Rules that apply to for-profit entities preparing special purpose financial statements will soon change.
From July 1, 2021, it will be mandatory for all for-profit entities to prepare general purpose financial statements.
This applies if preparing financial statements is in accordance with legislation requiring compliance with the Australian Accounting Standards (AAS), or entities required by their constitution or other document (e.g. trust deed) that requires financial statements to comply with the AAS if the document was created or amended after July 1, 2021.
Special Purpose Financial Statements (SPFS) for these entities will no longer be permitted to be used.
Furthermore, the existing General Purpose Reduced Disclosure Requirement (RDR) will be replaced by the introduction of General Purpose Simplified Disclosure Standards (SDS).
This introduction effectively removes any ambiguity on the reporting requirements which are currently being determined by the preparers of the financial statements.
The changes specified above do not apply to not-for-profit (NFP) entities, although the intention of AASB is to extend these requirements to NFP entities in the future.
Impact of the removal of Special Purpose Financial Statements (SPFS)
The preparation of General Purpose Financial Statements (GPFS) will require for-profit entities to comply with the full recognition and measurement requirements in accordance with the AAS.
Some of the main impact areas on organisations that have not applied the full recognition and measurement requirements in the past are:
- AASB 3: Business Combinations
- AASB 9: Financial Instruments
- AASB 10: Consolidations
- AASB 13: Fair Value Measurement
- AASB 15: Revenue
- AASB 16: Leases
- AASB 128: Equity Accounting
Introduction of Simplified Disclosure Standards (SDS) to replace Reduced Disclosure Requirements (RDR)
The second change implemented by the AASB is the introduction of AASB 1060 General Purpose Financial Statements – Simplified Disclosure for For-Profit and Not-for-Profit Tier 2 Entities which will replace the current Reduced Disclosure Requirements (RDR) reporting requirements.
This change will apply to for-profit and not-for-profit entities preparing Tier 2 GPFS.
Impact of introducing Simplified Disclosure Standards (SDS)
Organisations that have been preparing Special Purpose Financial Statements (SPFS) in the past will most likely be required to have additional disclosures in their financial statements under the new Simplified Disclosure Standards (SDS), as the SPFS would not have necessarily complied with the additional disclosure requirements.
Early adoption and transition
Organisations may choose to early adopt the changes prior to the official adoption date of July 1, 2021.
Entities that early adopt will benefit from not having to restate its prior year’s comparative information, which will be prepared under the entity’s previous accounting policies.
However, entities that do not choose to adopt before the mandatory date will not receive this special relief and will have to restate its prior year comparatives in their first year of adoption.
What should you do?
If your organisation appears to be affected by these changes, it is highly advised to:
- Perform a preliminary assessment on how the changes will impact your organisation
- Consult with your accountants/auditors on the necessary changes to your disclosure requirements
- Determine whether the organisation should early adopt the new changes before July 1, 2021.
Need help with these changes?
Do you need guidance with the changes to financial statement requirements?
The information provided above is a brief summary of the upcoming changes to the reporting requirements of financial statements, and further specific reforms affecting the overall presentation and disclosure requirements of your organisations financial statements should be sought from your accountants or auditors.
If you’d like assistance with these changes, book a consultation with the friendly staff at LDB Group. Simply call (03) 9875 2900 or send us a note via the contact form below.
