More disclosures for for-profit entities preparing special purpose financial statements at 30 June 2

Certain for-profit entities are not required by legislation to prepare general purpose financial statements (GPFS) in accordance with Australian Accounting Standards. However, their constitution or another document, such as a banking agreement, may require them to do so. In such cases, the financial statements for years ending 30 June 2022 must comprise either:

• GPFS, prepared using the Simplified Disclosures, if the constitution or other document was created, or amended, on or after 1 July 2021
• Special purpose financial statements (SPFS), if the constitution or other document was created before 1 July 2021, and not amended from 1 July 2021. These are sometimes referred to as ‘grandfathered’ entities.

What are the additional disclosures?

AASB 2022-4 Amendments to Australian Accounting Standards – Disclosures in Special Purpose Financial Statements of Certain For-Profit Private Sector Entities amends AASB 1054 Australian Additional Disclosures to require the following new disclosures by for-profit private sector entities continuing to prepare SPFS:

• The basis upon which the decision to prepare SPFS was made
• Information about the material accounting policies used in preparing the SPFS, including changes from the previous period
• Details of the measurement basis (or bases) applied in preparing the SPFS
• Where the entity has interests in other entities, it must disclose:
  • Whether or not its subsidiaries, and its investments in associates and joint ventures, have been consolidated or equity accounted as required by AASB 10 Consolidated Financial Statements or AASB 128 Investments in Associates and Joint Ventures, as appropriate
  • The reasons why it has not consolidated its subsidiaries, and/or why it has not equity accounted its investments in associates and joint ventures
• For each material accounting policy applied that does not comply with all the recognition and measurement requirements of Australian Accounting Standards, it must disclose an indication of how it did not comply
• Whether or not the financial statements overall comply with the recognition and measurement requirements in Australian Accounting Standards (except for AASB 10 and AASB 128).

Implementation guidance

AASB 2022-4 adds implementation guidance to AASB 1054 to help preparers decide whether these new disclosures are required for their entities. The implementation guidance also includes a flowchart (Chart 2) summarising key decisions for preparers when determining how to apply the new disclosures.

Reasons for preparing SPFS

When disclosing information about the basis upon which the decision to prepare SPFS was made, the implementation guidance confirms it is not sufficient to say SPFS were prepared because the entity is not a reporting entity. The disclosure must articulate the reasons why the entity concluded that GPFS were not required.

Non-compliance with recognition and measurement for individual accounting policies

If the entity complies with all recognition and measurement requirements of Australian Accounting Standards in its SPFS, no additional disclosure is required by AASB 1054, paragraph 9C(e).

Where instances of non-compliance are not extensive – such as when only one accounting policy does not comply - entities may choose to disclose information about the extent of non-compliance in a separate note, such as the basis of preparation note. However, where instances of non-compliance are extensive – such as when more than one accounting policy does not comply - details of non-compliance may be more appropriately disclosed within the relevant accounting policy note.

Overall compliance

The implementation guidance clarifies that an entity can only conclude that the financial statements overall comply with the recognition and measurement requirements in Australian Accounting Standards (except for AASB 10 and AASB 128) if there are no instances of non-compliances in individual accounting policies. The most common examples of non-compliance relate to:

• Deferred taxes not being recognised (AASB 112 Income Taxes)
• Property, plant and equipment not being depreciated (AASB 116 Property, Plant and Equipment)
• Not discounting cash flows when determining recoverable amount of an asset (AASB 136 Impairment of Assets)
• Not capitalising leases (AASB 16 Leases)
• Not complying with the new revenue recognition requirements contained in AASB 15 Revenue from Contracts with Customers).

Illustrative examples

Illustrative examples one to four have also been added to show how an entity might apply the new disclosures for specific fact patterns. Preparers should not use these as ‘boilerplate’ disclosures. Example disclosures must be adapted from these to suit the entity’s specific circumstances.

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