More relief in AASB 1 for entities transitioning to general purpose Simplified Disclosures financial statements

For-profit private sector entities transitioning to general purpose financial statements (GPFS) for the first time for their 30 June 2022 year-end reporting will have a relatively easy task if they have previously complied with all the recognition and measurement requirements of Australian Accounting Standards (AAS). This is because all they will need to do is add the relevant additional Simplified Disclosures. However, those that have not previously complied with all the recognition and measurement requirements will need to create an opening balance sheet on 1 July 2020, and in most cases, we expect them to use some of the exemptions available in AASB 1 First-time Adoption of Australian Accounting Standards.

Foreign controlled proprietary companies and ‘country by country reporting entities’ (CBCREs) have been experiencing difficulties when transitioning to GPFS because they have been unable to apply some of the transitional relief contained in AASB 1.

Amendments to AASB 1

The Australian Accounting Standards Board (AASB) has amended AASB 1 to ease the burden for entities transitioning to GPFS as follows:

Amendments to…	Current requirements	Details of changes	Entities to benefit
AASB 1, paragraph D16(a)	Where a subsidiary prepares GPFS for the first time (i.e. becomes a first-time adopter later than its parent), AASB 1, paragraph D16(a) allows the subsidiary to measure its assets and liabilities in its opening balance sheet at the carrying amount included in the parent’s consolidated financial statements, based on the parent’s date of transition to AAS. This assumes that no adjustments are made for: Consolidation procedures Effects of the business combination in which the parent acquired the subsidiary.	AASB 2022-2 extends this optional exemption to situations where the parent prepares IFRS financial statements.	Foreign controlled entities whose parent entity prepared IFRS financial statements (rather than AAS) will be able to apply this exemption.
AASB 1, paragraph D13A	Entities applying the exemption in paragraph D16(a) may elect to measure foreign currency exchange differences at the carrying amount included in the parent’s consolidated financial statements, based on the parent’s date of transition to AAS.	AASB 2022-2 extends this optional exemption to situations where the parent prepares IFRS financial statements.	Foreign controlled entities whose parent entity prepared IFRS financial statements (rather than AAS) will be able to apply this exemption.
AASB 1053, paragraph 20A (added)	AASB 10, paragraph Aus 4.2 exempts the ultimate parent entity in an Australian group from preparing consolidated financial statements if the parent entity or the group is a non-reporting entity. In other words, separate GPFS can be prepared without consolidation. For periods ending 30 June 2022, this exemption no longer applies.	Paragraph 20A, added to AASB 1053, allows for-profit private sector entities transitioning from unconsolidated Reduced Disclosures GPFS to consolidated Simplified Disclosures GPFS, to apply AASB 1 when preparing consolidated financial statements for the first time. This will enable entities transitioning to consolidated financial statements to apply the optional exemptions in Appendix C to past business combinations.	Country by country reporting entities (CBCREs) that previously prepared separate GPFS for the Australian Tax Office due to being a non-reporting entity, and therefore exempt from preparing consolidated financial statements.

Application date

These amendments apply to annual reporting periods ending on or after 30 June 2022. This means that foreign controlled Australian entities and CBCREs needing to use these AASB 1 transition exemptions in their first Simplified Disclosures financial statements will be able to do so.

Need assistance?

Applying some of the transition options in AASB 1 can be complicated, especially when preparing your consolidated financial statements for the first time. Please contact BDO’s IFRS & Corporate Reporting team if you require assistance.