Simplified disclosures – NFPs to get some relief on move from RDR to Simplified Disclosures
As noted in previous editions of Accounting News, from 30 June 2022, special purpose financial statements (SPFS) will no longer be permitted for some for-profit private sector entities, particularly those that must prepare and lodge with a regulator financial statements in accordance with Australian Accounting Standards. From that date, a new form of general purpose financial statements for Tier 2 entities called ‘Simplified Disclosures’ replaces the current Tier 2 general purpose reporting framework (Reduced Disclosures).
With this in mind, our September 2020 Accounting News highlighted why for-profit private sector entities should consider transitioning to Simplified Disclosures early, the main advantages being transitional relief in the first year from:
- Disclosing comparative note information that was not previously required in the notes, and
- Restating comparatives where recognition and measurement had not previously been applied.
This relief is not available to not-for-profit entities (NFPs)
The requirement to move to Simplified Disclosures from 30 June 2022 does not apply to NFPs because the Australian Accounting Standards Board (AASB) currently has a separate project under way to revisit the financial reporting framework for NFPs. Consequently, there is a lack of urgency for these entities to change to Simplified Disclosures unless they are currently preparing Tier 2 general purpose financial statements (Reduced Disclosures) because Reduced Disclosures as a financial reporting option will be withdrawn.
With this in mind, the transitional exemptions contained in Appendix E of AASB 1053 Application of Tiers of Australian Accounting Standards only apply to for-profit entities. However, this may result in entities moving from Reduced Disclosures to Simplified Disclosures having to disclose comparative information in the notes that was not required in the previous year.
Changes proposed to give NFPs relief
The AASB noted this inconsistency and are proposing to amend AASB 1053, paragraph E4, to provide relief from presenting comparative information in the notes if an entity did not previously disclose the comparable information in its most recent previous financial statements. Refer to ED 306 Transition Between Tier 2 Frameworks for Not-for-Profit Entities for more information.
No relief from restating comparatives
The AASB considered whether to also extend the relief available in AASB 1053 paragraphs E5-E7 to NFPs. These paragraphs allow entities to choose not to restate comparatives where they had previously not complied with all recognition and measurement requirements in their SPFS (including, if a parent entity, not presenting consolidated financial statements prepared in accordance with AASB 10 Consolidated Financial Statements). The AASB decided not to extend this relief to NFPs as it was only granted to for-profit entities due to the mandatory removal of SPFS for such entities, which does not apply to NFPs.