We are pleased to present the December 2021 edition of General Update and Crypto, in this edition we will provide a general update on recent activity in the financial reporting space as well as a feature article on current issues in accounting for cryptocurrencies.
A number of articles are relevant for certain entities only and therefore this edition has been structured as follows:
- Relevant to all entities
- Feature article – Accounting for cryptocurrencies
- Relevant to NFP entities
- Relevant to preparers of Tier 2 Reduced Disclosure (RDR) financial statements
- Relevant to private sector for-profit entities
1. Relevant to all entities
Standards effective for the first time for December 2021 reporters
The new standard in place for the first time for 31 December reporters is listed below, it is narrow in scope and minor in nature and we would not expect significant impact for any of our clients:
|AASB 2020 – 8 Amendments to Australian Accounting Standards – Interest Rate BenchmarkReform – Phase 2|
|This standard amends AASB 4, AASB 7, AASB 9, AASB 16 and AASB 139 to help entities provide financial statement users with useful information about the effects of the interest rate benchmark reform on those entities’ financial statements.As a result of these amendments, an entity:will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate;will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria; andwill be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates.|
Although your entity may not be regulated by ASIC, it is important to review the errors which they are finding on their review of listed (and other) financial statements to ensure your directors are aware of current financial reporting focus areas and their relevant to your entity’s financial statements.
There have been three mis-statements covering two topics identified by ASIC during their financial statement reviews over the previous few months, the media release number has been identified for further reference.
2. Feature article – Accounting for cryptocurrencies
This type of transaction is not specifically addressed within the AASB standards and therefore entities need to look at the substance of the transaction and determine the most appropriate accounting policy in accordance with AASB 108.
This article reviews some factors for entities to consider in documenting their accounting policy.
The first step in formulating the accounting policy is to consider whether the cryptocurrencies purchased or created meet the accounting definition of an asset. The Conceptual Framework contains the definition of an asset, the IASB / AASB recently revised the Framework, however since this framework is not yet effective for all entities within Australia, we will consider both asset definitions.
Existing framework – a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Revised Conceptual Framework – Asa present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits
Based on these definitions, cryptocurrency held would meet the definition of an asset if an entity determined that future economic benefits would flow through receipt of cash or cryptocurrency in return for the sale of the assets.
Type of asset
If we determine that an asset is held, the next step is to identify the type of asset that has been created or purchased:
|Asset type||Relevant standard||Conclusion|
|Financial asset||AASB 9||Generally, cryptocurrency does not meet the definition of a financial asset since there is not a contractual right to receive or exchange cash or another financial asset.|
|Inventory||AASB 102||Inventories are assets held for sale in the ordinary course of business and therefore inventory may be appropriate with the assets being held at the lower of cost and net realisable value, depending on the purpose of holding the cryptocurrency.
Note the following exemption in AASB 102:
Commodity broker-traders are required to measure inventory at fair value less costs to sell which may be relevant for entities who are in the business of acquiring and selling cryptocurrencies.
|Intangible assets||AASB 138||Whilst the assets are non-monetary without physical substance they would seem to meet the definition of intangible assets and will be measured at either cost or fair value (if the entity believe an active market exists).
Note that AASB 138.3a has a scope exemption for intangible assets held by an entity for sale in the ordinary course of business since these assets are likely to be inventory.
|Cash||AASB 107||The tokens are generally not accepted as legal tender and are not backed by a government and therefore would not qualify as cash.|
|Cash equivalents||AASB 107||Does not meet the definition since they are not investments which are readily convertible to a known amount of cash and subject to insignificant risk of change in value.|
We encourage any entities who are purchasing, selling or holding cryptocurrency to reach out to their Accru contact to discuss the most appropriate accounting policy treatment for their circumstances.
3. Relevant to NFP entities
Changes to financial reporting thresholds
The Treasury and ACNC have announced the following financial reporting thresholds and requirements for the year ended 1 July 2021:
|Charity Size||Annual Revenue Threshold||Minimum ACNC Reporting Requirements|
|Small||Less than $500,000||ACNC Annual Information Statement|
|Medium||$500,000 or more and less than $3m||Annual Information Statement and Reviewed Financial Statements|
|Large||$3m or more||Annual Information Statement and Audited Financial Statements|
These are statutory requirements only and therefore charities can choose to continue to be audited.
Changes to related party disclosure requirements
ACNC entities preparing general purpose financial statements already report related party disclosures under AASB 124 or AASB 1060, however recent change to ACNC legislation will require medium and large charities who prepare special purpose financial statements to comply with the disclosure requirements of AASB 124 as follows:
- Large size charities with two or more key management personnel preparing special purpose financial statements will be required to report aggregated remuneration paid to those personnel for the 2021-22 financial year onwards.
- All charities will be required to report related party transactions for the 2022-23 financial year onwards.
Bed licences – are you prepared for 2024?
From 1 July 2024 bed licences within aged care facilities will be discontinued and therefore entities with an intangible asset related to bed licences will need to consider:
- Impairment – generally the bed licences would form part of a CGU and therefore since there is an impairment indicator, the value in use or fair value of the CGU will need to be estimated to obtain the recoverable amount. If the recoverable amount is less than the carrying amount of all assets within that CGU then any goodwill and the bed licences will record an impairment loss.
- Useful lives – regardless of whether an impairment exists, the useful life of the bed licences will need to be reviewed. It is unlikely that any useful life assigned can extend past 1 July 2024 and therefore we expect to see amortisation charges in the financial statements as the bed licences are written off over their remaining life.
- Judgements and estimates disclosure – where the carrying amount of bed licences is material, it would be appropriate to disclose information regarding the estimates and judgements made in the financial statements.
ASIC have released an FAQ (9D) covering this issue which can be accessed here.
Narrow scope project on revenue
The AASB has recently undertaken limited discussions with stakeholders to identify whether there were short-term, narrow scope actions to assist with the ongoing implementation of AASB 15 and AASB 1058.
Based on these discussions, educational material and additional examples will be developed in relation to a number of areas, including:
- Sufficiently specific
- Grants received in arrears
- Upfront payments
- Capital grants
A webinar will be held in early 2022 to discuss these areas and to ask for assistance from NFP entities on the post implementation review of the revenue standards for NFP entities which will be a more comprehensive review of the implementation process and challenges faced.
The AASB will also release an exposure draft in early 2022 based on feedback received in relation to the current temporary exemption to allow NFP entities to record the right-of-use asset arising from a concessionary lease at cost.
The exposure draft will propose that the exemption is made permanent for all concessionary leases for private sector NFP entities.
We encourage all of our clients who have concessionary leases to respond to the AASB once the exposure draft is released to support this proposal.
4. Relevant to preparers of Tier 2 Reduced Disclosure (RDR) financial statements
As discussed in the November 2020 and May 2021 issues of this newsletter, the AASB have introduced a new Tier 2 reporting framework to be effective from 1 July 2021 (i.e., 30 June 2022 year ends onwards).
This means that all entities, whether for-profit or not-for-profit, who have been preparing RDR financial statements will be required to change their disclosure requirements for their reporting period commencing after 1 July 2021.
The new tier 2 reporting framework is the Simplified Disclosure Standard (AASB 1060), there will be no change to numbers previously reported under RDR, however all presentation and disclosure requirements are now included in AASB 1060 instead of being included in the principal standards.
Generally, the level of disclosure will be lower under SDS, however there are some additional disclosure requirements including audit fees and imputation (franking) credits.
5. Relevant to private sector for-profit entities
The November 2020 and May 2021 issues of this newsletter worked through in detail the changes to the framework and discussed the entities which would be affected by the removal of special purpose financial statements for certain for-profit private sector entities.
These changes are effective from 1 July 2021 and therefore all for-profit private sector entities currently preparing special purpose financial statements should determine whether they will be required to prepare general purpose financial statements.
As a reminder general purpose financial statements are required if an entity meets either of the following requirements:
If you are affected or have questions on any of the areas covered in this newsletter, please reach out to your local Accru contact.