Document ID: chunk:federal_register_of_legislation:F2019N00027:body:0:p5
Version: federal_register_of_legislation:F2019N00027
Segment Type: other
Provision Reference: 
Character Range: 10847–13763

the recognition of expenses and revenues to their economic substance. Conceptually, an accruals approach could also improve the operation of the standard as it allows for the net compensation calculation for each reporting period to be less affected by (potentially arbitrary) delays or advances in the timing of when cash payments are paid or received.[7]
One drawback of an accruals approach is that it might introduce greater variability in the way a benefit could be recognised, and accordingly some guidance may be required to provide clarity over which accruals treatments are consistent with the purpose and intent of the standards. In this context, the Bank notes that recognised accounting standards (such as the Australian Accounting Standard Board (AASB) Accounting Standards[8]) provide frameworks for considering the recognition of revenues and expense for the purposes of financial reporting. These frameworks provide an appropriate starting point for allocating benefits to reporting periods for the purpose of calculating net compensation. However, it is possible that in some cases, a treatment permitted under recognised accounting standards may not be an appropriate treatment for the purposes of calculating net compensation.[9] Entities would need to be aware of this, and ensure the treatment used for determining net compensation is consistent with the Bank's standards. If there is no treatment that is both consistent with the accounting standards and consistent with the purpose and intent of the standard, then entities would need to deviate from accounting standards when determining net compensation.[10]
The Bank also proposes that for the purposes of calculating net compensation, schemes and issuers not be allowed to change from one accrual accounting treatment to another from one reporting period to the next, without prior written permission from the Bank.[11] Changing between accrual treatments could have the purpose or effect of avoiding the standards. Accordingly, the Bank expects that it would only provide permission to change accounting treatments in exceptional circumstances, and where doing so is in the public interest. The Bank's preliminary view is that a change in accounting standards that affects the allowable treatments for financial reporting purposes may not, on its own, constitute reasonable grounds for an exemption. In addition, for the avoidance of doubt, the Bank proposes to clarify in the standards that an amount treated as an issuer payment in one reporting period cannot be included as such in a subsequent period, and that incentives that meet the definition of an issuer receipt must be included in a reporting period that occurs during the life of the contract.

Proposal 1:
The Bank's Standards No. 1 and No. 2 of 2016 would be modified to require an accrual approach to be used to allocate Issuer Receipts and Issuer Payments to, or between,