INTRODUCTION
The objective of this Technical Accounting (TA) Alert is to:
- provide information on new and revised Accounting Standards that are mandatorily applicable for the first time to 31 December 2023 annual and/or half-year ends; and
- highlight other recent financial reporting developments.
This TA Alert incorporates all the relevant pronouncements and developments as at 11 December 2023. Entities should also take into account any new pronouncements issued, or developments taking place, after this date if they are relevant for the financial year and/or half-year ending 31 December 2023.
For a list of all the pronouncements issued by the AASB and the IASB that are not yet effective, refer to our latest TA Alert on this topic on our website.
OVERVIEW
The new and revised Australian accounting requirements that are mandatory for the first time to annual and/or half-year reporting periods ending 31 December 2023 are summarised in the table below.
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First-time application to full-year reporting periods ending 31 December 2023
There are several new and revised standards that became effective for the annual/half-year periods ending 31 December 2023. This TA Alert focuses only on standards and interpretations with relatively significant changes. Other standards are unlikely to have any significant impact on entities.
AASB 17 Insurance Contracts
AASB 17 Insurance Contracts replaces AASB 4 Insurance Contracts which permitted various accounting treatments for insurance contracts. AASB 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts within the scope of the Standard. The objective of AASB 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on an entity’s financial position, financial performance, and cash flows.
AASB 17 requires all insurance contracts to be accounted for in a consistent manner and requires insurance obligations to be accounted for using current values. The standard introduces insurance contract measurement principles requiring:
- current, explicit and unbiased estimates of future cash flows;
- discount rates that reflect the characteristics of the contracts’ cash flows; and
- explicit adjustment for non-financial risk.
Under AASB 17:
- day one profits should be deferred as contractual service margin and allocated systematically to profit or loss as entities provide coverage and are released from risk;
- revenue is no longer equal to written premiums but to the change in the contract liability covered by consideration;
- a separate measurement model applies to reinsurance contracts held. Where modifications occur, the entity either derecognises the original contract and recognises the new contract subject to the satisfaction of certain conditions, or treats the changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows; and
- increased disclosure requirements apply.
A reminder that the application of AASB 17 is broader than to entities within the insurance industry as it applies to any contract that meets the definition of an insurance contract as defined in AASB 17.
Other developments that are relevant to annual periods ending 31 December 2023
ASIC focus areas for 31 December 2023
The Australian Securities and Investments Commission (ASIC) focus areas for 31 December 2023 has been released and is available in a separate Technical Accounting Alert here on our website.
