AASB Standard
AASB 2014-2
June 2014
Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements
[AASB 1053]
 



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© Commonwealth of Australia 2014
 
This work is copyright.  Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission.  Requests and enquiries concerning reproduction and rights should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.
 
ISSN 1036-4803
CONTENTS
Preface
Accounting Standard
AASB 2014-2 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements
Paragraphs
Objective                                                                                                                                                             1
Application                                                                                                                                                  2 – 5
Commencement                                                                                                                                                6
Amendments to AASB 1053                                                                                                                 7 – 21
 
BASIS FOR CONCLUSIONS ON AASB 2014-2                                                                           Page 13
 
Australian Accounting Standard AASB 2014-2 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements is set out in paragraphs 1 – 21. All the paragraphs have equal authority.
 
Preface
Introduction
Australian Accounting Standards
The Australian Accounting Standards Board (AASB) makes Australian Accounting Standards, including Interpretations, to be applied by:
(a)       entities required by the Corporations Act 2001 to prepare financial reports;
(b)       governments in preparing financial statements for the whole of government and the General Government Sector (GGS); and
(c)       entities in the private or public for-profit or not-for-profit sectors that are reporting entities or that prepare general purpose financial statements.
AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements:
(a)       Tier 1: Australian Accounting Standards; and
(b)       Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.
Tier 1 requirements incorporate International Financial Reporting Standards (IFRSs), including Interpretations, issued by the International Accounting Standards Board (IASB), with the addition of paragraphs on the applicability of each Standard in the Australian environment.
Publicly accountable for-profit private sector entities are required to adopt Tier 1 requirements, and therefore are required to comply with IFRSs.  Furthermore, other for-profit private sector entities complying with Tier 1 requirements will simultaneously comply with IFRSs.  Some other entities complying with Tier 1 requirements will also simultaneously comply with IFRSs.
Tier 2 requirements comprise the recognition and measurement requirements of Tier 1 but substantially reduced disclosure requirements in comparison with Tier 1.
Australian Accounting Standards also include requirements that are specific to Australian entities.  These requirements may be located in Australian Accounting Standards that incorporate IFRSs or in other Australian Accounting Standards.  In most instances, these requirements are either restricted to the not-for-profit or public sectors or include additional disclosures that address domestic, regulatory or other issues.  These requirements do not prevent publicly accountable for-profit private sector entities from complying with IFRSs.  In developing requirements for public sector entities, the AASB considers the requirements of International Public Sector Accounting Standards (IPSASs), as issued by the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants.
Main Features of this Standard
This Standard amends AASB 1053 to:
(a)       clarify that AASB 1053 only applies to general purpose financial statements;
(b)       make AASB 1053 consistent with the availability of the option under AASB 1 First-time Adoption of Australian Accounting Standards to apply Australian Accounting Standards retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
(c)       clarify certain circumstances in which entities resuming Tier 2 reporting requirements can apply the AASB 108 option in AASB 1;
(d)       permit an entity applying Tier 2 reporting requirements for the first time to do so directly using the requirements in AASB 108 (rather than applying AASB 1) when, and only when, the entity had not applied, or only selectively applied, applicable recognition and measurement requirements in its most recent previous annual special purpose financial statements;
(e)       require an entity that resumes the application of Tier 2 reporting requirements through AASB 1 (whether or not it uses the AASB 108 option in AASB 1) because it had not continued to apply all applicable recognition and measurement requirements (i.e. the circumstances addressed in paragraph 19B(d) of AASB 1053 – introduced by AASB 2014-2) to disclose, in accordance with the requirements of AASB 1 paragraphs 23A and 23B:
(i)         the reason it stopped applying Tier 2 reporting requirements;
(ii)        the reason it is resuming the application of Tier 2 reporting requirements; and
(iii)      when the AASB 108 option in AASB 1 is used, the reasons for electing to resume the application of Tier 2 reporting requirements as if it had never stopped applying them; and
(f)        require an entity that resumes the application of Tier 2 reporting requirements without applying AASB 1 or the AASB 108 option in AASB 1 because it had continued to apply all applicable recognition and measurement requirements (i.e. the circumstances addressed in paragraph 19B(e) of AASB 1053 – introduced by AASB 2014-2) to disclose:
(i)         the reason it stopped applying Tier 2 reporting requirements; and
(ii)        the reason it is resuming the application of Tier 2 reporting requirements.
Application Date
This Standard applies to annual reporting periods beginning on or after 1 July 2014. Earlier application is permitted for annual reporting periods beginning on or after 1 July 2009 but before 1 July 2014.
aCCOUNTING STANDARD AASB 2014-2
The Australian Accounting Standards Board makes Accounting Standard AASB 2014-2 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements under section 334 of the Corporations Act 2001.
 
 
Kevin M. Stevenson

Dated 23 June 2014
Chair – AASB

 
 
aCCOUNTING STANDARD AASB 2014-2
Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements
Objective
1              The objective of this Standard is to make amendments to AASB 1053 Application of Tiers of Australian Accounting Standards to:
(a)          clarify that AASB 1053 only applies to general purpose financial statements;
(b)          make AASB 1053 consistent with the availability of the option under AASB 1 First-time Adoption of Australian Accounting Standards to apply Australian Accounting Standards retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
(c)          clarify certain circumstances in which entities resuming Tier 2 reporting requirements can apply the AASB 108 option in AASB 1;
(d)          specify requirements for entities applying Tier 2 reporting requirements for the first time; and
(e)          specify disclosure requirements for entities that resume application of Tier 2 reporting requirements without applying AASB 1 or the AASB 108 option in AASB 1.
Application
2              This Standard applies to:
(a)          each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
(b)          general purpose financial statements of each reporting entity;
(c)          financial statements that are, or are held out to be, general purpose financial statements; and
(d)          financial statements of General Government Sectors (GGSs) prepared in accordance with AASB 1049 Whole of Government and General Government Sector Financial Reporting.
3              This Standard applies to annual reporting periods beginning on or after 1 July 2014.
4              This Standard may be applied to annual reporting periods beginning on or after 1 July 2009 but before 1 July 2014.  When an entity applies this Standard to such an annual reporting period, it shall disclose that fact.
5              This Standard uses underlining, striking out and other typographical material to identify some of the amendments to AASB 1053, in order to make the amendments more understandable.  However, the amendments made by this Standard do not include that underlining, striking out or other typographical material.
Commencement
6              This Standard commences on the day this Standard is made by the Australian Accounting Standards Board.
 
Amendments to AASB 1053
7              Paragraph 13 is amended as follows (new text is underlined and deleted text is struck through):
13       The following types of entities shall, as a minimum, apply Tier 2 reporting requirements in preparing general purpose financial statements: Tier 2 reporting requirements shall, as a minimum, apply to the general purpose financial statements of the following types of entities: …
8              Paragraph 15 is amended as follows (new text is underlined and deleted text is struck through):
15       Whilst Tier 2 reporting requirements are available under this Standard to for general purpose financial statements of non-publicly accountable for-profit private sector entities, …
9              The heading ‘Transition’ before paragraph 17 is replaced with the heading ‘Application of AASB 1’.
10          Paragraph 17 is amended to refer to paragraph 18A(a) rather than paragraph 18.
11          The heading ‘Transition from Special Purpose Financial Statements to Tier 1 or Tier 2’ before paragraph 18 is replaced with the heading ‘First-time Adoption of Australian Accounting Standards’.
12          Paragraph 18 is replaced by paragraphs 18-18B as follows:
18       When applying Tier 1 reporting requirements for the first time, an entity that prepared its most recent previous financial statements in the form of special purpose financial statements shall apply all the relevant requirements of AASB 1.
18A    When applying Tier 2 reporting requirements for the first time, an entity that prepared its most recent previous financial statements in the form of special purpose financial statements:
(a)      without applying, or only selectively applying, applicable recognition and measurement requirements of Australian Accounting Standards shall apply either:
(i)     all the relevant requirements of AASB 1; or
(ii)   Tier 2 reporting requirements directly using the requirements in AASB 108; and
(b)      applying all applicable recognition and measurement requirements of Australian Accounting Standards shall not apply AASB 1.
18B    An entity applying paragraph 18A(b) continues applying the applicable recognition and measurement requirements of Australian Accounting Standards, whether it had previously initially applied recognition and measurement requirements consistent with AASB 1 or a predecessor to AASB 108, whichever was applicable at the time.
13          The heading ‘Reapplication of Australian Accounting Standards other than Transitioning between Tiers’ is added immediately before paragraph 19.
14          Paragraph 19 is replaced by paragraphs 19-19B as follows:
19       Subject to paragraphs 19A and 21, an entity that:
(a)      has applied Tier 1 reporting requirements or IFRSs in a previous reporting period; but
(b)      whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with Tier 1 reporting requirements3 or IFRSs; and
(c)       is resuming or commencing the application of Tier 1 reporting requirements;
shall apply all the relevant requirements of AASB 1, or the AASB 1 option for retrospective application of Australian Accounting Standards in accordance with AASB 108 as if the entity had never stopped applying Australian Accounting Standards or IFRSs.
_______________________________
3         Compliance with Tier 1 reporting requirements is a reference to compliance with Australian Accounting Standards (Tier 1).
19A    An entity that is to claim IFRS compliance on resuming Tier 1 reporting requirements under paragraph 19, shall not use the AASB 1 option for retrospective application of Australian Accounting Standards in accordance with AASB 108 if it was not previously IFRS compliant.
19B    Subject to paragraph 23, an entity that:
(a)      has applied Tier 2 reporting requirements in a previous reporting period; but
(b)      whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with Tier 2 reporting requirements4; and
(c)       is resuming the application of Tier 2 reporting requirements;
shall:
(d)      apply all the relevant requirements of AASB 1, or the AASB 1 option for retrospective application of Australian Accounting Standards in accordance with AASB 108 as if the entity had never stopped applying Tier 2 reporting requirements, if the entity did not apply all applicable recognition and measurement requirements of Australian Accounting Standards; or
(e)       not apply AASB 1, or the AASB 1 option for retrospective application of Australian Accounting Standards in accordance with AASB 108, if the entity applied all applicable recognition and measurement requirements of Australian Accounting Standards.
_______________________________
4         Compliance with Tier 2 reporting requirements is a reference to compliance with Australian Accounting Standards – Reduced Disclosure Requirements.
15          Paragraph 20 is replaced as follows:
20       Entities described in paragraph 19B(a)-(c) resume the application of Tier 2 reporting requirements effectively using the same approach as an entity would for first transitioning from special purpose financial statements to Tier 2 reporting requirements set out in paragraph 18A.  Accordingly, an entity that did not comply with Tier 2 reporting requirements due solely to omitting some disclosures, but otherwise continued to apply all applicable recognition and measurement requirements, is prohibited from applying AASB 1 on returning to Tier 2 requirements.  Instead, it continues applying applicable recognition and measurement requirements, whether it had previously initially applied AASB 1 or a predecessor to AASB 108, whichever was applicable at the time.  However, if such an entity did not continue to apply all applicable recognition and measurement requirements of Australian Accounting Standards in its most recent previous annual financial statements, that entity is required to apply AASB 1, or the AASB 1 option for retrospective application of Australian Accounting Standards in accordance with AASB 108, on resuming the application of Tier 2 reporting requirements.
16          Paragraphs 21 and 22 are amended to read as follows (new text is underlined and deleted text is struck through):
21       An entity transitioning from Tier 2 to Tier 1 shall:
(a)      apply AASB 15, if it is claiming compliance with IFRSs; and
(b)      not apply AASB 1, if it is a not-for-profit entity not claiming compliance with IFRSs.
___________________________________
5         The AASB 1 option for the retrospective application of Australian Accounting Standards in accordance with AASB 108 might not be relevant here as it is available only in relation to the resumption, not first-time application, of Tier 1 reporting requirements.
22       In relation to paragraph 21(a), entities claiming compliance with IFRSs (which would include all for-profit entities applying Tier 1 reporting requirements) need to apply the full relevant requirements of AASB 1, as. This is because, in previously applying Tier 2 reporting requirements, they these entities have applied only some of the disclosure requirements of AASB 1 or were prohibited or exempted from applying AASB 1.
17          The heading ‘Disclosure’ is added immediately after paragraph 23.
18          Paragraph 24 is added as follows:
24       An entity applying paragraph 19B(e) shall disclose:
(a)      the reason it stopped applying Tier 2 reporting requirements; and
(b)      the reason it is resuming the application of Tier 2 reporting requirements.
19          The introductory paragraph to Appendix C accompanying AASB 1053 is amended to read as follows:
This Appendix is intended to facilitate the application of the requirements in paragraphs 17-23 of the Standard for the application of Tiers, and the transition between Tiers, of Australian Accounting Standards.
20          Charts 1 and 2 in Appendix C are deleted and replaced by Charts 1-4, as follows:
Chart 1: First-time Adoption of Tier 1 or Tier 2 Reporting Requirements (paragraphs 18-18B)
 
Chart 2: Re-application of Tier 1 Reporting Requirements (paragraphs 19 and 19A)
Chart 3: Re-application of Tier 2 Reporting Requirements (paragraph 19B)
 
Chart 4: Moving between Tiers (paragraphs 21 and 23)
 
 
21          Appendix D is added as follows:
Appendix D – Transition Scenarios[1]
This appendix accompanies, but is not part of AASB 1053. It is intended to summarise which paragraphs of AASB 1053 (as revised by AASB 2014-2 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements) would apply in particular common scenarios, and their consequences.
A previous reporting period
The most recent previous reporting period
Current reporting period
Applicable paragraph of AASB 1053
Consequence
Rationale
Basis for Conclusions paragraph accompanying AASB 2014-2

 
 
First time adopt T1
 
 
 
 

SPFSs
SPFSs using R&M
T1 IFRS
18
AASB 1
IFRS adoption
BC17

SPFSs
SPFSs using R&M
T1 non-IFRS
18
AASB 1
Consistent with IFRS
BC17

SPFSs
SPFSs not using R&M
T1 IFRS
18
AASB 1
IFRS adoption
BC17

SPFSs
SPFSs not using R&M
T1 non-IFRS
18
AASB 1
Consistent with IFRS
BC17

SPFSs
T2
T1 IFRS
21(a)
AASB 1
IFRS adoption
BC22

SPFSs
T2
T1 non-IFRS
21(b)
Not AASB 1
Continue R&M, & BC93 of AASB 1053[2]
BC22

 
 
First time adopt T2
 
 
 
 

SPFSs
SPFSs using R&M
T2
18A(b)
Not AASB 1
Continue R&M, & BC93 of AASB 1053
BC18

SPFSs
SPFSs not using R&M
T2
18A(a)
AASB 1 or directly through AASB 108
Cost/benefit considerations
BC17&BC19

SPFSs
T1 IFRSs
T2
23
Not AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

SPFSs
T1 non-IFRS
T2
23
Not AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

 
 
Resume T1
 
 
 
 

T1 IFRS
SPFSs using R&M
T1 IFRS
19
AASB 1 or AASB 108 option in AASB 1
IFRS adoption
BC13

T1 IFRS
SPFSs using R&M
T1 non-IFRS
19
AASB 1 or AASB 108 option in AASB 1
Consistent with IFRS
BC13

T1 IFRS
SPFSs not using R&M
T1 IFRS
19
AASB 1 or AASB 108 option in AASB 1
IFRS adoption
BC13

T1 IFRS
SPFSs not using R&M
T1 non-IFRS
19
AASB 1 or AASB 108 option in AASB 1
Consistent with IFRS
BC13

T1 IFRS
T2
T1 IFRS
21(a)
AASB 1 or AASB 108 option in AASB 1
IFRS adoption
BC22

T1 IFRS
T2
T1 non-IFRS
21(b)
Not AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

T1 non-IFRS
SPFSs using R&M
T1 IFRS
19A
AASB 1 (but not AASB 108 option in AASB 1)
IFRS adoption
BC12

T1 non-IFRS
SPFSs using R&M
T1 non-IFRS
19
AASB 1 or AASB 108 option in AASB 1
Consistent with IFRS
 

T1 non-IFRS
SPFSs not using R&M
T1 IFRS
19A
AASB 1 (but not AASB 108 option in AASB 1)
IFRS adoption
BC12

T1 non-IFRS
SPFSs not using R&M
T1 non-IFRS
19
AASB 1 or AASB 108 option in AASB 1
Consistent with IFRS
 

T1 non-IFRS
T2
T1 IFRS
19A&21(a)
AASB 1 (but not AASB 108 option in AASB 1)
IFRS adoption
BC12&BC22

T1 non-IFRS
T2
T1 non-IFRS
21(b)
Not AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

 
 
Resume T2
 
 
 
 

T2
SPFSs using R&M
T2
19B(e)
Not AASB 1 or AASB 108 option in AASB 1
Continue R&M, & BC93 of AASB 1053
BC14

T2
SPFSs not using R&M
T2
19B(d)
AASB 1 or AASB 108 option in AASB 1
Consistent with IFRS
 

T2
T1 IFRS
T2
23
Not AASB 1 or AASB 108 option in AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

T2
T1 non-IFRS
T2
23
Not AASB 1 or AASB 108 option in AASB 1
Continue R&M, & BC93 of AASB 1053
BC22

BASIS FOR CONCLUSIONS
This Basis for Conclusions accompanies, but is not part of, AASB 2014-2.
 
Background
BC1         This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the conclusions in the Standard.  Individual Board members gave greater weight to some factors than to others.
BC2         In June 2012 the Board issued AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009–2011 Cycle incorporating the IASB Standard Annual Improvements to IFRSs 2009–2011 Cycle.  The amendments AASB 2012-5 made to AASB 1 First-time Adoption of Australian Accounting Standards relate to an entity returning to Australian Accounting Standards that previously applied Australian Accounting Standards or IFRSs, but in its most recent previous annual financial statements did not include an explicit and unreserved statement of compliance with Australian Accounting Standards or IFRSs.  Irrespective of whether AASB 1 has previously been applied, the amendments permit such an entity to apply AASB 1, or the option under AASB 1 to apply Australian Accounting Standards retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors as if the entity had never stopped applying Australian Accounting Standards or IFRSs. Additional disclosure requirements were also specified in the amendments.
BC3         At its May 2013 meeting the Board noted that these AASB 1 amendments have implications for AASB 1053 Application of Tiers of Australian Accounting Standards (June 2010).  Accordingly, the Board decided to clarify some of the existing requirements in, and propose introducing new requirements into, AASB 1053 (June 2010).
BC4         Subsequently, the Board issued Exposure Draft (ED) 248 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements in March 2014 for comment by 19 May 2014.  Two written submissions were received.  One submission expressed concern about the loss of reconciliation information that would result from the proposals (see paragraph BC20 below).  The other submission expressed concern about the complexity of the proposals (see paragraph BC5 below).
BC5         In relation to the latter concern, the respondent did not support certain aspects of the proposals in ED 248 and recommended simplifying the transition rules such that AASB 1 is always required to be applied when an entity transitions from special purpose financial statements (SPFSs) to Tier 2 general purpose financial statements (GPFSs), even if the entity previously applied applicable recognition and measurement requirements.  Moreover, the respondent suggested simplifying the transition rules such that AASB 1 is always required to be applied when an entity transitions to Tier 1 GPFSs, even if the entity does not intend to comply with IFRSs.
BC6         The Board considered that while the respondent’s suggestions might simplify requirements by increasing the number of scenarios where AASB 1 would be required to be applied, the consideration and application of AASB 1 would not necessarily be a simplification for particular entities. 
BC7         Accordingly, the Board decided not to make any substantive changes to the proposals in ED 248 when progressing to the final Standard AASB 2014-2, the basis for which is explained in paragraphs BC8-BC25 below.
Clarification of the Application of AASB 1053
BC8         The Board noted that paragraphs 13 and 15 of AASB 1053 (June 2010) might be read by some as implying that SPFSs of non-reporting entities must be prepared in accordance with Tier 2 reporting requirements.
BC9         The Board decided to amend paragraphs 13 and 15 of AASB 1053 to clarify that Tier 2 reporting requirements only relate to GPFSs.
Reapplication of Tier 1 Reporting Requirements that does not entail Transition from Tier 2
BC10     The Board noted that amendments made to AASB 1 in June 2012 by AASB 2012-5, referred to in paragraph BC2 above, introduced an option for entities returning to Australian Accounting Standards or IFRSs.  An entity can either:
(a)             apply AASB 1 (including all of its disclosure requirements); or
(b)             apply Australian Accounting Standards[3] retrospectively in accordance with AASB 108 (as if the entity had never stopped applying Australian Accounting Standards or IFRSs), with some associated disclosures.
BC11     The Board noted that AASB 1 provides exceptions from applying some of the normal Tier 1 reporting requirements retrospectively on the basis that the cost of retrospectively applying some Tier 1 requirements would be likely to exceed the benefits to users of financial statements.  However, the amendments made through AASB 2012-5 acknowledge that the costs of applying AASB 1 without recourse to the AASB 108 option in AASB 1 might exceed the benefits of doing so for an entity that had previously applied Tier 1 requirements.  In particular, the AASB 2012-5 amendments allow an entity resuming the application of Tier 1 reporting requirements to do so using the more cost-beneficial approach.  In applying the AASB 108 option in AASB 1, an entity would apply Tier 1 requirements retrospectively in accordance with AASB 108 as if the entity had never stopped applying Tier 1 requirements.
BC12     However, the Board decided there should be a restriction in relation to the use of the AASB 1 option for retrospective application in accordance with AASB 108 in the Australian financial reporting environment.  This arises because compliance with Tier 1 reporting requirements does not translate into compliance with IFRSs in all cases.  For example, a not-for-profit entity applying AASB 1004 Contributions would apply recognition and measurement requirements that are different from those under IFRSs.  Accordingly, the Board decided that an entity that is to claim IFRS compliance on resuming Tier 1 reporting requirements, but which was not previously IFRS compliant (i.e. it is effectively becoming IFRS compliant for the first time), would not be able to avail itself of the option in AASB 1 for retrospective application in accordance with AASB 108.  Such an entity would apply AASB 1, without recourse to the AASB 108 option in AASB 1, on resuming Tier 1 reporting requirements.
BC13     The Board observed that the effect of the AASB 2012-5 amendments might be regarded as not having been fully reflected in AASB 1053 at the time of making AASB 2012-5.  In particular, some considered that AASB 1053 needed to be amended to make it clear that entities could apply Australian Accounting Standards retrospectively in accordance with AASB 108 in the circumstances described in paragraphs BC11-BC12 above.  Accordingly, the Board concluded it should make the clarification by replacing paragraph 19 of AASB 1053 (June 2010) with paragraphs 19 and 19A.
Reapplication of Tier 2 Reporting Requirements that does not entail Transition from Tier 1
BC14     The Board noted the previous prohibition in paragraph 19(a) of AASB 1053 for entities that had previously applied all applicable recognition and measurement requirements of Australian Accounting Standards from applying AASB 1 on first transition to Tier 2 reporting requirements.  Consistent with this prohibition, the Board decided to clarify in paragraphs 19B and 20[4] of AASB 1053 that an entity that has applied Tier 2 reporting requirements in a previous reporting period, but whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with those requirements, and the entity continued to apply all applicable recognition and measurement requirements, should also be prohibited from applying AASB 1 (and the AASB 108 option in AASB 1), on resuming Tier 2 reporting requirements.  This is consistent with the view that it would not be appropriate to imply, through application of AASB 1, that the basis of accounting has changed.
BC15     The Board also decided to require entities returning to Tier 2 reporting requirements meet the disclosure requirements equivalent to those in paragraph 23A (and, where relevant, paragraph 23B) of AASB 1, which would require an entity to disclose the reason it stopped applying Tier 2 requirements and the reason it is resuming reporting in accordance with those requirements (and the reasons it elected to use the AASB 108 option in AASB 1, where that election is available and adopted).[5]  The Board is of the view that these disclosure requirements provide users with useful information and the disclosures in paragraph 23A would discourage the intentional omission of the statement of compliance with Tier 2 reporting requirements solely to allow an entity to take advantage of the exemptions in AASB 1.
BC16     The Board noted, however, that entities returning to Tier 2 reporting requirements in circumstances noted in paragraph BC14 above are prohibited from applying AASB 1 and, by extension, they would be exempted from the disclosures of paragraph 23A (and the disclosures in paragraph 23B would not be applicable).  Accordingly, to provide relevant information to users, the Board concluded it should amend AASB 1053 to require the same disclosures as those in paragraph 23A of AASB 1 for entities resuming Tier 2 reporting requirements that are prohibited from applying AASB 1 and the AASB 108 option in AASB 1.
First-time Application of Tier 2 Reporting Requirements that does not entail Transition from Tier 1
BC17     The Board is of the view that entities transitioning to Tier 2 reporting requirements from SPFSs for the first time should not be bound by AASB 1 for first-time application.  In some cases it is envisaged that such entities might find application of Tier 2 reporting requirements retrospectively in accordance with AASB 108 more appropriate on cost-benefit grounds and should, therefore, be able to avail themselves of such a treatment.  Accordingly, consistent with first-time adoption requirements that existed before AASB 1 was issued, the Board decided to amend AASB 1053 to permit entities transitioning from SPFSs to Tier 2 requirements for the first time to apply those requirements retrospectively in accordance with AASB 108 without going through AASB 1, when and only when an entity had not applied, or only selectively applied, applicable recognition and measurement requirements in its most recent SPFSs (see paragraph BC19 below).  [In contrast, the Board decided that transition from SPFSs to Tier 1 reporting requirements for the first time should only be carried out using AASB 1, irrespective of whether an entity intends claiming IFRS compliance, consistent with the Board’s IFRS adoption approach for Tier 1 entities.]
BC18     The Board noted the rationale for the prohibition in paragraph 19(a) of  the June 2010 version of AASB 1053 (see paragraph BC93 of AASB 1053 (June 2010)) for entities that had previously applied all applicable recognition and measurement requirements of Australian Accounting Standards from applying AASB 1 on first transition to Tier 2 reporting requirements.  Consistent with this rationale, the Board decided to amend AASB 1053 to prohibit the same entities from applying Tier 2 reporting requirements through AASB 1, or retrospectively in accordance with AASB 108 on first transition to Tier 2 requirements.  Those entities would continue to apply the applicable recognition and measurement requirements, whether they had previously initially applied recognition and measurement requirements consistent with AASB 1 or a predecessor to AASB 108, whichever was applicable at the time.
BC19     The Board noted that in some cases entities would not have applied, or only selectively applied, applicable recognition and measurement requirements in preparing their most recent previous annual financial statements.  Consistent with the rationale in paragraph BC89 of AASB 1053 (June 2010), the Board concluded that such entities should be treated differently from those that had applied all applicable recognition and measurement requirements in those financial statements.  Accordingly, the Board decided that such entities would need to apply AASB 1, or, as explained in paragraph BC17 above, Tier 2 reporting requirements retrospectively in accordance with AASB 108, on first transition to Tier 2 reporting requirements.
BC20     The Board noted the concern expressed by one respondent to ED 248 (see paragraph BC4 above) that allowing an entity to apply AASB 108 rather than AASB 1 in the circumstances proposed would mean that an entity making such an election would not be required to include the type of reconciliation of financial statements that would be required if AASB 1 were to be required to be adopted.  The respondent regards the reconciliations as useful for in-depth understanding of an entity’s financial statements and obtaining comparative information.
BC21     The Board decided that the disclosure requirements in AASB 108 in relation to change of accounting policies provide adequate information to users to understand the nature and effect of changes arising from an entity applying Tier 2 requirements for the first time.
Transition between Tiers
BC22     The Board considered whether the requirements in AASB 1053 (June 2010) relating to transition between Tiers warranted clarification and concluded that paragraphs 21 and 23 of AASB 1053 are adequate.  However, it decided to add a footnote to paragraph 21(a) to acknowledge that the AASB 108 option in AASB 1 would not be relevant if the transition from Tier 2 to Tier 1 is first-time adoption, rather than resumption, of Tier 1.  For consistency, the Board also decided to amend paragraph 22, which provides guidance on paragraph 21(a).
Analysis of Disclosure Requirements for Tier 2 entities
BC23     Consistent with paragraphs BC15 and BC16 above, the Board concurred with the view that applying paragraphs 23A and 23B of AASB 1 (which specify disclosures about the reasons for stopping and resuming or commencing the application of Australian Accounting Standards and the reasons for the accounting policies adopted to effect that resumption or commencement) would not entail material additional costs for Tier 2 entities.  These paragraphs were introduced into AASB 1 by AASB 2012-5.
BC24     Accordingly, the Board decided an entity that resumes the application of Tier 2 reporting requirements using the AASB 108 option in AASB 1 should not be exempt from complying with paragraphs 23A and 23B of AASB 1.
BC25     The Board noted that paragraphs 23A and 23B of AASB 1 are not applicable to entities applying Tier 2 reporting requirements for the first time as these paragraphs are only relevant to reapplication of AASB 1.

[1]      Legend:
SPFSs: special purpose financial statements;
R&M: recognition and measurement in Australian Accounting Standards;
T1: Tier 1;
T2: Tier 2; and
BC: Basis for Conclusions.
[2]      AASB 1053 Application of Tiers of Australian Accounting Standards (June 2010).
[3]      It is relevant to note that the term ‘Australian Accounting Standards’ encompasses both Tier 1 and Tier 2 requirements.
[4]      Paragraph 20 of AASB 1053 (June 2010) clarified that first-time transitioning to Tier 1 reporting requirements from SPFSs that applied applicable recognition and measurement requirements of Australian Accounting Standards (including those of AASB 1, where relevant) would entail application of the full disclosure requirements of AASB 1.  This clarification is no longer needed because paragraph 18 of AASB 1 is clear that Tier 1 reporting requirements would apply on first transition, irrespective of the degree of application of recognition and measurement requirements prior to transition.
[5]      These disclosures would be in addition to any other disclosures required by other Standards (including comparative information in accordance with AASB 101 Presentation of Financial Statements).