Preface

Reasons for Issuing AASB 123

The Australian Accounting Standards Board (AASB) is implementing the Financial Reporting Council’s policy of adopting the Standards of the International Accounting Standards Board (IASB) for application to reporting periods beginning on or after 1 January 2005. The AASB has decided it will continue to issue sector-neutral Standards, that is, Standards applicable to both for-profit and not-for-profit entities, including public sector entities. Except for Standards that are specific to the not-for-profit or public sectors or that are of a purely domestic nature, the AASB is using the IASB Standards as the “foundation” Standards to which it adds material detailing the scope and applicability of a Standard in the Australian environment. Additions are made, where necessary, to broaden the content to cover sectors not addressed by an IASB Standard and domestic, regulatory or other issues.

The IASB defines International Financial Reporting Standards (IFRSs) as comprising:

(a) International Financial Reporting Standards;

(b) International Accounting Standards; and

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

The Australian equivalents to IFRSs are:

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

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

When considering the issue of an Australian equivalent to IAS 23 Borrowing Costs, the AASB noted it is one of the rare cases where the benefits of permitting the options within an IASB standard are greater than the detriment. The majority of respondents to ED 111 Request for Comment on IAS 23 Borrowing Costs (May 2003) supported introduction of the choice in IAS 23, between expensing all borrowing costs and the alternative treatment, ‘capitalise some and expense the rest’ (compatible with US requirements and the only treatment permitted in AASB 1036 Borrowing Costs). If only one treatment were to be allowed, the majority of respondents preferred expensing, not the then-current Australian policy. Expensing was strongly supported in public sector submissions as important in promoting GFS/GAAP convergence. Accordingly, allowing the option in AASB 123 gives compatibility with IAS 23 and introduces the treatment preferred by constituents without requiring an abrupt change from current practice.

Main Features of this Standard

Application Date