Ten things to remember for 31 December 2025 financial reports

This article highlights ten things to remember when preparing 31 December 2025 financial statements.

In addition, entities may need to consider the potential impacts of tariffs announced earlier this year by the United States of America (USA), as well as continuing global geopolitical and economic uncertainty. This includes the impact of interest rate increases and inflation, which may also affect how certain items are accounted for at 31 December 2025. Don’t dismiss the effect of tariffs on your business merely because you don’t export to the USA. Tariffs could significantly affect the wider economy, leading to higher unemployment and lower consumer spending, and may be inflationary, potentially reducing your revenues and increasing your input costs. Our bulletin outlines how this may affect your 31 December 2025 financial statements.

Not-for-profit entities (NFPs) should consider all matters raised in this article, where relevant. In particular, companies limited by guarantee that are not registered with the Australian Charities and Not-for-profits Commission (ACNC) must consider whether they have mandatory sustainability reporting obligations.

Entities required to lodge financial reports with the Australian Securities and Investments Commission (ASIC) should be aware of ASIC’s recent surveillance activity, covering 254 financial reports of both listed and unlisted entities for the FY2024-2025 year. 22 entities were contacted, with 18 of those entities making 19 changes to their financial reports, most relating to the Operating and Financial Review, impairment and asset values and revenue recognition. Report 819 contains more information about these.

ASIC’s findings were largely in line with its key focus areas for its surveillance of 2025-2026 financial reports, which included the following five enduring focus areas:

  • Revenue recognition: Step 2 (Identifying separate performance obligations) and Step 5 (Recognising revenue when each performance obligation is satisfied)
  • Asset values: Paying attention to impairment of non-financial assets, property values, expected credit losses (ECL) on loans and receivables, valuation of inventories and unlisted investments, the probability of deferred tax assets being realised, etc.
  • Provisions: Recognising onerous contracts, leased property make-good, mine site restoration, financial guarantees given, and restructuring
  • Subsequent events: Reviewing all events after the reporting date to determine whether they should be disclosed as ‘adjusting’ or ‘non-adjusting’ post-balance date events
  • Disclosures: Paying attention to disclosure of significant estimates, judgements and other uncertainties in the financial report, not forgetting the Operating and Financial Review (including risk disclosure and non-IFRS information), avoiding boilerplate disclosures and ensuring what is disclosed is significant.

Registrable superannuation entities (RSEs)

Key issues noted by ASIC when it reviewed about half of all 2024 RSE financial reports were:

  • RSEs applied different approaches when classifying the fair value of unlisted investments in the fair value hierarchy (IFRS 13 Fair Value Measurement)
  • Disclosure explaining why investments were classified as Level 2 or Level 3 was limited
  • Sponsorship and advertising expense disclosures were not consistent between RSEs.

Large proprietary company financial report lodgement

ASIC is also on a drive to ensure all large proprietary companies lodge their financial reports. What started out as a focus on previously large grandfathered proprietary companies has expanded to cover all large proprietary companies. Recently, ASIC publicly named various entities that were fined approximately $187,000 for failing to lodge financial statements. Auditors are now required to report non-lodgement to ASIC if the financial statements have not been lodged within 28 days of the due date. 

Group 1 entities preparing and lodging financial statements with ASIC under Chapter 2M of the Corporations Act 2001 – your first mandatory sustainability report is required for the annual reporting period ending on or after 31 December 2025. Climate-related disclosures are the first, and currently the only, component of mandatory sustainability reporting in Australia.

While the start date is for financial years commencing on or after 1 January 2025, there is a phase-in period for entities of different sizes and types. Group 2 entities with 31 December year-ends must prepare their first mandatory sustainability report for the year ending 31 December 2027, and Group 3 entities for 31 December 2028. Although not immediately effective for Group 2 and Group 3 entities, this is a significant new area of reporting, and entities will require a significant time investment to derive the required information.

The required disclosures are contained in AASB S2 Climate-related Disclosures and are subject to a phased-in period of assurance. The table below outlines the four ‘pillars’ and key areas for climate-related disclosures.

GovernanceStrategyRisk managementMetrics & targets
Disclosures over governing body(s) / individuals responsible for process, controls and procedures used by the entity to monitor, manage and oversee climate-related risks and opportunities

Climate-related risks and opportunities

  • Physical risks
  • Transition risks
Process and related policies the entity uses to identify, assess, prioritise and monitor climate-related risks

Greenhouse gas emissions

  • Scope 1
  • Scope 2
  • Scope 3
Business model and value chain
Disclosure of management's role in the governance processes, controls and procedures (e.g. when responsibility delegated)Strategy and decision makingProcesses and related policies the entity uses to identify, asses, prioritise and monitor climate-related opportunitiesCross-industry requirements
Financial position, financial performance and cash flowsThe extent to which the above processes and related policies are integrated into the overall risk management process and risk registerClimate targets
Climate resilience & scenario analysisFinanced emmissions (associated with loans and investments made by the entity)

This article addresses key questions about mandatory sustainability reporting in Australia. If you need further assistance, please reach out.

Other obligations for listed entity climate reporting

We remind Group 2 and Group 3 listed entities that before sustainability reporting in compliance with AASB S2 becomes mandatory, the Australian Securities Exchange (ASX) and the Australian Securities and Investments Commission (ASIC) expect disclosure of climate-related risks and opportunities using the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This applies to disclosure in the Corporate Governance Statement and the Operating and Financial Review. The same applies to smaller listed entities that may never have to prepare a mandatory sustainability report. 

There have been changes to the disclosures in the consolidated entity disclosure statement (CEDs) for public companies for financial years commencing on or after 1 July 2024 that will impact your 31 December 2025 financial report for the first time. The Treasury Laws Amendment (Fairer for Families and Farmers and Other Measures) Act 2024 received Royal Assent on 10 December 2024 and corrects an anomaly in the CEDs tax residency disclosures contained in s295(3A)(vi) and (vii) of the Corporations Act 2001. 

Last year’s CEDS

The CEDs for the financial year ended 31 December 2024 required disclosure of whether the entity was an ‘Australian resident’ or ‘foreign resident’ according to the definitions in the Income Tax Assessment Act 1997 (ITAA 1997). These definitions are mutually exclusive. Therefore, an Australian resident under the ITAA 1997 could not also be disclosed as a foreign resident in the 31 December 2024 CEDs, instead, showing any foreign tax residencies as a footnote. 

What’s changed for 31 December 2025 and later years?

For financial years beginning on or after 1 July 2024 (i.e. your 31 December 2025 year-ends onwards), the CEDs must:

  • State whether each entity is an Australian resident (based on a new definition of ‘Australian resident’ contained in s295(3B) that includes certain trusts and partnerships)
  • Include a list of each foreign jurisdiction in which the entity was a tax resident for the purpose of the tax law of the foreign jurisdiction.

Entities should also include a ‘Basis of Preparation’ note explaining how tax residencies have been determined.

Our article provides an illustration of what the new disclosures look like, along with an example Basis of Preparation note. See also ASIC’s Information Sheet 284 for further guidance.

The Australian Pillar Two Global and Domestic Minimum Tax (GDMT) laws and rules have been enacted and are effective for financial years commencing on or after 1 January 2024 for large multinational entity (MNE) groups in Australia. They introduce a new tax system that is separate from the Income Tax Assessment Act 1997 and must, therefore, be considered when entities calculate their tax liabilities at 31 December 2025 in accordance with the requirements of AASB 112 Income Taxes.

The legislation introduces:

  • The income inclusion rule (IIR), a top-up tax payable by Australian parent entities of MNE groups where any of their subsidiaries have an effective tax rate of less than 15% (this only applies if there are no foreign parent entities of the Australian parent that have a substantively enacted IIR), and
  • The qualifying domestic minimum top-up tax (QDMTT), a top-up tax where an Australian member of an MNE group has an effective tax rate of less than 15% (the QDMTT is credited against any IIR payable by the parent entity).

These rules apply to MNE groups with consolidated revenue exceeding €750 million for financial years beginning on or after 1 January 2024.

In addition, the undertaxed profits rule (UTPR) will apply to financial years beginning on or after 1 January 2025. The UTPR acts as a backstop rule that allows Australia to apply a top-up tax on Australian entities in a large MNE group if the group has a parent entity in a jurisdiction that has not enacted IIR, the group's effective tax rate in that other jurisdiction is below 15%, and that jurisdiction has not enacted the QDMTT.

For years ending 31 December 2025, entities part of an MNE group must assess and recognise Pillar Two tax liabilities for the IIR, QDMTT, and UTPR as appropriate.

Our article contains further information.

The Australian Government has committed to reducing Australia’s greenhouse gas emissions

  • 43% below 2005 levels by 2030
  • 62 to 70% below 2005 levels by 2035
  • Net zero by 2050.

Preparers need to consider the implications of these climate-related matters when preparing their 31 December 2025 financial statements. The International Accounting Standards Board (IASB) has published the following resources to assist:

  • Educational materials summarising how companies must consider climate-related issues when applying IFRS® Accounting Standards. This includes when determining values for assets, liabilities, and provisions, and making disclosures regarding estimates and judgements.
  • Illustrative examples showing how disclosures about uncertainties in the financial statements using climate-related examples can improve connections between the financial statements and other parts of the annual report (such as the sustainability report).

Please refer to our publications for a summary of these educational materials and illustrative disclosures. ESMA’s ‘Heat is On’ Report also provides real-life, practical examples to illustrate how entities can improve their climate-related disclosures for areas where climate matters are likely to have the greatest impact.

Since the IFRS Interpretation Committee’s July 2024 agenda decision, listed entities disclosing segment information under IFRS 8 Operating Segments may be required to disclose more granular information regarding material segment income and expenses. The agenda decision does not add new disclosure requirements to IFRS 8, but clarifies what paragraph 23(f) requires regarding material items of income and expense disclosed in accordance with paragraph 97 of IAS 1 Presentation of Financial Statements.

Five key takeaways

Five key takeaways from the agenda decision include:

  1. Material items of income and expense to be disclosed as specified items under paragraph 23(f) of IFRS 8 are not limited to only unusual or non-recurring items.
  2. Entities do not have to disclose, for each reportable segment, every line item of income and expense in the statement of profit or loss or otherwise disclosed in the notes.
  3. The starting point for determining which material income and expense items to disclose in reportable segment information is basically all material income and expense items disclosed in the financial statements as a whole. Entities must then assess if any portion of this material income or expense item is material to a particular reportable segment.
  4. An item of income or expense which is not material to the financial statements as a whole should nevertheless be disclosed under paragraph 23(f) of IFRS 8 for a reportable segment if it is material to an individual reportable segment.
  5. Determining how much detail needs to be included for paragraph 23(f) disclosure is a matter of judgement that the entity should document (the agenda decision contains a detailed discussion on assessing materiality).

Our article provides more information on this topic.

There is only one new amending standard that could potentially impact your 31 December 2025 annual and half-year financial statements, but several to consider for your ‘new standards issued not yet effective’ disclosures. In particular, AASB 18 Presentation and disclosure in financial statements is expected to impact all entities preparing Tier 1 general purpose financial statements. With the beginning of the comparative period being 1 January 2026, entities should have started their AASB 18 implementation projects by now.

Standards applicable to 31 December 2025

There is only one new amending standard that applies for the first time to annual and half-year periods ending 31 December 2025.

Amending standard number

Topic

BDO resources

AASB 2023-5 (amendments to AASB 121, AASB 1060)

Lack of Exchangeability

How to determine the exchange rate when a currency is not exchangeable into another currency

You can find more information about these amendments in the listed resources, or contact our IFRS & Corporate Reporting team for assistance. 

Standards issued but not yet effective

Entities preparing Tier 1 general purpose financial statements for the annual period ending 31 December 2025 must disclose the anticipated effect of new and amended standards issued, which are not effective at the reporting date (refer to AASB 108, paragraph 30). These are listed in the table below. Please refer to the resources listed for more information or contact our IFRS & Corporate Reporting team for assistance.

Standard number

Topic

BDO resources

Effective for annual periods commencing

All entities 

AASB 18

Presentation and disclosure in financial statements

Publication

1 January 2027 (for-profit entities other than superannuation entities applying AASB 1056 Superannuation Entities)

I January 2028 (not-for-profit entities and superannuation entities applying AASB 1056)

AASB 2024-2

Classification and measurement of financial instruments, including:

  • The appropriate date for derecognising financial assets and liabilities 
  • Application guidance to clarify the ‘SPPI test’

Do financial assets with ESG-linked features meet the SPPI test? 

When is the appropriate time to derecognise trade receivables and payables settled via electronic bank transfers?

Bulletin

1 January 2026

AASB 2025-1

Contracts referencing nature-dependent electricity

Bulletin

1 January 2026

AASB 2024-3

Annual improvements Volume 11

-

1 January 2026

Public sector entities only  

AASB 2022-9

Insurance contracts in the public sector

-

1 January 2026

IFRS Interpretations Committee (the Committee) agenda decisions are those issues the Committee decided not to include on its agenda. Although not authoritative guidance, these decisions are regarded as being highly persuasive in practice. All entities reporting under IFRS® Accounting Standards should be aware of these decisions, as they could impact how specific transactions and balances are accounted for. Entities are generally expected to implement any resulting changes in accounting policies in the first set of financial statements following an agenda decision, although this timeframe may be extended where detailed systems and process changes are required.

Over the past twelve months, the Committee has issued the following agenda decisions:

Please ensure that your 31 December 2025 annual and half-year financial statements accurately reflect the conclusions outlined in these agenda decisions.

Because Australia has experienced low inflation levels for decades, many entities may not be aware of special accounting requirements when an entity operates in countries whose economy and functional currency are considered hyperinflationary.

When an entity’s functional currency is ‘hyperinflationary’, AASB 129 Financial reporting in hyperinflationary economies requires the financial statements (including any comparative periods) to be stated in terms of the measuring unit current at the end of the applicable reporting period. This is because the currency of a hyperinflationary economy loses a significant amount of purchasing power from one period to the next, such that presenting financial information based on historical amounts, even if only a few months old, does not provide relevant information to users of financial statements.

Which economies are expected to be hyperinflationary as at 31 December 2025

Economies that ceased being hyperinflationary in 2025

Economies that became hyperinflationary in 2025

Economies that have a risk of becoming hyperinflationary (watchlist for 2026 onwards)

  • Argentina
  • Burundi
  • Haiti
  • Islamic Republic of Iran
  • Lebanon
  • Malawi
  • Sierra Leone
  • South Sudan
  • Sudan
  • Turkey
  • Venezuela
  • Zimbabwe
  • Ethiopia
  • Ghana
  • Lao People’s Democratic Republic
  • Suriname

 

  • Burundi

 

  • Angola
  • Egypt
  • Myanmar
  • Nigeria
  • Syria

 

Please refer to our publication for more information.

Entities only need to disclose material accounting policy information for years ending on or after 31 December 2023. This also applies to Tier 2 entities preparing financial statements using Simplified Disclosures. The long laundry list of accounting policies, which merely repeat recognition and measurement requirements from the accounting standards, can and should be removed. 

While these changes have been in effect for the past two years, many entities have not streamlined their accounting policies to include only material accounting policy information. Maintaining immaterial accounting policies is a significant time-waster for both preparers and auditors, and can cause unnecessary compliance issues if the disclosed material policies are not applied to immaterial transactions. Culling unnecessary accounting policies in December 2025 financial reports is a good investment - a little time spent now will deliver time savings in the future and more clarity for users of the financial statements.

Our article explains what accounting policy information is material and what is not.

More information

Our recent webinar provides additional useful tips to support you on your 31 December 2025 reporting journey.

We are here to help

Please contact our IFRS & Corporate Reporting team if you need support with any financial reporting matters for your 31 December 2025 financial reports.