciding to issue this Standard, the Board noted the anecdotal feedback it had received that this Standard is unreasonable because many references to AAS historically were included in the constituting documents of entities without those entities having a full appreciation of the implications of the reference being ambulatory rather than static. However, the Board concluded this Standard is justified for the reasons indicated in paragraphs BC3-BC12 and on the basis the Board’s acknowledgement of the history of AAS references in constituting documents is the main reason the Board decided on only contextual disclosures for SPFS rather than requiring a more onerous transition to GPFS by entities within the scope of the Standard. Furthermore, overall, the Board concluded the requirements in this Standard are commensurate with the evidence from the research outlined in paragraphs BC5-BC8. Additional research would unduly delay the project and would only be justified if the requirements were to be more onerous, such as mandating R&M requirements. BC50 Paragraph 18 of the AASB For-Profit Entity Standard-Setting Framework (July 2021) states: “Enforcement of the preparation of financial statements and compliance with Accounting Standards is the responsibility of other regulators ... It is not the responsibility of the AASB.” Consistent with that, the Board noted its role and expertise in relation to this Standard is to determine the appropriate accounting framework and accounting standards that should apply where financial statements are required by constituting or other documents to comply with AAS. Requiring additional disclosures in SPFS to provide greater transparency and comparability regarding compliance with the R&M requirements in AAS is consistent with this role.