Appendix B (AASB1056_12-23)

This Standard applies to the general purpose financial statements of superannuation entities, as defined in Appendix A. The definition of ‘superannuation entity’ includes regulated superannuation funds under the Superannuation Industry (Supervision) Act 1993 (SIS Act). It also includes various public sector superannuation arrangements, but does not include pooled superannuation trusts. Accordingly the term has a different meaning in this Standard from its meaning in the SIS Act.

In some cases, entities administering superannuation arrangements, particularly in the public sector, would need to consider the nature of their activities and the boundaries of their arrangements to determine whether they are superannuation entities that would apply this Standard. They may instead be only custodial arrangements under which member liabilities rest directly and solely with employer-sponsors.

When the recognition, measurement and disclosure principles and requirements in this Standard address the same items or events as the recognition, measurement and disclosure principles and requirements in other Australian Accounting Standards, a superannuation entity need not apply those other Standards. For example, a superannuation entity applying this Standard would:

(a) measure financial assets at fair value and recognise fair value changes in the income statement and not apply AASB 9 Financial Instruments; which might otherwise require some financial assets to be measured at amortised cost or fair value through other comprehensive income; and

(b) disclose information about expenses in accordance with paragraphs 9 and 22 and need not disclose information in accordance with paragraphs 99-105 of AASB 101 Presentation of Financial Statements regarding an analysis of expenses.

Additionally, when the measurement principles in this Standard are different from the measurement principles in other Australian Accounting Standards, the disclosure requirements related to the measurement requirements in those other Australian Accounting Standards do not apply. For example, a superannuation entity that holds plant and equipment is not required to disclose the carrying amounts that would have been recognised had the assets been measured under the cost model in accordance with paragraph 77(e) of AASB 116 Property, Plant and Equipment.

When a superannuation entity applies the recognition and measurement principles and requirements in other Australian Accounting Standards, the entity would also apply any relevant disclosure principles and requirements contained in those other Standards unless they are specifically modified by this Standard. Australian Accounting Standards that contain disclosure principles and requirements, some or all of which a superannuation entity would apply, when relevant, include but are not limited to the following:

(a) AASB 7 Financial Instruments: Disclosures;^[1]

(b) AASB 12 Disclosure of Interests in Other Entities;

(ba) AASB 15 Revenue from Contracts with Customers;

(c) AASB 101 Presentation of Financial Statements;

(d) AASB 107 Statement of Cash Flows;

(e) AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;

(f) AASB 110 Events after the Reporting Period;

(g) AASB 112 Income Taxes;

(h) [deleted]

(i) AASB 124 Related Party Disclosures.

When a superannuation entity applies other Australian Accounting Standards, the entity also applies relevant Australian Interpretations listed in AASB 1048 Interpretation of Standards.

Consistent with AASB 101, alternative titles can be used for the financial statements to suit the circumstances. For example, the statement of changes in equity might be better described as a statement of changes in reserves in some circumstances.

Where a superannuation entity’s total assets differs from its total liabilities (including defined contribution member liabilities, defined benefit member liabilities and any obligations to employer-sponsors), the difference is classified as equity and presented in accordance with applicable Australian Accounting Standards. In these circumstances, consistent with paragraph 55 of AASB 101, the entity may need to present additional line items, headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position.

Differences between the total assets and total liabilities of a superannuation entity commonly arise in relation to matters such as operational risk reserves and, in respect of defined benefit members, due to factors such as differences between actual and assumed experience.

A superannuation entity that has both defined contribution and defined benefit members would present separately its obligations for the two types of benefits in accordance with paragraph 32.

Superannuation entities would be expected to present the various classes of their investments in a meaningful way, consistent with the requirements of AASB 101.

Judgement needs to be exercised in the context of a superannuation entity about how to describe investments presented in its statement of financial position so as to explain the nature of investments to users. For example, an investment in a unit trust might need to be described so as to reflect the nature of the assets underlying the unit trust.

Revenues and expenses are presented in relevant subclassifications in the income statement or notes to the financial statements.

Gains and losses arising from the remeasurement of assets and liabilities measured at fair value are included in the income statement. An example of a liability measured at fair value is a derivative financial instrument that is a liability.

The income tax expense or benefit attributable to profit or loss does not include the taxes levied on concessional contributions, which is included in the statement of changes in member benefits and impacts on the amount of net benefits allocated to members.

The net change in defined benefit member liabilities for a period is the difference between the opening and closing balances of the defined benefit member liabilities for the period, after adjusting for inwards and outwards movements, including:

(a) contributions;

(b) tax on contributions;

(c) benefits to members; and

(d) transfers between reserves and accrued benefits.

A superannuation entity that presents an income statement in accordance with this Standard does not present a single statement of comprehensive income, or separate income statement and statement of comprehensive income, in accordance with AASB 101.

In the context of the line items that might appear in a statement of changes in member benefits in accordance with paragraph 11:

(a) employer contributions include both routine contributions and any ‘top-up’ contributions made to fund defined benefit member liabilities;

(b) net benefits allocated to defined contribution members include the investment returns and fair value movements allocated to these members – the line item might be positive or negative; and

(c) net changes to defined benefit members may include a number of components because the service element for a period might be different from actual contributions for that period and because of the interest cost associated with the liability – the line item might be positive or negative.

When a surplus in a defined benefit plan is being used to fund employer contributions to defined contribution members within the one superannuation entity, the entity determines the most relevant presentation in the statement of changes in member benefits in the circumstances. That might include presenting a transfer from defined benefit member benefits to defined contribution member benefits as separate line items in relation to sources of contributions.

In relation to the net amount allocated to defined contribution member accounts, when appropriate, there shall be separate disclosure of net investment income and the administration costs charged to member accounts in the statement of changes in member benefits or in the notes to the financial statements.

Under this Standard, the interests of members of superannuation entities are liabilities and are not regarded as meeting the definition of an ‘equity instrument’ in paragraph 11 of AASB 132 Financial Instruments: Presentation, which is “any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities”. Superannuation entities would not disclose ‘equity’ information equivalent to that required by paragraphs 79(a) and 80 of AASB 101, in relation to member liabilities.

Paragraph 6 of AASB 101 notes: entities that do not have equity as defined in AASB 132 may need to adapt the financial statement presentation of members’ interests. Consistent with this notion, superannuation entities need to exercise judgement in preparing the statement of changes in equity/reserves, including the title and content of that statement.

This Standard requires assets and liabilities, other than member liabilities, tax assets and liabilities, acquired goodwill and insurance assets and liabilities, to be measured at fair value with fair value changes recognised through the income statement. This would include:

(a) financial assets and liabilities, including derivatives;

(b) investment property; and

(c) property, plant and equipment.

In determining the fair value measurements and accounting for any transaction costs, a superannuation entity applies the relevant principles and requirements in other applicable Australian Accounting Standards, including in particular AASB 13 Fair Value Measurement. Superannuation entities shall not apply AASB 5 Non-current Assets Held for Sale and Discontinued Operations.

The amount of defined benefit member liabilities measured in accordance with paragraph 17 is a present value based on a portfolio of investments estimated to yield future net cash inflows that would be sufficient to meet accrued benefit payments when they are expected to fall due. In this context:

(a) the amount relates to members’ service up to the reporting date;

(b) it is assumed the accrued benefits will be fulfilled and, accordingly, there is no adjustment for the superannuation entity’s own credit risk;

(c) the expected cash outflows relevant to measuring the liability take into account the timing and probabilities attaching to various factors that reflect the characteristics of the members/beneficiaries and the features of entitlements (including expected rates of: member turnover; mortality and disability; salary adjustment; early retirement; and member choice of available options, such as lump sum and pension options). The relevant portfolio of investments would not necessarily be a portfolio of instruments that is expected to yield contractual net cash inflows that match the timing of the expected net cash outflows relating to the liability. It might be a portfolio that is expected to yield either contractual or non-contractual net cash inflows that match the timing of expected net cash outflows relating to the liability;

(d) the investment returns relevant to measuring the liability are those expected on a portfolio of investments that reflects the opportunities available in investment markets and not necessarily the actual investments held by the superannuation entity to meet accrued defined benefit member liabilities. Accordingly, the measurement is not dependent on whether the benefits are fully funded, under/over funded or completely unfunded. However, in many cases there would be a strong relationship between the portfolio of investments used for measurement purposes and, where relevant, the superannuation entity’s actual portfolio of investments, consistent with its investment strategy in respect of meeting defined benefit member liabilities;

(e) the accrued benefit amount might be more or less than the value of vested benefits; and

(f) the discount rate would exclude risks incorporated in the expected cash flows (to avoid ‘double-counting’ of the impacts of risks).

In applying the defined benefit member liability measurement requirements of this Standard, superannuation entities may use estimates, averages and computational shortcuts provided that application of those shortcut techniques yield a reasonable approximation of the defined benefit member liabilities.

A specific contractual or statutory arrangement in place between the superannuation entity and the relevant employer-sponsor(s) in relation to funding defined benefit member liabilities might give rise to an asset recognised in accordance with paragraph 18.

A receivable meeting the definition and recognition criteria for an asset in the Conceptual Framework for Financial Reporting would be measured at its intrinsic value. That is, the difference between the defined benefit member liabilities and the amount of the other recognised assets held to meet those liabilities, unless the amount of the receivable is capped in some manner.

Notwithstanding paragraph AG28, in respect of AusCF entities, a receivable meeting the definition and recognition criteria for an asset in the Framework for the Preparation and Presentation of Financial Statements would be measured at its intrinsic value. That is, the difference between the defined benefit member liabilities and the amount of the other recognised assets held to meet those liabilities, unless the amount of the receivable is capped in some manner.

To meet the objectives in paragraph 22, when relevant, the superannuation entity discloses:

(a) income by class, such as interest, dividends and rentals;

(b) net gain or loss arising from the remeasurement of assets and liabilities measured at fair value;

(c) net gain or loss attributable to liabilities and assets arising from insurance arrangements the superannuation entity provides to its members;

(d) administration expenses;

(e) investment expenses, such as investment manager fees, investment consultant fees and custodian fees;

(f) actuarial fees;

(g) audit fees;

(h) commissions paid directly by the superannuation entity;

(i) trustee fees and reimbursements; and

(j) sponsorship and advertising expenses.

Paragraph 23 requires a superannuation entity to disclose information that provides users with a basis for understanding member liabilities. Paragraph 24(a) requires a superannuation entity to treat its defined contribution member liabilities as being within the scope of AASB 7 for the purposes of disclosing information about credit risk, market risk and liquidity risk. The fair value disclosure requirements of AASB 7 need not be applied in respect of member liabilities.

In applying the relevant principles and requirements of AASB 7 in respect of credit risk, market risk and liquidity risk, an entity would give consideration to the characteristics of member benefits in determining the information it would provide. For example, the entity would consider disclosing:

(a) the mechanism by which market risk is passed on to members, such as through frequent crediting of member accounts; and

(b) how it manages the liquidity risk associated with meeting withdrawals and, when relevant, pension payments.

Paragraph 25(a)(iii) identifies disclosure of the sensitivity of defined benefit member liabilities to changes in key assumptions used in their measurement as being required to meet the objective of paragraph 23. The subject of the disclosures is reasonably possible changes in the key assumptions. When there is more than one key assumption for which a change is judged to be reasonably possible, the analysis can be performed on a univariate basis or on a multivariate basis.

When a superannuation entity has multiple defined benefit plans, judgement needs to be applied to determine the most relevant levels of aggregation at which to disclose information, particularly where the information differs from plan to plan. Depending on the circumstances, the requirements might be able to be satisfied through aggregate disclosures about multiple plans or they might need to involve plan-by-plan disclosure.

In meeting the requirement in paragraph 32 to present disaggregated information, a superannuation entity that has material member liabilities relating to different types of members, such as defined contribution members and defined benefit members, would need to consider separately presenting:

(a) line items in the statement of financial position for each of the different membership types in respect of member liabilities; and

(b) either a single statement of changes in member benefits with columns or notes showing the amounts relating to different membership types or separate statements of changes in member benefits for each different type of members.

This would be in addition to presenting the aggregated information.

Depending on the circumstances of the superannuation entity, other disaggregated information might also be necessary to explain the risks to which different categories of members are exposed.

For the purpose of applying the disclosure principles and requirements in AASB 7, an entity would consider financial assets and any financial liabilities to be measured at fair value through profit or loss and, accordingly, the fair value disclosure requirements of AASB 7 need not be applied to these assets and liabilities.

For the purpose of applying the disclosure principles and requirements in AASB 7, an entity would read references in AASB 7 to ‘statement of comprehensive income’ to mean ‘income statement’.

In complying with the comparative information requirements of AASB 101 a superannuation entity discloses:

(a) key assumptions used in measuring defined benefit member liabilities at the end of the last annual reporting period; and

(b) how, if at all, those assumptions differ from the corresponding key assumptions used in measuring defined benefit member liabilities at the end of the current period.

A trustee of a superannuation entity is a related party of the entity for the purpose of applying AASB 124.

Superannuation entities often have insurance arrangements in place for their members and the extent to which they affect the financial statements varies depending on the nature of those arrangements. Some superannuation entities act only as agents for external insurers. Other superannuation entities act in the capacity of insurers and, therefore, take on insurance risks.

Factors that might be considered in determining whether a superannuation entity is acting as an agent in respect of the insurance arrangements provided to members include:

(a) members (or their beneficiaries) will only receive insurance benefits if the external insurer/reinsurer pays claims;

(b) insurance premiums are only paid through the superannuation entity for administrative reasons; and

(c) insurance premiums are effectively set directly by reference to premiums set by an external insurer.

It is not necessarily indicative of a superannuation entity taking on the role of an insurer simply because:

(a) (group) insurance cover is taken out in the name of the superannuation entity trustee;

(b) claim benefits are paid to members (or their beneficiaries) via the superannuation entity; and

(c) ex gratia payments have occasionally been made by the trustees in respect of death and disability benefits.

When a superannuation entity is acting only as an agent for an external insurer, premiums are not revenues or expenses of the superannuation entity and do not give rise to insurance contract liabilities or reinsurance assets. However, the impacts on the financial statements could include:

(a) premium cash inflows collected from members and premium cash outflows paid to insurers in the statement of cash flows; and

(b) premiums charged to member accounts and insurance benefits paid to members via the superannuation entity in the statement of changes in member benefits.

When a superannuation entity is taking on the role of an insurer, the impacts on the financial statements could include:

(a) insurance contract revenue, incurred claims expense, reinsurance expense and reinsurance recoveries recognised in the income statement;

(b) insurance contract liabilities and reinsurance contract assets recognised in the statement of financial position; and

(c) insurance contract cash inflows, reinsurance contract cash outflows, claims cash outflows and reinsurance recoveries cash inflows recognised in the statement of cash flows.

Depending on the conditions set out in the relevant trust deed, defined benefit members or beneficiaries might be promised, for example, a lump sum benefit on retirement or resignation, a lump sum benefit on death or disablement, a pension on retirement for their remaining lifetime and/or a pension for the remaining lifetime of a spouse, and the pension may or may not be indexed in some way. The defined benefit member liability is effectively the sum of the expected values associated with the various ways in which members might be paid their benefits. It is relevant to consider the defined benefit member liability as a single item made up of inter-related components, rather than to seek to identify particular components for presentation purposes, such as an insurance component. Accordingly, liabilities and assets arising from insurance arrangements a superannuation entity provides to defined benefit members need not be presented as a separate liability in the statement of financial position. 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 in the income statement or statement of changes in member benefits.

Liabilities arising from insurance arrangements a superannuation entity provides to defined contribution members shall be presented separately from the entity’s liabilities for such members’ benefits in the statement of financial position.

Assets arising from the reinsurance arrangements of a superannuation entity related to defined contribution members shall be presented separately.

Insurance contract liabilities and reinsurance contract assets are recognised and measured in accordance with the approach to measuring defined benefit member liabilities, whether they relate to defined contribution or defined benefit members. Shortcut techniques could be applied to measure insurance contract liabilities, for example, deferring and matching premiums over the period, provided the amount is not materially different from the amount that would be determined using the approach to measuring defined benefit member liabilities.

If a reinsurance asset is impaired, its carrying amount shall be reduced accordingly and an impairment expense recognised in the income statement. A reinsurance asset is impaired if, and only if:

(a) there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the amounts due from the reinsurer may not be received under the terms of the contract; and

(b) that event has a reliably measurable impact on the amounts receivable from the reinsurer.

AASB 10 Consolidated Financial Statements, as amended by AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities, is applicable to periods beginning on or after 1 January 2014, and can be applied early.

AASB 10 is relevant for determining when consolidated financial statements must be presented. The AASB 2013-5 amendments provide an exception from consolidated financial statements for ‘investment entities’, which could include superannuation entities. The exception applies to all subsidiaries of investment entities, other than subsidiaries that provide services relating to the investment entity’s investment activities. A parent must account for its subsidiaries that are subject to the exception at fair value through profit or loss.

It is possible that now or in the future there may be superannuation entities that have subsidiaries and do not qualify to be treated as investment entities; or, that there are superannuation entities that qualify to be treated as investment entities and have subsidiaries that provide services relating to their investment activities. Such superannuation entities would:

(a) present consolidated financial statements in accordance with the requirements of AASB 10; and

(b) initially measure any non-controlling interests applying the fair value approach in accordance with AASB 3 Business Combinations at the subsidiary’s acquisition date and in accordance with AASB 10 at the end of each subsequent period.