Section 5 - Accounting Standard AASB 18 Presentation and Disclosure in Financial Statements - The following terms are used in this Standard with the meanings specified: | Zoe
5 The following terms are used in this Standard with the meanings specified:
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IFRS Accounting Standards are accounting standards issued by the International Accounting Standards Board. They comprise:
(a) International Financial Reporting Standards;
(b) International Accounting Standards;
(c) IFRIC Interpretations; and
(d) SIC Interpretations.
IFRS Accounting Standards were previously known as International Financial Reporting Standards, IFRS, IFRSs and IFRS Standards.
Material information is defined in paragraph 7 of AASB 101 and Appendix A of AASB 18 Presentation and Disclosure in Financial Statements. Material is used in this Standard with the same meaning.
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Basis of preparation – general matters
Fair presentation and compliance with Australian Accounting Standards1
1 \[Aus\] The term ‘Australian Accounting Standards’ refers to Standards (including Interpretations) made by the AASB that apply to any reporting period beginning on or after 1 January 2005. In this context, the term encompasses Australian Accounting Standards – Simplified Disclosures, which some entities are permitted to apply in accordance with AASB 1053 Application of Tiers of Australian Accounting Standards in preparing general purpose financial statements.
6A Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting (Conceptual Framework) (as identified in AASB 1048 Interpretation of Standards). The application of Australian Accounting Standards, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.
AusCF6A Notwithstanding paragraph 6A, in respect of AusCF entities, financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework.AusCF1 The application of Australian Accounting Standards, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.
AusCF1 Paragraphs AusCF6A–AusCF6J contain references to the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048). In December 2013 the AASB amended the Framework, and thereby replaced the objective of financial statements with the objective of general purpose financial reporting: see Chapter 1 of the Framework.
6B An entity whose financial statements comply with IFRS Accounting Standards shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRS Accounting Standards unless they comply with all the requirements of IFRS Accounting Standards.
Aus6B.1 Not-for-profit entities need not comply with the paragraph 6B requirement to make an explicit and unreserved statement of compliance with IFRS Accounting Standards.
6C In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable Australian Accounting Standards. A fair presentation also requires an entity:
(a) to select and apply accounting policies in accordance with this Standard. This Standard sets out a hierarchy of authoritative guidance that management considers in the absence of an Australian Accounting Standard that specifically applies to an item.
(b) to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.
(c) to provide additional disclosures when compliance with the specific requirements in Australian Accounting Standards 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.
6D An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.
6E In the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, the entity shall depart from that requirement in the manner set out in paragraph 6F if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
AusCF6E Notwithstanding paragraph 6E, in respect of AusCF entities, in the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in paragraph AusCF6F if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
Aus6E.1 In relation to paragraph 6E, the following shall not depart from a requirement in an Australian Accounting Standard:
(a) entities required to prepare financial reports under Part 2M.3 of the Corporations Act;
(b) private and public sector not-for-profit entities; and
(c) entities applying Australian Accounting Standards – Simplified Disclosures.
6F When an entity departs from a requirement of an Australian Accounting Standard in accordance with paragraph 6E, it shall disclose:
(a) that management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows;
(b) that it has complied with applicable Australian Accounting Standards, except that it has departed from a particular requirement to achieve a fair presentation;
(c) the title of the Australian Accounting Standard from which the entity has departed, the nature of the departure, including the treatment that the Australian Accounting Standard would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Conceptual Framework, and the treatment adopted; and
(d) for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.
AusCF6F Notwithstanding paragraph 6F, in respect of AusCF entities, when an entity departs from a requirement of an Australian Accounting Standard in accordance with paragraph AusCF6E, it shall disclose:
(a) that management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows;
(b) that it has complied with applicable Australian Accounting Standards, except that it has departed from a particular requirement to achieve a fair presentation;
(c) the title of the Australian Accounting Standard from which the entity has departed, the nature of the departure, including the treatment that the Australian Accounting Standard would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and
(d) for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.
6G When an entity has departed from a requirement of an Australian Accounting Standard in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraphs 6F(c)–6F(d).
6H Paragraph 6G applies, for example, when an entity departed in a prior period from a requirement in an Australian Accounting Standard for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognised in the current period’s financial statements.
6I In the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:
(a) the title of the Australian Accounting Standard in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Conceptual Framework; and
(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.
AusCF6I Notwithstanding paragraph 6I, in respect of AusCF entities, in the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:
(a) the title of the Australian Accounting Standard in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and
(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.
6J For the purpose of paragraphs 6E–6I, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, management considers:
(a) why the objective of financial statements is not achieved in the particular circumstances; and
(b) how the entity’s circumstances differ from those of other entities that comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework.
AusCF6J Notwithstanding paragraph 6J, in respect of AusCF entities, for the purpose of paragraphs AusCF6E–AusCF6I, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework, management considers:
(a) why the objective of financial statements is not achieved in the particular circumstances; and
(b) how the entity’s circumstances differ from those of other entities that comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework.
Going concern
6K When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.
6L In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.
Accrual basis of accounting
6M An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.
6N When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Conceptual Framework.
AusCF6N Notwithstanding paragraph 6N, in respect of AusCF entities, when the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework.AusCF2
AusCF2 The Framework for the Preparation and Presentation of Financial Statements was amended by the AASB in December 2013.
Accounting policies
Selection and application of accounting policies
7 When an Australian Accounting Standard1 specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the Standard.
1 \[Aus\] The term ‘Australian Accounting Standards’ refers to Standards (including Interpretations) made by the AASB that apply to any reporting period beginning on or after 1 January 2005. In this context, the term encompasses Australian Accounting Standards – Simplified Disclosures, which some entities are permitted to apply in accordance with AASB 1053 Application of Tiers of Australian Accounting Standards in preparing general purpose financial statements.
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11 In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:
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(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework for Financial Reporting (Conceptual Framework) (as identified in AASB 1048 Interpretation of Standards).2
AusCF11 Notwithstanding paragraph 11, in respect of AusCF entities, in making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:
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(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the FrameworkAusCF2.
AusCF2 In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards)
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Disclosure of selection and application of accounting policies
27A An entity shall disclose material accounting policy information (see paragraph 5). Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.
27B Accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed. Accounting policy information may nevertheless be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material.
27C Accounting policy information is expected to be material if users of an entity’s financial statements would need it to understand other material information in the financial statements. For example, an entity is likely to consider accounting policy information material to its financial statements if that information relates to material transactions, other events or conditions and:
(a) the entity changed its accounting policy during the reporting period and this change resulted in a material change to the information in the financial statements;
(b) the entity chose the accounting policy from one or more options permitted by Australian Accounting Standards – such a situation could arise if the entity chose to measure investment property at historical cost rather than fair value;
(c) the accounting policy was developed in accordance with this Standard in the absence of an Australian Accounting Standard that specifically applies;
(d) the accounting policy relates to an area for which an entity is required to make significant judgements or assumptions in applying an accounting policy, and the entity discloses those judgements or assumptions in accordance with paragraphs 27G and 31A; or
(e) the accounting required for them is complex and users of the entity’s financial statements would otherwise not understand those material transactions, other events or conditions – such a situation could arise if an entity applies more than one Standard to a class of material transactions.
27D Accounting policy information that focuses on how an entity has applied the requirements in the Australian Accounting Standards to its own circumstances provides entity-specific information that is more useful to users of financial statements than standardised information, or information that only duplicates or summarises the requirements of the Standards.
27E If an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information.
27F An entity’s conclusion that accounting policy information is immaterial does not affect the related disclosure requirements set out in other Australian Accounting Standards.
27G An entity shall disclose, along with its material accounting policy information or other notes, the judgements, apart from those involving estimations (see paragraph 31A), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
27H In the process of applying the entity’s accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements. For example, management makes judgements in determining:
(a) when substantially all the significant risks and rewards of ownership of financial assets and, for lessors, assets subject to leases are transferred to other entities;
(b) whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and
(c) whether the contractual terms of a financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
27I Some of the disclosures made in accordance with paragraph 27G are required by other Australian Accounting Standards. For example, AASB 12 Disclosure of Interests in Other Entities requires an entity to disclose the judgements it has made in determining whether it controls another entity. AASB 140 Investment Property requires disclosure of the criteria developed by the entity to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business, when classification of the property is difficult.
Disclosure of changes in accounting policies
28 When initial application of an Australian Accounting Standard has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:
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Disclosure of sources of estimation uncertainty
31A An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
(a) their nature; and
(b) their carrying amount as at the end of the reporting period.
31B Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the end of the reporting period. For example, in the absence of recently observed market prices, future-oriented estimates are necessary to measure the recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inventories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash flows or discount rates, future changes in salaries and future changes in prices affecting other costs.
31C The assumptions and other sources of estimation uncertainty disclosed in accordance with paragraph 31A relate to the estimates that require management’s most difficult, subjective or complex judgements. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgements become more subjective and complex, and the potential for a consequential material adjustment to the carrying amounts of assets and liabilities normally increases accordingly.
31D The disclosures in paragraph 31A are not required for assets and liabilities with a significant risk that their carrying amounts might change materially within the next financial year if, at the end of the reporting period, they are measured at fair value based on a quoted price in an active market for an identical asset or liability. Such fair values might change materially within the next financial year but these changes would not arise from assumptions or other sources of estimation uncertainty at the end of the reporting period.
31E An entity provides the disclosures in paragraph 31A in a manner that helps users of financial statements to understand the judgements that management makes about the future and about other sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures an entity makes are:
(a) the nature of the assumption or other estimation uncertainty;
(b) the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity;
(c) the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and
(d) an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved.
31F This Standard does not require an entity to disclose budget information or forecasts in making the disclosures in paragraph 31A.
31G Sometimes it is impracticable to disclose the extent of the possible effects of an assumption or another source of estimation uncertainty at the end of the reporting period. In such cases, the entity discloses that it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumption could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption.
31H The disclosures in paragraph 27G of particular judgements that management made in the process of applying the entity’s accounting policies do not relate to the disclosures of sources of estimation uncertainty in paragraph 31A.
31I Other Australian Accounting Standards require the disclosure of some of the assumptions that would otherwise be required in accordance with paragraph 31A. For example, AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. AASB 13 Fair Value Measurement requires disclosure of significant assumptions (including the valuation technique(s) and inputs) the entity uses when measuring the fair values of assets and liabilities that are carried at fair value.
Accounting estimates
32 An accounting policy may require items in financial statements to be measured in a way that involves measurement uncertainty – that is, the accounting policy may require such items to be measured at monetary amounts that cannot be observed directly and must instead be estimated. In such a case, an entity develops an accounting estimate to achieve the objective set out by the accounting policy. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information. Examples of accounting estimates include:
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(c) the fair value of an asset or liability, applying AASB 13 Fair Value Measurement;
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(e) a provision for warranty obligations, applying AASB 137 Provisions, Contingent Liabilities and Contingent Assets.
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54J AASB 18 issued in June 2024 amended paragraphs 1, 3, 5, 7, 11, AusCF11, 32 and 54H, added paragraphs 3A, 6A–AusCF6N, 27A–27I and 31A–31I and related headings and subheadings, added a subheading above paragraph 28 and deleted paragraph 2. An entity shall apply those amendments when it applies AASB 18.
| A footnote is added to the end of paragraph 54H. New text is underlined. |
4 In June 2024 the AASB issued AASB 18 Presentation and Disclosure in Financial Statements and carried over the definition of ‘material’ in AASB 101 Presentation of Financial Statements to AASB 18.
AASB 110 Events after the Reporting Period (August 2015)
Paragraphs 13 and 16 are amended and paragraph 23D is added. New text is underlined and deleted text is struck through.
Recognition and measurement
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Dividends
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13 If dividends are declared after the reporting period but before the financial statements are authorised for issue, the dividends are not recognised as a liability at the end of the reporting period because no obligation exists at that time. Such dividends are disclosed in the notes in accordance with AASB 18 Presentation and Disclosure in Financial StatementsAASB 101 Presentation of Financial Statements.