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ISSN 1036-4803

Preface

Standards amended by AASB 2025-2

This Standard makes amendments to AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (March 2020).

Main features of this Standard

Main requirements

AASB 2024-2 Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments amended AASB 7 Financial Instruments: Disclosures and AASB 9 Financial Instruments in response to feedback from the 2022 Post-implementation Review of the classification and measurement requirements in AASB 9 and related requirements in AASB 7 and the subsequent 2023 Exposure Draft. AASB 2024-2 amended requirements related to:

settling financial liabilities using an electronic payment system;
assessing contractual cash flow characteristics of financial assets with environmental, social and corporate governance (ESG) and similar features; and
disclosures about:

financial instruments with contingent features that do not relate directly to basic lending risks and costs; and
investments in equity instruments designated at fair value through other comprehensive income.

This Standard amends AASB 1060 to require a Tier 2 entity to disclose information about financial instruments with contingent features that do not relate directly to basic lending risks and costs so that financial statement users can better understand the effect of contractual terms that could change the amount of contractual cash flows. However, the Standard does not add further specific disclosure requirements about investments in equity instruments designated at fair value through other comprehensive income.

This Standard also amends AASB 1060 to renumber the supplier finance arrangement disclosures (currently in paragraphs 119A‒119C) and relocate them and their related heading from the “Basic Financial Instruments” section of the Standard to the “Statement of Cash Flows” section.

Application date

This Standard applies to annual periods beginning on or after 1 January 2026, with earlier application permitted.

Accounting Standard AASB 2025-2

The Australian Accounting Standards Board makes Accounting Standard AASB 2025-2 Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments: Tier 2 Disclosures under section 334 of the Corporations Act 2001.

Keith Kendall

Dated 6 March 2025 Chair – AASB

Accounting Standard AASB 2025-2

Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments: Tier 2 Disclosures

Objective

This Standard amends AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (March 2020) to require a Tier 2 entity to disclose information about financial instruments with contingent features that do not relate directly to basic lending risks and costs that enables users of financial statements to understand the effect that changes in contractual terms could have on the entity’s future cash flows.
This amendment reflects the issuance of AASB 2024-2 Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments, which amended AASB 7 Financial Instruments: Disclosures (August 2015) and AASB 9 Financial Instruments (December 2014), and extends some of the new disclosure requirements to Tier 2 entities.

Application

The amendments set out in this Standard apply to entities and financial statements in accordance with the application of AASB 1060 set out in AASB 1057 Application of Australian Accounting Standards.
This Standard applies to annual periods beginning on or after 1 January 2026. Earlier application is permitted.

Amendments to AASB 1060

Paragraphs 119A–119C under the ‘Supplier finance arrangements’ heading are renumbered as paragraphs 87A–87C respectively. The heading is also relocated with the renumbered paragraphs.
New paragraphs 119A–119C are added immediately after paragraph 119:

119A An entity shall disclose the information required by paragraph 119B by class of financial assets measured at amortised cost or fair value through other comprehensive income and by class of financial liabilities measured at amortised cost. The entity shall consider how much detail to disclose, the appropriate level of aggregation or disaggregation, and whether users of financial statements need additional explanations to evaluate any quantitative information disclosed.

119B To enable users of financial statements to understand the effect of contractual terms that could change the amount of contractual cash flows based on the occurrence (or non-occurrence) of a contingent event that does not relate directly to changes in basic lending risks and costs (such as the time value of money or credit risk), an entity shall disclose:

(a) a qualitative description of the nature of the contingent event;

(b) quantitative information about the possible changes to contractual cash flows that could result from those contractual terms (for example, the range of possible changes); and

(c) the gross carrying amount of financial assets and the amortised cost of financial liabilities subject to those contractual terms.

119C For example, an entity shall disclose the information required by paragraph 119B for a class of financial liabilities measured at amortised cost whose contractual cash flows change if the entity achieves a reduction in its carbon emissions.

Commencement of the legislative instrument

For legal purposes, this legislative instrument commences on 31 December 2025.

Basis for Conclusions

This Basis for Conclusions accompanies, but is not part of, AASB 2025-2 Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments: Tier 2 Disclosures.

Introduction

This Basis for Conclusions summarises the Australian Accounting Standards Board’s considerations in reaching the conclusions in this Standard. It sets out the reasons why the Board developed the Standard, the approach taken to developing the Standard and the bases for the key decisions made. In making decisions, individual Board members gave greater weight to some factors than to others.

Background

Tier 1 amendments

In July 2024, the Board issued AASB 2024-2 Amendments to Australian Accounting Standards – Classification and Measurement of Financial Instruments. The Standard amends AASB 7 Financial Instruments: Disclosures and AASB 9 Financial Instruments in response to feedback from the 2022 Post-implementation Review of the classification and measurement requirements in AASB 9 and related requirements in AASB 7 and the subsequent 2023 Exposure Draft ED 324 Amendments to the Classification and Measurement of Financial Instruments.
AASB 2024-2 amends requirements related to:

settling financial liabilities using an electronic payment system;
assessing contractual cash flow characteristics of financial assets with environmental, social and corporate governance (ESG) and similar features; and
disclosure about:
1. financial instruments with contingent features that do not relate directly to basic lending risks and costs; and
2. investments in equity instruments designated at fair value through other comprehensive income.

These amendments arose from the issuance of International Financial Reporting Standard Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures) by the International Accounting Standards Board in May 2024.
The amendments made by AASB 2024-2 introduced disclosure requirements for entities applying Tier 1 reporting requirements. Therefore, it was appropriate for the Board to consider whether similar amendments to the Tier 2 Standard AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities were required.

Issue of Exposure Draft ED 332

The Board’s proposals with respect to the amendments finalised in this Standard were exposed for public comment in August 2024 through Exposure Draft ED 332 Classification and Measurement of Financial Instruments: Tier 2 Disclosures.
The significant issues considered by the Board in developing ED 332 are addressed in the following section.

Relevance of the amendments to AASB 1060

The AASB For-Profit Entity Standard-Setting Framework and the AASB Not-for-Profit Entity Standard-Setting Framework outline the approach adopted by the Board for considering whether to add to or amend disclosure requirements in AASB 1060 when the IASB makes amendments to full IFRS Standards.
The standard-setting frameworks first consider whether the amendments introduce a significant recognition and measurement difference between full IFRS Standards and the IFRS for SMEs Accounting Standard. If they do not, the standard-setting frameworks state that no further action is required unless:
1. the disclosures address a matter of public policy;
2. the disclosures are of particular relevance in the Australian environment; or
3. the amendments clarify or reduce existing disclosure requirements in full IFRS Standards.
The Board noted that the amendments to AASB 9 both clarify the application of existing recognition and measurement requirements and make narrow-scope changes to how some requirements are applied. However, the Board considered that the amendments did not significantly affect or introduce any new significant recognition and measurement differences between full IFRS Standards and the IFRS for SMEs Accounting Standard.
The Board also noted that the disclosure requirements were added to AASB 7 for several reasons:
1. financial instruments with contingent features – because financial statement users said this information is important to their analysis and assessment of an entity’s future cash flows; and
2. equity instruments designated at fair value through other comprehensive income – to provide enhanced transparency about these equity instruments.

The feedback from Australian users (predominantly representing Tier 1 entities) supported the need for these disclosures.

Although the Board had not received any feedback on whether these disclosures are of similar importance to users of Tier 2 financial statements, the Board considered the principles it used when developing AASB 1060 and subsequently when considering whether to add to or amend the disclosure requirements. When developing and considering amendments to AASB 1060, the Board considers that information about short-term cash flows and obligations, commitments or contingencies, liquidity and solvency, measurement uncertainties, accounting policy choices and disaggregation of amounts presented in the financial statements would be particularly important to the users of Tier 2 financial statements.
The Board considered that additional information about:
1. financial instruments with contingent features would be useful to the users of Tier 2 financial statements because information about cash flows, such as the effect of contractual terms that could change the amount of contractual cash flows, is of particular importance to them; and
2. investments in equity instruments designated at fair value through other comprehensive income is not required for Tier 2 entities. Although the new disclosures will provide enhanced transparency about these equity instruments in Tier 1 financial statements, the original disclosure requirements in paragraphs 11A and 11B of AASB 7 were simplified significantly for consistency with the IFRS for SMEs Accounting Standard when AASB 1060 was developed, and therefore more detailed disclosures are not considered necessary for Tier 2 entities.
Therefore, the Board decided to issue an Exposure Draft proposing:
1. amendments to AASB 1060 to require a Tier 2 entity to disclose information about financial instruments with contingent features that do not relate directly to basic lending risks and other costs so that financial statement users can better understand the effect of contractual terms that could change the amount of contractual cash flows; and
2. no amendments to AASB 1060 for investments in equity instruments designated at fair value through other comprehensive income.

Finalisation of ED 332 proposals

Following the consultation period and after considering the comments received, the Board decided to proceed with issuing this Standard, with no changes from the proposals in ED 332.

Feedback from respondents on ED 332

The Board received one formal comment letter on ED 332. The feedback received indicated that the stakeholder was supportive of the proposals.
The stakeholder also noted that the IASB had included disclosures related to financial instruments with contractual terms affecting cash flows in IFRS 19 Subsidiaries without Public Accountability: Disclosures but had not yet considered the matter in relation to the IFRS for SMEs Accounting Standard, possibly due to the amendments to the IFRS Accounting Standards being finalised after the issuance of the IASB’s exposure draft for its update of the IFRS for SMEs Accounting Standard. The stakeholder recommended that if the IASB ultimately decides not to include these disclosures in the IFRS for SMEs Accounting Standard, the Board should remove the disclosure requirements added to AASB 1060 for consistency.
The Board considered this feedback and decided to proceed with issuing this Standard, with no changes from the proposals in ED 332. The Board noted its intention to monitor future IASB decisions about financial instrument disclosures in the IFRS for SMEs Accounting Standard and consider whether further amendments are required to AASB 1060 at that time.

Effective date

The Board decided that the amendments should be made effective for annual periods beginning on or after 1 January 2026, with earlier application permitted, as proposed in ED 332. This is the same effective date as for the amendments in AASB 2024-2.

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