New reporting standards to improve transparency, comparability and consistency of financial statements will apply from the 2022 financial year. From 1st July 2021, certain for-profit private sector entities will no longer be able to prepare Special Purpose Financial Statements (SPFS), however they will have to prepare some form of general purpose financial statements (GPFS).
What are the relevant standards?
AASB 2020-2 removes the ability of for-profit entities with reporting requirements in relation to compliance with Australian Accounting Standards to prepare SPFS.
AASB 1060 provides simplified disclosures for (a) for-profit entities who are no longer able to prepare SPFs because of AASB 2020-2 and (b) for-profit and NFP entities that currently prepare Tier 2 General Purpose Statements using the AASB’s Reduced Disclosure Regime.
Which entities are affected by these changes?
At this time, the new requirements will only apply to for-profit private sector entities that are required by:
- legislation to prepare financial statements that comply with either Australian Accounting Standards (AAS) or ‘accounting standards’; or
- their constituting document (or another document, such as a lending agreement) to prepare financial statements that comply with AAS, provided such relevant document was created or amended on or after 1 July 2021.
The following entities fall within this framework:
1. Large Proprietary companies* including grandfathered entities
2. Unlisted public companies (other than companies limited by guarantees)
3. Small foreign-controlled companies
4. Australian Financial Services Licensees (AFSL)
5. Small proprietary companies with crowd-sourced funding
6. Trusts where the trust deed is created on or after 1st July 2021 and there is a requirement to prepare financial statements in accordance with AAS.
When do the new standards commence?
Affected entities have been given until 30th June 2022 to get their GPFS house in order. However, transactional relief is available to entities transitioning to Tier 2 GPFS that early adopt AASB 2020-2. This relief includes the removal of the requirement to restate comparative financial information and provide comparative financial information for new disclosures.
The past year has been a challenging one for for-profit businesses. They could be forgiven for not yet giving due attention to the financial reporting implications of AASB 2020-2. However, affected entities need to be reviewing their options now.
When should affected businesses begin the transition?
Now is the time to plan the transition journey, especially considering the effort that could be saved by accessing optional short-term exemptions that apply to reporting for the 2021 financial year.
Industry surveys suggest that most affected entities will require external support with the implementation of new reporting requirements. It’s clear that most clients of accounting firms represent the smaller end of town. However, most accounting firms will certainly have clients who may be affected by the new regime, especially in relation to Trusts (including Property Investment and Self-Managed Superannuation Trusts) and AFSL’s.
5 key questions for accounting firms to consider now:
1. Which of my clients will be affected by the changes in relation to scrapping of SPFS?
2. Are these clients aware of the optional short-term reporting exemptions?
3. Do my clients have the internal capability to address this directly?
4. Does my firm have the internal capability to guide clients in the transition to GPFS?
5. If not, who can we approach externally to assist our clients with this journey?
Are you ready for the transition to GPFS?
The team at National Audits Group is experienced in the preparation of GPFS and can assist affected entities in making this transition early. However, time is running out. If you would like further information on how these changes affect your business clients, contact Steve Watson and the team at National Audits Group.
Steven Watson | National Audits Group | https://www.audits.com.au/
Email: steve@audits.com.au | Tel: 1300 734 707
As Managing Director of National Audits Group, Steven provides assurance and advisory services to all types of entities in a diverse range of industries. His team has an enduring commitment to efficient, quality and value of auditing services.
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