The Australian Securities and Investments Commission (ASIC) today announced some changes to ASIC class order relief, practice notes and guidelines relating to the introduction of new accounting standards and other new financial reporting requirements.

For financial periods commencing on or after 1 January 2005, financial reports prepared in accordance with Chapter 2M of the Corporations Act 2001 (the Act) must be prepared in accordance with the Australian equivalents of International Financial Reporting Standards (AIFRS). The CLERP 9 legislation also introduced some changes to the requirements for directors’ reports that accompany financial reports for years commencing on or after 1 July 2004.

Non-reporting entities

ASIC has issued a new guide Reporting requirements for non-reporting entities for application for years commencing on or after 1 January 2005.

The guide replaces Information Release [IR 00-25] Reporting requirements for non-reporting entities issued on 20 July 2000.

The guide outlines the requirement for non-reporting entities to comply with the recognition and measurement requirements of all AIFRS.

The guide does not contain the [IR 00-025] concession from equity accounting for certain wholly-owned entities, as this concession is contained in one of the new accounting standards.

Additionally, the guide does not discuss the reporting requirements for Australian Financial Services licensees. These will be included in revised versions of ASIC Form 70 Australian Financial Services Licensee: Profit and loss statement and balance sheet and Form 71 Australian Financial Services Licensee: Audit report, which accompany financial reports lodged by licensees under Chapter 7 of the Act.

Relief for non-reporting entities

Accounting standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards provides some concessions on the adoption of AIFRS from reworking information to comply with the new recognition and measurement requirements of those standards.

These concessions would appear to be available only to entities that apply all of the requirements of the new standards, including all disclosure requirements. As non-reporting entities may not be required to comply with all disclosure requirements, the concessions may not be available to them.

ASIC Class Order [CO 05/639] Application of accounting standards by non-reporting entities addresses any anomaly by ensuring that the AASB 1 concessions available to reporting entities are also available to non-reporting entities. The class order will ensure that other exceptions available to reporting entities under accounting standards now or in future are also available to non-reporting entities.

Transfer of information from the directors’ report

ASIC Class Order [CO 98/2395] Transfer of information from the directors’ report gives companies the flexibility to transfer certain information from the directors’ report to a document attached to the directors’ report, where that will facilitate improved reporting of information to users of an annual report.

[CO 98/2395] has been varied by Class Order [CO 05/641] Miscellaneous amendments to financial reporting class orders to address new items required to be included in directors’ reports for financial years commencing on or after 1 July 2004.

The following documents will be able to be transferred to a document that is attached to the directors’ report, other than the financial report:

1. the auditor’s independence declaration;
2. any statements concerning information included in the financial report to give a true and fair view; and
3. the management discussion and analysis for listed companies (also known as ‘financial and operating review’).

Conditions of relief include a requirement that these items be provided with any full or concise financial reports sent to members and lodged with ASIC.

Information concerning non-audit services provided by an auditor can only be transferred from the directors’ report into the financial report in accordance with s300(2) and (2A) of the Act.

Transfer of remuneration information

[CO 98/2395] had permitted listed companies to transfer the director and executive remuneration disclosures required by s.300A of the Act from the directors’ report to an attached document. The s.300A disclosures could then be included in the note to the financial statements containing remuneration disclosures required by accounting standard AASB 1046 Director and Executive Disclosures by Disclosing Entities.

Corporations Amendment Regulations 2005 (No.4) (registered on 8 July 2005) allows listed companies to transfer the remuneration disclosures required by AASB 1046 from the notes to the financial statements. The AASB 1046 disclosures must then be included in the directors’ report under the heading ‘Remuneration report’ with the s.300A disclosures. The ‘Remuneration report’ is the subject of a non-binding member vote under s.250SA of the Act.

In view of the new regulation, it is no longer necessary or appropriate for listed companies to transfer the s.300A disclosures from the directors’ report. [CO 98/2395] has been varied by [CO 05/641] to remove this option.

Authorised trustee corporations

ASIC Class Order [98/105] Authorised trustee corporations - trust liabilities provides authorised trustee corporations and their wholly owned subsidiaries with relief from the requirement to make note disclosure of trust liabilities and the right of indemnity from trust assets in their financial reports.

After seeking and considering public submissions, ASIC decided that it is not appropriate to provide similar relief under AIFRS. Consideration was given to factors such as changes in the relevant accounting standards over time, changes in the operations of authorised trustee corporations, and the objectives of convergence with the international standards.

ADIs and director and executive related transactions and balances

ASIC Class Order [CO 98/110] ADIs – related party balances and transactionsrelieves Authorised Deposit-taking Institutions or ADIs (banks, building societies, credit unions), their parent entities and their controlled entities from disclosing arms length balances and transactions between an ADI and the related entities and persons of directors and executives.

[CO 98/110] is replaced by Class Order [CO 05/640] ADIs – related party transactions and balances for years commencing on or after 1 January 2005. Consistent with international standards [CO 05/640] will not provide relief from disclosing balances and transactions between an entity and close family members of directors and executives who are key management personnel. Relief will still be available in relation to arms length transactions and balances involving more distant relatives.

AIFRS requires non-disclosing entities to disclose information relating to transactions and balances involving executives who are key management personnel or their close family members for the first time. [CO 05/640] does not provide relief from these new requirements.

ADIs, their directors and executives, should have less difficulty in obtaining information relating to close family members than more distant family members.

Rounding of amounts

ASIC Class Order [CO 98/100]Rounding in financial reports and directors’ reports has been varied by Class Order [CO 05/641] Miscellaneous amendments to financial reporting class orders to refer to certain disclosures required by the new accounting standards and directors’ report requirements. The level of rounding permitted by [CO 98/100] for entities of particular sizes and for particular types of financial information has not changed.

Comparative information

ASIC Class Order [CO 98/1416] Comparative information relieves entities that do not prepare a financial report for the immediately preceding half-year or full year from including comparative information in their financial reports.

[CO 98/1416] addressed unintended consequences in some of the current accounting standards that require comparative information where an entity did not report in the immediately preceding half-year or year but did report in some earlier period. The relief is consistent with the general approach in the current accounting standards.

[CO 98/1416] will cease to apply for financial years commencing on or after 1 January 2005. Unlike the current standards, AIFRS requires entities that did not report in the immediately prior period to provide comparative information.

Half-year balance sheet format for certain financial institutions

ASIC Class Order [CO 98/111] Half-year balance sheet format of certain financial institutions has been revoked as the relief it provided is now available in both current accounting standards and under AIFRS.

Withdrawal of practice notes and guidelines

ASIC has withdrawn the following documents practice notes for years commencing on or after 1 January 2005 as they cease to be relevant under the new standards:

1. Practice Note 36 Future Income tax benefits [PN 36], which provides guidance on applying the tests in current accounting standards for the recognition of future income tax benefits as AIFRS provides a different test for the recognition of deferred tax assets; and
2. Practice Note 39 Accounting for Goodwill [PN 39], which provides guidance on the amortisation of goodwill and on reviewing the unamortised balance of goodwill for impairment as under AIFRS goodwill is no longer amortised and there are new requirements for assessing the impairment of goodwill.

On 28 June 2004 ASIC issued Guidelines to valuing options in annual directors’ reports as an attachment to Media Release 04-206 Valuing options for directors and executives. The guidelines provide that listed companies should include amounts in respect of the value options in director and executive emoluments under s300A of the Act using the provisions of accounting standard AASB 1046 Director and Executive Disclosures by Disclosing Entities.

The guidelines are withdrawn for years commencing 1 July 2004 as the legislation itself now applies the relevant requirements of AASB 1046.

Practice Note 68 New financial reporting and procedural requirements [PN 68] will also be amended to remove all references to s.300A of the Act. Section 300A has been replaced for years commencing on or after 1 July 2004 and the guidance in PN 68 is no longer relevant.

The new class orders and amendments to class orders commence on the date they are registered under the Legislative Instruments Act 2003, which are expected to occur within the next few days.

Copies of the new guide and the new class orders are available from ASIC’s website at www.asic.gov.au or from ASIC’s Infoline by calling 1300 300 630.

End of release

Download a copy of:

• Reporting requirements for non-reporting entities, an ASIC guide
• Class Order [CO 05/639] Application of accounting standards by non-reporting entities
• Class Order [CO 05/640] ADIs – related party transactions and balances
• Class Order [CO 05/641] Miscellaneous amendments to financial reporting class orders