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Revised Accounting Standard for Financial Instruments – Regulation Impact Statement – Australian Accounting Standards Board

On 23 December 2014, the Australian Accounting Standards Board (AASB) announced it had approved a new standard for accounting for financial instruments, AASB 9 Financial Instruments, to supersede earlier versions of AASB 9 issued in December 2009 and December 2010. The new standard incorporates the international financial reporting standard IFRS 9 Financial Instruments issued in July 2014, which made changes in relation to:

  • reporting impairment of financial assets; and
  • classification and measurement of financial assets, including the introduction of a measurement category of ‘fair value through other comprehensive income’ for debt instruments.

The July 2014 international standard addressed concerns by users of financial statements that the existing standard for recognition of financial losses on loans did not sufficiently incorporate information on expected losses. By incorporating the requirements of IFRS 9 into AASB 9, the new Australian standard both addresses those concerns in Australia and ensures that financial statements prepared by Australian entities in accordance with Australian accounting standards will remain compliant with international financial reporting standards. To implement the new approach to financial reporting, Australian banks, plus their auditors, will face both initial and, to a lesser extent, ongoing compliance costs. There may also be costs arising from flow on effects of changes to reported profits and total net assets, such as through making adjustments to existing contractual arrangements and complying with the requirements of prudential and tax regulations. The proposal has been assessed as likely to have a measurable but contained impact on the economy with no impacts on competition. A Regulation Impact Statement (RIS) was prepared and certified by the AASB, and has been assessed as compliant by the Office of Best Practice Regulation (OBPR). The OBPR notes that the preparation of the RIS was not consistent with best practice because of the limited depth of analysis of the benefits to business of maintaining harmonisation with international standards and the full economic costs of adopting the new standard. The RIS estimates the average annual regulatory cost at $32.2 million per annum, and identifies offsets. The OBPR has agreed to the regulatory cost and offset estimates.