Section 28: Transition to Tier 3 General Purpose Financial Statements (AASB 1061_04-26)

This section applies to the first set of financial statements prepared by an entity that is: 

(a) complying with this Standard for the first time; or 

(b) resuming the application of Tier 3: Australian Accounting Standards – Simplified Accounting reporting requirements, provided that its most recent previous financial statements do not comply with all the relevant recording and measurement requirements of this Standard (except as specified in paragraph 28.3). 

These financial statements (‘first Australian-Accounting-Standards financial statements (Tier 3)’) are those that conform with the requirements of this Standard in all respects and include an explicit and unreserved statement of such compliance.

This section applies when the entity’s most recent previous financial statements: 

(a) were held out to be general purpose financial statements that comply with Tier 1: Australian Accounting Standards or Tier 2: Australian Accounting Standards – Simplified Disclosures reporting requirements; or 

(b) were special purpose financial statements.

This section does not apply to the financial statements of an entity that is resuming the application of Tier 3 reporting requirements when its most recent previous financial statements complied with all relevant recording and measurement requirements of this Standard. However, the entity shall make the disclosures in paragraphs 28.16(a) and (b) in addition to those required by Section 9.

Except where paragraph 28.5 applies, an entity’s date of transition to this Standard is the beginning of the current reporting period.

An entity that complies with paragraph 28.6(a) may elect to restate the comparative financial statements in its first Australian-Accounting-Standards financial statements (Tier 3) to reflect the recording, measurement, presentation and disclosure requirements of this Standard. In this case, the entity’s date of transition to this Standard is the beginning of the earliest comparative period presented in those financial statements. The exemptions in paragraphs 28.12(f) and (g) are not available. 

In its first Australian-Accounting-Standards financial statements (Tier 3), an entity shall either: 

(a) apply the relevant requirements in paragraphs 28.8–28.12; or 

(b) retrospectively apply the other sections of this Standard in accordance with Section 9 as if the entity had always applied Tier 3 reporting requirements. However, in this case the exemptions in paragraphs 28.12(f) and (g) are also available.

In relation to the alternative transition approaches set out in paragraph 28.6: 

(a) the requirement in paragraph 1.5 for an entity to comply with the transition requirements of the Standards listed in that paragraph does not apply to an entity that complies with paragraph 28.6(a). Instead, the transition requirements in paragraphs 28.8–28.12 apply to its first Australian-Accounting-Standards financial statements (Tier 3); and 

(b) the election to present changes in fair value in other comprehensive income permitted by other sections of this Standard is not available for a class of assets already held on the date of transition by an entity that applies Section 9 (including paragraphs 9.10–9.11) in its first Australian-Accounting-Standards financial statements (Tier 3).

Except as set out in paragraphs 28.10 and 28.12, an entity shall on its date of transition to this Standard: 

(a) record all assets and liabilities that this Standard requires to be recorded; 

(b) cease recording items as assets or liabilities if this Standard does not permit such recording; 

(c) reclassify items recorded under its former accounting policies as one type of asset, liability or component of equity that are a different type of asset, liability or component of equity under this Standard; and 

(d) apply this Standard in measuring all recorded assets and liabilities.

The accounting policies an entity uses as at the date of transition to this Standard may differ from those it used in its most recent previous financial statements. An entity shall account for changes in accounting policies retrospectively by recording the cumulative effect of a new accounting policy at the date of transition, as if the new accounting policy had always been applied but without restating information presented in prior periods. The resulting adjustments to an entity’s financial position on the date of transition arise from transactions, other events or conditions before the date of transition to this Standard. Therefore, an entity shall record those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition.

In its first Australian-Accounting-Standards financial statements (Tier 3), an entity shall not retrospectively change the accounting that it followed under its previous accounting policies for any of the following items: 

(a) ceasing to record financial assets and financial liabilities – financial assets and financial liabilities that an entity ceased recording under its previous accounting policies shall not be reinstated (ie recorded) upon adoption of this Standard. Conversely, for financial assets and financial liabilities within the scope of paragraph 10.2 or as identified in paragraph 10.4 that an entity would have ceased recording under this Standard in a transaction that took place before the date of transition, but that continued to be recorded under the entity’s previous accounting policies, the entity may elect to either: 

(i) cease recording them on adoption of this Standard; or 

(ii) continue recording them until disposed of or settled; 

(b) accounting estimates; and 

(c) measuring non-controlling interests – the requirements of paragraph 4.7 to allocate profit or loss and total comprehensive income between non-controlling interests and owners of the parent shall be applied prospectively from the date of transition to this Standard.

An entity may need to make estimates in accordance with this Standard at the date of transition that were not required at that date under the entity’s former accounting policies. These estimates shall reflect conditions that existed at the date of transition to this Standard. In particular, estimates at the date of transition to this Standard of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

An entity may use one or more of the following exemptions from the requirements of paragraph 28.8 in preparing its first Australian-Accounting-Standards financial statements (Tier 3): 

(a) cost of an asset measured on a cost basis – at the date of transition to this Standard, the entity may elect to measure: 

(i) an item of property, plant and equipment, an investment property or an intangible asset at its fair value; 

(ii) an item of inventory at its current replacement cost; 

(iii) an investment in a notable relationship entity at its fair value or at the carrying amount in its most recent previous financial statements; and 

(iv) an investment in a subsidiary, joint venture or associate at its fair value or at the carrying amount in its most recent previous financial statements; 

and use that value as its deemed cost at that date; 

(b) ‘make good’ obligations included in the cost of property, plant and equipment – paragraph 15.5(c) states that the cost of an item of property, plant and equipment includes the initial estimate of a ‘make good’ obligation. The entity may elect to measure this component of the cost of an item of property, plant and equipment at the date of transition to this Standard, instead of on the date(s) when the obligation initially arose; 

(c) revenue – the entity may elect to apply Section 20 prospectively to transactions that occur on or after the date of transition to this Standard. In this case, the entity does not change its accounting policy for recording revenue for any contracts in progress at that date (for example, an entity that previously prepared financial statements on a cash accounting basis does not record a deferred revenue obligation for any unsatisfied agreed performance at the transition date because the revenue would have already been recorded in a previous period); 

(d) elections to present changes in the fair value of investments in notable relationship entities, subsidiaries, associates and joint ventures and of financial assets within the scope of paragraph 10.2 in other comprehensive income – at the date of transition to this Standard, the entity may make the election permitted by another section of this Standard to present changes in the fair value of such classes of assets in other comprehensive income on the basis of the facts and circumstances that exist on that date, as though the date of transition was the date of initial recording of the first asset in the class; 

(e) accounting for entity combinations, investments in associates and interests in joint arrangements – an entity may elect to apply Section 17 and Section 13 prospectively to all entity combinations and acquisitions of investments in associates and interests in joint arrangements from the date of transition to this Standard, or from a selected date before the transition date. The same date shall apply to all combinations and acquisitions. However, the entity shall cease recording goodwill relating to combinations that occurred prior to the date of transition or the selected date, as appropriate; 

(f) correction of prior period errors – an entity that becomes aware of an error in its financial statements for one or more prior periods may elect to correct that error by recording the cumulative effect of the correction against the relevant opening balances of assets, liabilities and items of equity on the date of transition to this Standard, without restating the information presented for prior periods. The entity need not distinguish corrections of prior period errors and changes in accounting policies in its first Australian-Accounting-Standards financial statements (Tier 3); and 

(g) comparative information – the entity need not present comparative information in the notes for the information required by this Standard if it did not disclose that information in its most recent previous financial statements.

An entity shall explain how the transition from its most recent previous financial statements to Tier 3 reporting requirements affected its reported financial position, financial performance and cash flows. This explanation shall include: 

(a) a description of the nature of each change in accounting policy; and 

(b) in respect of an entity that applies paragraphs 9.10–9.11 to account for changes in accounting policies in its first Australian-Accounting-Standards financial statements (Tier 3) in accordance with paragraph 28.6(b) – the information required by paragraph 9.13, unless it is impracticable to do so. In this case, the entity shall disclose this fact. 

However, an entity whose most recent previous financial statements were special purpose financial statements need not disclose a description of the nature of each change in accounting policy.

If an entity uses one or more of the exemptions in paragraph 28.12, it shall disclose that fact.

An entity that did not prepare financial statements for the immediately preceding reporting period shall disclose that fact in its first Australian-Accounting-Standards financial statements (Tier 3).

An entity that is resuming application of Tier 3 reporting requirements shall disclose: 

(a) the reason it stopped applying Tier 3 reporting requirements; 

(b) the reason it is resuming the application of Tier 3 reporting requirements; and 

(c) whether it applied this section or Section 9 to its opening balances of assets, liabilities and items of equity on the date of transition.

Where comparative information has not been restated, an entity shall: 

(a) prominently label the comparative information that is not compliant with Tier 3 reporting requirements as being non-compliant with Tier 3 reporting requirements; and 

(b) disclose the type of the most recent previous financial statements of the entity (eg special purpose financial statements, Australian-Accounting-Standards financial statements (Tier 1) or Australian-Accounting-Standards financial statements (Tier 2)).

An entity that applies paragraphs 28.8–28.12 in preparing its first Australian-Accounting-Standards financial statements (Tier 3) may, but is not required to: 

(a) present reconciliations of its equity reported in its most recent previous financial statements to its equity determined under Tier 3 reporting requirements at the date of transition to this Standard; and 

(b) include a reconciliation of the profit or loss reported in the entity’s most recent previous financial statements to its profit or loss determined under Tier 3 reporting requirements for the same period.