Interaction with local laws and regulations (AASBPS2_12-17_COMPmay19_01-20)

Interaction with local laws and regulations

An entity’s financial statements must comply with the requirements in Australian Accounting Standards, including requirements related to materiality (materiality requirements), for the entity to state its compliance with those Standards. Hence, an entity that wishes to state compliance with Australian Accounting Standards cannot provide less information than the information required by the Standards, even if local laws and regulations permit otherwise.

Nevertheless, local laws and regulations may specify requirements that affect what information is provided in the financial statements. In such circumstances, providing information to meet local legal or regulatory requirements is permitted by Australian Accounting Standards, even if that information is not material according to the materiality requirements in the Standards. However, such information must not obscure information that is material according to Australian Accounting Standards.^[22]

Example G—information that is immaterial according to Australian Accounting Standards required by local laws and regulations
Background An entity is a food retailer operating in country ABC. In country ABC, investments in research and development (R&D) are generally limited across the industry; nonetheless, the government requires all entities to disclose, in their financial statements, the aggregate amount of R&D expenditure incurred during the period. In the current reporting period, the entity recognised a small amount of expenditure on R&D activities as an expense. No R&D expenditure was capitalised during the period. When preparing its financial statements, the entity assessed the disclosure of information about R&D expenditure incurred during the period as immaterial, for Australian Accounting Standard purposes. Application To comply with local regulations, the entity discloses in its financial statements information about R&D expenditure incurred during the period. Australian Accounting Standards permit the entity to disclose that information in its financial statements, but the entity needs to organise its disclosures to ensure that material information is not obscured.

Example G—information that is immaterial according to Australian Accounting Standards required by local laws and regulations

Background

An entity is a food retailer operating in country ABC. In country ABC, investments in research and development (R&D) are generally limited across the industry; nonetheless, the government requires all entities to disclose, in their financial statements, the aggregate amount of R&D expenditure incurred during the period.

In the current reporting period, the entity recognised a small amount of expenditure on R&D activities as an expense. No R&D expenditure was capitalised during the period.

When preparing its financial statements, the entity assessed the disclosure of information about R&D expenditure incurred during the period as immaterial, for Australian Accounting Standard purposes.

Application

To comply with local regulations, the entity discloses in its financial statements information about R&D expenditure incurred during the period. Australian Accounting Standards permit the entity to disclose that information in its financial statements, but the entity needs to organise its disclosures to ensure that material information is not obscured.

Example AusG.1—information that is immaterial according to Australian Accounting Standards required by local laws and regulations
Background An entity in the Australian not-for-profit private sector is a member of the Australian Council for International Development (ACFID) in order to receive international and government funding. ACFID requires not-for-profit entities to disclose education expenditure as a line item in the Statement of Profit or Loss and Other Comprehensive Income. In the current reporting period, the entity recognised a small amount of expenditure on community education activities. When preparing its financial statements, the entity assessed the community education expenditure incurred during the period as immaterial, for the purposes of Australian Accounting Standards. Application To comply with the ACFID’s guidance on financial reporting, the entity discloses the community education expenditure as a line item in its Statement of Profit or Loss. Australian Accounting Standards permit the entity to disclose that information in its financial statements, but the entity needs to organise its disclosures to ensure that material information is not obscured.

Example AusG.1—information that is immaterial according to Australian Accounting Standards required by local laws and regulations

Background

An entity in the Australian not-for-profit private sector is a member of the Australian Council for International Development (ACFID) in order to receive international and government funding. ACFID requires not-for-profit entities to disclose education expenditure as a line item in the Statement of Profit or Loss and Other Comprehensive Income.

In the current reporting period, the entity recognised a small amount of expenditure on community education activities.

When preparing its financial statements, the entity assessed the community education expenditure incurred during the period as immaterial, for the purposes of Australian Accounting Standards.

Application

To comply with the ACFID’s guidance on financial reporting, the entity discloses the community education expenditure as a line item in its Statement of Profit or Loss. Australian Accounting Standards permit the entity to disclose that information in its financial statements, but the entity needs to organise its disclosures to ensure that material information is not obscured.

Example H—information that is material according to Australian Accounting Standards not required by local laws and regulations
Background An entity operates in a country where the government requires the disclosure of the details of property, plant and equipment (PP&E) disposals, but only if their carrying amounts exceed a specified percentage of total assets. In the current reporting period, the entity disposed of PP&E below the threshold specified in the local regulation. This transaction was with a related party, which paid the entity less than the fair value of the item disposed. When preparing its financial statements, the entity applied judgement and concluded that information about the details of the disposal was material, mainly because of the terms of the transaction and the fact it was with a related party. Application To comply with Australian Accounting Standards, the entity discloses details of that disposal even though local regulations require disclosure of PP&E disposals only if their carrying amount exceeds a specified percentage of total assets.

Example H—information that is material according to Australian Accounting Standards not required by local laws and regulations

Background

An entity operates in a country where the government requires the disclosure of the details of property, plant and equipment (PP&E) disposals, but only if their carrying amounts exceed a specified percentage of total assets.

In the current reporting period, the entity disposed of PP&E below the threshold specified in the local regulation. This transaction was with a related party, which paid the entity less than the fair value of the item disposed.

When preparing its financial statements, the entity applied judgement and concluded that information about the details of the disposal was material, mainly because of the terms of the transaction and the fact it was with a related party.

Application

To comply with Australian Accounting Standards, the entity discloses details of that disposal even though local regulations require disclosure of PP&E disposals only if their carrying amount exceeds a specified percentage of total assets.

See paragraph 30A of AASB 101 and paragraph BC30F of the Basis for Conclusions on IAS 1.