Explanatory Memorandum
Circulated By the Authority of the Minister for Financial Services, Superannuation, Corporate Law and Human Services, the Hon Chris BowenChapter 6 - IFRS declaration
Context of amendments
6.1 Some feedback from foreign jurisdictions has suggested there is a lack of awareness that the financial statements of Australian companies and other reporting entities are compliant with IFRS made by the International Accounting Standards Board (IASB). In particular, as accounting standards in Australia are commonly referred to as 'Australian-equivalent International Financial Reporting Standards (AIFRS)', there is a perception that they are not identical to IFRS.
6.2 Lack of international recognition of Australia's IFRS adoption prevents Australia from realising the full benefits of IFRS in relation to the facilitation of foreign investment.
6.3 Companies are already required by the accounting standards to make a statement of IFRS compliance in the notes to their financial statements. Auditing standards also require auditors to make a declaration of IFRS compliance in the audit report. However, there is no corresponding requirement in the directors' declaration and this may create some confusion.
Summary of new law
6.4 Where a company, disclosing entity or registered scheme has included in the notes to the financial statements, in compliance with the accounting standards, an explicit and unreserved statement of compliance with IFRS, the directors' declaration included in the annual report must indicate that this statement has been included in the notes to the financial statements.
Comparison of key features of new law and current law
| New law | Current law |
| Under the new law, where the notes to the financial statements include an explicit and unreserved statement of compliance with IFRS, the directors' declaration included in the annual report must indicate that this statement has been included in the notes to the financial statements. | Under the current law, no such statement has to be included in the directors' declaration. However, companies are required by accounting standards to make a statement of IFRS compliance in the notes to their financial statements. Auditing standards also require auditors to make a declaration of IFRS compliance in the audit report. |
Detailed explanation of new law
6.5 The Bill requires that a new paragraph, 295(4)(ca) be inserted to require the directors' declaration to include, where the notes to the financial statements include an explicit and unreserved statement of compliance with IFRS, advice that this statement has been included in the notes to the financial statements . [Schedule 1, Part 1, Item 18]
6.6 Subsection 295(1) of the Act provides that a company's financial report for a financial year includes the directors' declaration about the statements and notes. The details required in the directors' declaration are provided under subsection 295(4).
6.7 The purpose of this amendment is to ensure international recognition of Australia's adoption of IFRS. This will also create consistency between the auditor's report, directors' declaration and the notes to the financial statements.