As we approach the end of FY23 what are the key areas preparers of financial statements need to consider?

Changes to accounting standards and other considerations for the upcoming reporting season 

Preparers of financial statements will breathe a sigh of relief to know there are no major changes to accounting standards applicable for FY23, however, there are some amendments to existing standards to think about ahead of year end, as well as some on the horizon where early adoption may be worth considering. 

The changes arise from AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018 – 2020 and Other Amendments, which amends six standards, being: AASB 1, AASB 3, AASB 9, AASB 116, AASB 137, AASB 141.

The amendments to AASB 116 Property, Plant and Equipment includes a change around recognition of net proceeds from the sale of goods produced while getting PP&E ready for its intended use (e.g. samples produced by a manufacturer), while the changes to AASB 137 Provisions, Contingent Liabilities and Contingent Assets provide clarity on what costs should be considered when assessing whether a contract is onerous.

The changes aim to decrease diversity in the application of the standards in practice, thereby increasing comparability between financial statements for users.

Upcoming changes that will impact more widely, and where early adoption may be worth considering, include the amendments impacting the classification of liabilities as current or non-current. The AASB has now recognised that it is rare for entities to have an unconditional right to defer settlement of a liability, given most loan contracts include covenants of some sort, and has removed the word ‘unconditional’ from the classification considerations. Under the amended standard, compliance with covenants that are measured as of reporting date will impact classification, and disclosure may need to be made around whether the entity is likely to meet future covenants (i.e. those to be measured as of a future date).

In the not-for-profit space, the Australian Charities and Not-for-profits Commission (ACNC) will now require some charities to include information on related parties and associated transactions. Preparers of financial statements should start preparing for this by checking whether the requirements will impact their entity, and if so, collating this information ahead of year-end to make sure that all requirements are covered.

Charities should also revisit the key management personnel disclosure requirements, which the ACNC brought in for FY22, as changes to Key Management Personnel arrangements and/or charity size may mean that disclosures are required this year even though they may not have applied last year.

Learn more about how our Audit services can help you
Learn more about how our Audit services can help you
Visit our Audit page

What is happening with Sustainability Reporting?

Accountants – in –practice - are busy enough with staying on top of the monthly reporting requirements, considering their reporting deadlines, compliance requirements and probably considering  whether their organisation is going to be the target of a cyber-attack. A new concept is about to burst into the consciousness – sustainability reporting. 

For the last two decades, society has become ever more conscious of a discussion on sustainability. While many definitions exist, it will include the pillars of economic, societal, and environmental or people, planet, and profit. While the politics of this topic will continue to play out, accountants have taken on the role that they are familiar with – to count it, measure it and see how it changes over time. It’s a role we do well but undoubtedly, we do best when we have a framework to work with and standardise our reporting. 

Over the years there have been several sustainability frameworks created and used in different jurisdictions, but following the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow, it was agreed by leading investor-focused sustainability disclosure organisations around the world that a single uniform set of sustainability reporting standards was needed, with climate change identified as the first issue for which standardised reporting should be developed. The job was handed to the IFRS Foundation who are responsible for all the International Financial Reporting Standards (IFRS’s) that have been adopted to date. 

The IFRS Foundation has created a new board called the International Sustainability Standards Board (ISSB). The ISSB has set out four key objectives:

  1. to develop standards for a global baseline of sustainability disclosures;
  2. to meet the information needs of investors;
  3. to enable companies to provide comprehensive sustainability information to global capital markets; and
  4. to facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

The first two standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures were released as exposure drafts in July 2022. The final standards are expected to be released before 30 June 2023, with application of IFRS S1 and IFRS S2 expected to be applicable for reporting periods commencing on or after 1 January 2024 for those entities that adopt them, either through regulatory requirement or through optional election. Further sustainability standards on other topics and collaboration with other standard-setting bodies are expected in the coming years. 

In Australia, a decision needs to be made on whether these standards will be adopted and who will be impacted, and it has been proposed by Treasury that the standards are adopted for certain large listed entities and financial institutions for reporting periods beginning on or after 1 July 2024. The opportunity for voluntary disclosure will be there as organisations grapple with society’s need to understand what others are doing in the sustainability area just as individuals are also being challenged with how they should adapt and play their own part in sustainability.  

It may also be necessary to know your own organisation’s emissions information and share that with key customers and suppliers who may have their own climate reporting obligations that cover their supply chains if this becomes a requirement of doing business in the future. For some organisations, business-as-usual will not be tenable. 

So, the message is clear - sustainability reporting is going to be another challenge for organisations and probably for the accountants to manage and report on. The answers to what the reports will look like and when do we start will be available shortly.

Subscribe to receive our publications

Subscribe now to be kept up-to-date with timely and relevant insights, unique to the nature of your business, your areas of interest and the industry in which you operate.