Main Differences Between AASB 1056 and AAS 25 (AASB1056_06-14_COMPmay19_01-20_2)

This summary accompanies, but is not part of, AASB 1056.

This summary highlights the main differences between AASB 1056 Superannuation Entities and its predecessor, AAS 25 Financial Reporting by Superannuation Plans.

AAS 25 required superannuation entities to apply, where appropriate, Australian Accounting Standards, but with some significant exceptions.  AASB 1056 takes a similar approach, but is far more integrated with other Australian Accounting Standards (and therefore with International Financial Reporting Standards).

Under AAS 25, superannuation plans whose only assets (other than temporary deposits at call with a bank) are endowment, whole of life or other long-term insurance policies that match and fully guarantee the benefits to be paid to individual members were not required to comply with a number of the recognition, measurement and disclosure requirements of AAS 25 [paragraph 66].  The general purpose financial report of such plans needed only to report a limited amount of information.

No equivalent exemption is provided in AASB 1056.

AASB 1056 defines a ‘superannuation entity’ as an entity that constitutes one or more superannuation plan(s) or an approved deposit fund.  A ‘superannuation plan’ is an entity that is:

(a)                   regulated under the Superannuation Industry (Supervision) Act 1993 or similar legislative requirements in the case of an exempt public sector superannuation plan; and

(b)                   established and maintained: (i) in order to receive superannuation contributions; and (ii) for the primary purpose of providing benefits to members upon their retirement, death, disablement or other event that qualifies as a condition of release for member benefits.

AAS 25 had a different definition; namely: an arrangement whereby it is agreed, between trustees and employers, employees or self-employed persons, that benefits be provided upon retirement of plan members or upon their resignation, death, disablement or other specified event(s).

However, the entities identified as having to apply AASB 1056 are not necessarily expected to differ from those identified as having to apply AAS 25.

AASB 1056 requires that superannuation entities present:

(a)                   a statement of financial position;

(b)                   an income statement;

(c)                   a statement of changes in equity/reserves;

(d)                   a statement of cash flows; and

(e)                   a statement of changes in member benefits.

AAS 25 required a defined contribution plan, and permitted a defined benefit plan, to present a statement of financial position, operating statement, and statement of cash flows.  Alternatively, defined benefit plans could present a statement of net assets and a statement of changes in net assets.

Items AASB 1056 requires to be presented in the income statement include:

(a)                   income in aggregate or subclassified;

(b)                   expenses in aggregate or subclassified;

(c)                   net benefits allocated to defined contribution member accounts;

(d)                   net change in defined benefit member liabilities;

(e)                   net result; and

(f)                    income tax expense or benefit attributable to net result.

AASB 1056 treats contributions from employers and members and benefits to members as affecting member liabilities, not as income and expenses.

AAS 25 required changes in the net market value of assets and financial liabilities to be included as a component of income.  Contributions from employers and members and benefits to members were accounted for as income and expenses.

AASB 1056 envisages that a difference may exist between total assets and liabilities (including member liabilities and any obligations to employer-sponsors) in the nature of equity/reserves that would be presented in the statement of financial position, with changes from period to period presented in a statement of changes in equity/reserves.

AAS 25 did not explicitly address this topic.

AASB 1056 requires a statement of changes in member benefits to be presented and that it includes:

(a)                   contributions, separately for employers and members;

(b)                   taxes on contributions;

(c)                   benefits to members;

(d)                   net benefits allocated to defined contribution members; and

(e)                   net changes to defined benefit member accrued benefits.

AAS 25 did not require presentation of a statement of changes in member benefits.

AASB 1056 requires assets and liabilities to be measured at ‘fair value through profit or loss’ with specific exceptions.  The exceptions include member liabilities and tax balances.

AAS 25 required assets and financial liabilities to be measured at ‘net market values’ with similar exceptions to those applying under AASB 1056.

AASB 1056 requires both defined contribution and defined benefit member liabilities to be recognised and measured as the amount of accrued benefits.  The measurement principle in AASB 1056 for a defined benefit member liability is the amount of a portfolio of investments that would be needed as at the reporting date to yield future net cash inflows that would be sufficient to meet accrued benefits as at that date when they are expected to fall due.

AASB 1056 requires defined benefit member liabilities to be measured at each reporting date.  However, AASB 1056 does not identify any particular methodologies that might be employed in measuring defined benefit member liabilities, for example, when an actuary is not engaged to conduct a full actuarial valuation, but notes that superannuation entities may use estimates, averages and computational shortcuts provided that any shortcut techniques used yield a reliable approximation of the defined benefit member liabilities.

AAS 25 required defined contribution member liabilities to be determined as the difference between assets and ‘other’ liabilities.  It required defined benefit member liabilities to be determined as the present value of expected future payments (remeasured at least once each three years).

AASB 1056 requires an asset to be recognised when there is a receivable from an employer-sponsor in respect of a difference between a defined benefit member liability and the fair value of assets available to meet that liability that meets the definition and recognition criteria for an asset.  The asset is required to be measured at its ‘intrinsic value’ (the amount of the difference, unless capped).  The requirement is expected to give rise to the recognition of an asset in only a limited number of cases.

AAS 25 did not address employer-sponsor receivables.

AASB 1056 has of a number of disclosure ‘principles’, including requiring the following disclosures:

(a)                   information that provides users with a basis for understanding the nature of the entity, the benefits provided to members and the expenses it incurs;

(b)                   information about changes in key components of defined benefit member liabilities that provides users with a basis for understanding the overall change;

(c)                   deeming defined contribution member liabilities to be within the scope of AASB 7 Financial Instruments: Disclosure in respect of credit risk, market risk and liquidity risk (but not the fair value disclosures);

(d)                   in relation to accrued defined benefit member liabilities, the basis for the assumptions used in measurement, including the manner in which they are determined, the impact of changes to demographic assumptions compared with changes in financial assumptions, and the sensitivity of the liabilities to reasonably possible changes in key assumptions;

(e)                   when net assets attributable to defined benefit members differs from defined benefit member liabilities, information explaining the policies for managing the difference; and

(f)                    disaggregated financial information where that would help to explain the risks to which different categories of members are exposed.

AAS 25 required some relatively specific disclosures regarding classes of assets, liabilities, investment revenue and expenses.  Many of these related to member liabilities and would be captured in the statement of changes in member benefits required by AASB 1056.

Whether a superannuation entity has an obligation under insurance arrangements, or is only acting as an agent will depend on the nature of the arrangements.  AASB 1056 requires that, when a superannuation entity is acting in the capacity of an insurer and has an obligation under insurance arrangements provided to members (whether defined contribution or defined benefit), any insurance contract liabilities and assets are measured in a manner consistent with the way in which defined benefit member liabilities are measured.  In respect of defined contribution members, any insurance liabilities, assets, insurance premiums, claim expenses, reinsurance expenses and reinsurance recoveries would be shown separately in the statement of financial position, income statement, or notes to the financial statements.  However, liabilities and assets arising from insurance arrangements a superannuation entity provides to defined benefit members need not be presented separately from the entity’s liabilities for such members’ benefits.  Furthermore, unless there are explicit direct premiums, claims, reinsurance premiums or claim recoveries relating to insurance risks, revenues and/or expenses relating to insurance arrangements a superannuation entity provides to defined benefit members need not be presented separately.

AAS 25 did not address insurance arrangements provided to members other than in the context of providing an exemption from some of the requirements of AAS 25 for a plan that purchases insurance policies that match and guarantee benefits to members.

Consolidated financial statements are not explicitly addressed in AASB 1056.  The requirements of AASB 10 Consolidated Financial Statements, as amended by AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities, would apply.

Consolidated financial statements were also not explicitly addressed in AAS 25 and the requirements in AASB 127 Consolidated and Separate Financial Statements and AASB 10 applied.^[2]

AASB 10 is relevant for determining when a consolidation takes place.  The AASB 2013-5 amendments provide an exception from consolidation for investment entities, which could include superannuation entities.  The exception applies to all subsidiaries of investment entities except subsidiaries that provide services relating to the investment entity’s investment activities.