In our September 2019 edition of Accounting News, we looked at the Australian Accounting Standards Board’s (AASB’s) exposure draft, ED 297, which proposed the scrapping of special purpose financial statements for certain types of for-profit entities operating in the private sector. These proposals were approved by the AASB on 18 March 2020 as amending standard AASB 2020-2 Amendments to Australian Accounting Standards - Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities.
No. As evident in the name of the amending standard, at this stage, the ability of entities to prepare SPFS is only being removed for for-profit private sector entities.
The amendments only apply to for-profit private sector entities. Accordingly, the following types of entities will be able to prepare SPFS beyond 2022:
Charities registered with the Australian Charities and Not-for-profits Commission (ACNC) are not-for-profit entities, and therefore will be able to continue preparing SPFS (if appropriate).
The changes only apply to for-profit private sector entities that are required by:
LEGISLATION (e.g. Part 2M of Corporations Act 2001) | OR | CONSTITUTIONS / OTHER DOCUMENTS (e.g. trust deeds) CREATED OR AMENDED ON OR AFTER 1 JULY 2021 |
Many constitutions and other documents presently contain a general requirement to prepare financial statements in accordance with Australian Accounting Standards, with the intention being that SPFS would suffice if there are no users dependent upon general purpose financial statements (GPFS). For this reason, the changes will only impact entities whose constitutions or other documents were created or amended on or after 1 July 2021, which is the date that the changes become effective. This gives such entities a chance to consider whether GPFS, applying Australian Accounting Standards are required, or whether SPFS will meet the needs of their users.
On this basis, for-profit private sector entities with the following features would not be impacted by these proposals, and would therefore, under the proposals, be able to prepare SPFS for 2022 and beyond:
Examples of entities reporting under the Corporations Act 2001 that will no longer be able to prepare SPFS include:
No. Entities that are not publicly accountable entities as defined in AASB 1053 Application of Tiers of Australian Accounting Standards will be permitted to prepare general purpose financial statements (GPFS) applying the Tier 2 requirements.
Currently, Tier 2 reporting means preparing GPFS applying reduced disclosures (RDR).
For periods beginning on or after 1 July 2021, RDR will be withdrawn and replaced with Simplified Disclosures for Tier 2 entities preparing GPFS. Simplified Disclosures were issued by the AASB on 19 March 2020, and are included in a new standard, AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.
Yes. Preparing Tier 2 GPFS using Simplified Disclosures requires entities to apply all recognition and measurement requirements of Australian Accounting Standards (including consolidation).
However, instead of following the disclosure requirements in each Australian Accounting Standard, AASB 1060 is a separate disclosure standard for Simplified Disclosures that is followed instead.
Yes. One of the biggest impacts for entities preparing GPFS for the first time will be that consolidation accounting will be required for parent entities in a group (AASB 10 Consolidated Financial Statements), and equity accounting where the entity has significant influence over another entity (AASB 128 Investments in Associates and Joint Ventures).
AASB 10, paragraph 4 relieves intermediate parent entities in a group from having to prepare consolidated financial statements if certain strict criteria have been met. This could result, for example, in the ultimate Australian parent entity not having to prepare consolidated financial statements for lodgment with ASIC. AASB 10, paragraph Aus 4.2 therefore currently overrides this exemption if the ultimate Australian parent entity, or the Australian group, is a reporting entity.
When the ‘reporting entity’ concept is removed from 2022, AASB 10, paragraph Aus 4.2 will be amended so that Australian group financial statements will be required if the ultimate Australian parent is required by legislation to prepare financial statements in accordance with Australian Accounting Standards or accounting standards.
Yes. Although NFPs and for-profit public sector entities will be able to prepare SPFS beyond 2021 (if appropriate), those preparing GPFS for Tier 2 entities will have to apply Simplified Disclosures from 2022 because the Reduced Disclosure reporting framework will be withdrawn and replaced by Simplified Disclosures.
The Simplified Disclosures are based on the disclosure requirements of the international standard, IFRS for SMEs, and are the same where the recognition and measurement requirements are the same or similar in full IFRS (and therefore Australian Accounting Standards) as compared to IFRS for SMEs. However, disclosures have been adapted or added where the recognition and measurement requirements in IFRS for SMEs are different to full IFRS.
The main differences between the approach for RDR and ‘simplified disclosures’ include:
Existing Reduced Disclosure Requirements | Simplified Disclosures |
Effectively a subset of total disclosures required by Australian Accounting Standards | Based on disclosures included in IFRS for SMEs standard |
Disclosures not required are ‘greyed out’ in the body of Australian Accounting Standards | Simplified disclosures are included in a separate disclosure standard for Tier 2 entities (AASB 1060) |
Financial reporting framework referred to as Australian Accounting Standards – Reduced Disclosure Requirements | Financial reporting framework referred to as Australian Accounting Standards – Simplified Disclosures |
AASB 1060 is numbered consecutively from paragraphs 1 to 243 and is divided with subheadings for each topic. For example, ‘inventories’ is included at paragraphs 123 and 124, ‘Property, plant and equipment and investment property at cost’ is included at paragraphs 134 to 136, etc.
ED 295 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities initially proposed denoting NFP-specific disclosures as ‘NFP’ paragraphs but in the final AASB 1060, NFP paragraphs are indistinguishable because they are included in the sequential numbering system discussed above.
Disclosures not included in IFRS for SMEs that have been added based on cost-benefit analyses or because they address matters of public policy include:
For more information, the AASB has produced a useful Fact Sheet which summarises:
The amending standards, AASB 2020-2 and AASB 1060 apply to annual periods beginning on or after 1 July 2021, with early adoption permitted. Depending on the year-end of your entity, general purpose financial statements (GPFS) will be required, at the latest, for:
Entities moving from SPFS to Tier 1 GPFS must apply AASB 1 First-time Adoption of Australian Accounting Standards. Except for limited exceptions to the recognition and measurement requirements of Australian Accounting Standards, AASB 1 requires retrospective restatement of the financial statements, which means that at least one year of comparative information is required.
AASB 1 is amended such that the special exemption in Appendix E to AASB 1053 Application of Tiers to Australian Accounting Standards can be applied by entities adopting Simplified Disclosures early.
While the relief from restating comparatives is only available if Simplified Disclosures are adopted early, AASB 1053, Appendix E, provides further transitional relief as follows:
| Description of relief | If adopted for annual periods beginning… |
| Relief from distinguishing the correction of errors from changes in accounting policies | Before 1 July 2022 |
| Relief from providing comparative information not previously disclosed in the notes to the SPFS | Before 1 July 2021 |
It is important to note SAC 1 Definition of a Reporting Entity still applies to years ending 30 June 2020 and 30 June 2021. This means that all entities preparing SPFS for these reporting periods need to ensure that they do not meet the definition of a ‘reporting entity’. In other words, the delayed application date of AASB 2020-2 to 30 June 2022 is not a ‘free pass’ for entities to inappropriately continue with SPFS. Where SPFS have been prepared in the past, we recommend that management and preparers of financial statements revisit the reporting/non-reporting entity classification for 30 June 2020 and ensure that their reasoning for continuing SPFS are comprehensively documented. This is particularly important given that the doubling of the ‘large proprietary company’ thresholds for reporting to ASIC from 30 June 2020 may tick some of the boxes for primary factors to be considered if a reporting entity exists under SAC 1, including being an indicator of economic importance and financial characteristics.