Appendix B (AASB1_07-15_COMPmay2_07-21)

This appendix is an integral part of the Standard.

An entity shall apply the following exceptions:

(a) derecognition of financial assets and financial liabilities (paragraphs B2 and B3);

(b) hedge accounting (paragraphs B4–B6);

(c) non-controlling interests (paragraph B7);

(d) classification and measurement of financial assets (paragraph B8–B8C);

(e) impairment of financial assets (paragraphs B8D–B8G);

(f) embedded derivatives (paragraph B9); and

(g) government loans (paragraphs B10–B12).

Except as permitted by paragraph B3, a first-time adopter shall apply the derecognition requirements in AASB 9 prospectively for transactions occurring on or after the date of transition to Australian Accounting Standards. For example, if a first-time adopter derecognised non-derivative financial assets or non-derivative financial liabilities in accordance with its previous GAAP as a result of a transaction that occurred before the date of transition to Australian Accounting Standards, it shall not recognise those assets and liabilities in accordance with Australian Accounting Standards (unless they qualify for recognition as a result of a later transaction or event).

Despite paragraph B2, an entity may apply the derecognition requirements in AASB 9 retrospectively from a date of the entity’s choosing, provided that the information needed to apply AASB 9 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

As required by AASB 9, at the date of transition to Australian Accounting Standards an entity shall:

(a) measure all derivatives at fair value; and

(b) eliminate all deferred losses and gains arising on derivatives that were reported in accordance with previous GAAP as if they were assets or liabilities.

An entity shall not reflect in its opening Australian-Accounting-Standards statement of financial position a hedging relationship of a type that does not qualify for hedge accounting in accordance with AASB 9 (for example, many hedging relationships where the hedging instrument is a stand-alone written option or a net written option; or where the hedged item is a net position in a cash flow hedge for another risk than foreign currency risk). However, if an entity designated a net position as a hedged item in accordance with previous GAAP, it may designate as a hedged item in accordance with Australian Accounting Standards an individual item within that net position, or a net position if that meets the requirements in paragraph 6.6.1 of AASB 9, provided that it does so no later than the date of transition to Australian Accounting Standards.

If, before the date of transition to Australian Accounting Standards, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting in AASB 9, the entity shall apply paragraphs 6.5.6 and 6.5.7 of AASB 9 to discontinue hedge accounting. Transactions entered into before the date of transition to Australian Accounting Standards shall not be retrospectively designated as hedges.

A first-time adopter shall apply the following requirements of AASB 10 prospectively from the date of transition to Australian Accounting Standards:

(a) the requirement in paragraph B94 that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance;

(b) the requirements in paragraphs 23 and B96 for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and

(c) the requirements in paragraphs B97–B99 for accounting for a loss of control over a subsidiary, and the related requirements of paragraph 8A of AASB 5 Non-current Assets Held for Sale and Discontinued Operations.

However, if a first-time adopter elects to apply AASB 3 retrospectively to past business combinations, it shall also apply AASB 10 in accordance with paragraph C1 of this Standard.

An entity shall assess whether a financial asset meets the conditions in paragraph 4.1.2 of AASB 9 or the conditions in paragraph 4.1.2A of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards.

If it is impracticable to assess a modified time value of money element in accordance with paragraphs B4.1.9B–B4.1.9D of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards, an entity shall assess the contractual cash flow characteristics of that financial asset on the basis of the facts and circumstances that existed at the date of transition to Australian Accounting Standards without taking into account the requirements related to the modification of the time value of money element in paragraphs B4.1.9B–B4.1.9D of AASB 9. (In this case, the entity shall also apply paragraph 42R of AASB 7 but references to ‘paragraph 7.2.4 of AASB 9’ shall be read to mean this paragraph and references to ‘initial recognition of the financial asset’ shall be read to mean ‘at the date of transition to Australian Accounting Standards’.)

If it is impracticable to assess whether the fair value of a prepayment feature is insignificant in accordance with paragraph B4.1.12(c) of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards, an entity shall assess the contractual cash flow characteristics of that financial asset on the basis of the facts and circumstances that existed at the date of transition to Australian Accounting Standards without taking into account the exception for prepayment features in paragraph B4.1.12 of AASB 9. (In this case, the entity shall also apply paragraph 42S of AASB 7 but references to ‘paragraph 7.2.5 of AASB 9’ shall be read to mean this paragraph and references to ‘initial recognition of the financial asset’ shall be read to mean ‘at the date of transition to Australian Accounting Standards’.)

If it is impracticable (as defined in AASB 108) for an entity to apply retrospectively the effective interest method in AASB 9, the fair value of the financial asset or the financial liability at the date of transition to Australian Accounting Standards shall be the new gross carrying amount of that financial asset or the new amortised cost of that financial liability at the date of transition to Australian Accounting Standards.

An entity shall apply the impairment requirements in Section 5.5 of AASB 9 retrospectively subject to paragraphs B8E–B8G and E1–E2.

At the date of transition to Australian Accounting Standards, an entity shall use reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognised (or for loan commitments and financial guarantee contracts the date that the entity became a party to the irrevocable commitment in accordance with paragraph 5.5.6 of AASB 9) and compare that to the credit risk at the date of transition to Australian Accounting Standards (also see paragraphs B7.2.2–B7.2.3 of AASB 9).

When determining whether there has been a significant increase in credit risk since initial recognition, an entity may apply:

(a) the requirements in paragraph 5.5.10 and B5.5.22–B5.5.24 of AASB 9; and

(b) the rebuttable presumption in paragraph 5.5.11 of AASB 9 for contractual payments that are more than 30 days past due if an entity will apply the impairment requirements by identifying significant increases in credit risk since initial recognition for those financial instruments on the basis of past due information.

If, at the date of transition to Australian Accounting Standards, determining whether there has been a significant increase in credit risk since the initial recognition of a financial instrument would require undue cost or effort, an entity shall recognise a loss allowance at an amount equal to lifetime expected credit losses at each reporting date until that financial instrument is derecognised (unless that financial instrument is low credit risk at a reporting date, in which case paragraph B8F(a) applies).

A first-time adopter shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed at the later of the date it first became a party to the contract and the date a reassessment is required by paragraph B4.3.11 of AASB 9.

A first-time adopter shall classify all government loans received as a financial liability or an equity instrument in accordance with AASB 132 Financial Instruments: Presentation. Except as permitted by paragraph B11, a first-time adopter shall apply the requirements in AASB 9 Financial Instruments and AASB 120 Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans existing at the date of transition to Australian Accounting Standards and shall not recognise the corresponding benefit of the government loan at a below-market rate of interest as a government grant. Consequently, if a first-time adopter did not, under its previous GAAP, recognise and measure a government loan at a below-market rate of interest on a basis consistent with Australian-Accounting-Standards requirements, it shall use its previous GAAP carrying amount of the loan at the date of transition to Australian Accounting Standards as the carrying amount of the loan in the opening Australian-Accounting-Standards statement of financial position. An entity shall apply AASB 9 to the measurement of such loans after the date of transition to Australian Accounting Standards.

Despite paragraph B10, an entity may apply the requirements in AASB 9 and AASB 120 retrospectively to any government loan originated before the date of transition to Australian Accounting Standards, provided that the information needed to do so had been obtained at the time of initially accounting for that loan.

The requirements and guidance in paragraphs B10 and B11 do not preclude an entity from being able to use the exemptions described in paragraphs D19–D19C relating to the designation of previously recognised financial instruments at fair value through profit or loss.