The Queensland Building and Construction Commission (QBCC) has confirmed that from 1 July 2022, licensees must provide the QBCC with General Purpose Financial Statements (GPFS) when either:
- submitting an Minimum Financial Requirements (MFR) Report to adjust reported Net Tangible Assets (NTA) or Allowable Annual Turnover (licence categories 1-7); or
- complying with annual reporting requirements (licence categories 4-7).
Sections 9 & 9A of the MFR Regulations only require signed financial statements from licence categories 4-7) as part of annual reporting. The QBCC has clarified that for annual reporting purposes only, licence categories 3 and below may continue providing financial information from internal management accounts.
However all category 1-7 licensees will be required to provide signed financial statements when lodging an MFR Report. MFR Reports are ordinarily provided at the following events:
- when applying for a licence;
- when seeking an increase to allowable annual turnover;
- when a reportable decline in NTA has occurred;
- when a significant change to ownership or officeholders in the business;
- when demonstrating MFR compliance in response to a QBCC audit.
Note this change does not apply to self-certifying licensees, with annual turnover less than $800,000 (Categories SC-1 to SC-3).
What does it mean for licensees and their advisors?
The MFR Regulations require that signed financial statements be prepared in accordance with the prescribed accounting standards including:
- a profit and loss statement;
- a balance sheet;
- a statement of cashflows;
- aged debtors and creditors report that includes the date each invoice is due to be paid or received.
The MFR Regulations also require that financial statements include:
- notes to the financial statements as required by the prescribed accounting standards;
- a description of the measurement, within the meaning of the prescribed accounting standards, on which the financial statements are based; and
- the accounting policies or reports relevant to the financial statements.
As the term “accounting standards”, when used in law and regulation, is defined as the Australian Accounting Standards as issued by the Australian Accounting Standards Board (AASB), the information prepared is required to comply with Australian Accounting Standards.
While many licensees will qualify be able to prepare ‘Simplified Disclosure’ (Tier 2) financial statements, this does not remove the requirement to record transactions – such as revenue, leases, and employee obligations – in the same method as other, larger companies (such as listed entities) which prepare Tier 1 GPFS. Model notes prepared under the Simplified Disclosure regime extend across 56 notes over 47 pages (this may be the upper level of disclosure as not all disclosures will apply to all licensees) demonstrating the relative complexity compared to special purpose financial statements previously prepared.
The superseded QBCC MFR report template may be a guide to which standards are likely to be of interest to the QBCC and worthy of specific focus. It requested clarification as to which of the following accounting standards had been applied in Special Purpose Financial Statements (SPFS):
- AASB 101: Presentation of Financial Statements
- AASB 102: Inventories
- AASB 107: Cash Flow Statements
- AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors
- AASB 110: Events after the Reporting Period
- AASB 136: Impairment of Assets
- AASB 137: Provisions, Contingent Liabilities and Contingent Assets
- AASB 139: Financial Instruments: Recognition and Measurement
- AASB 1048: Interpretation of Standards
- AASB 15: Revenue
- AASB 16: Leases
Victims of circumstance?
The root of the change is ultimately amendments to the standards set by the Australian Accounting Standards Board (AASB), and the fact the QBCC regulations (drafted before the AASB changes were contemplated) require financial information to be prepared in accordance with all of the prescribed accounting standards (the “Australian Accounting Standards”).
These changes were brought about by two new standards:
- AASB 2020-2 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities, which removed SPFS from Australian Accounting Standards; and
- AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-For-Profit Tier 2 Entities, which provided a simplified disclosure framework to report under.
The key change introduced by AASB 2020-2 is that entities within its scope are no longer able to use Statement of Accounting Concepts 1 (Definition of the Reporting Entity) to determine whether they can prepare SPFS. For-profit entities with a legislative requirement to prepare financial statements in accordance with “Australian Accounting Standards” or “accounting standards” fall within the scope of the change and are required to prepare GPFS.
The changes were announced in March 2020, around the same time the COVID-19 pandemic commenced, and were likely overlooked by many businesses as they dealt with more pressing operational pandemic related issues.
Does this impact FY22 lodgements?
The QBCC has confirmed that it will accept Special Purpose Financial Statements for licensees with a period end date of 30 June 2022 or before, however for period end dates 1 July 2022 or later must provide GPFS.
The changes mean that licensees wishing to adjust their NTA and/or approved turnover based on financial information as at 30 June 2022 (the last available date for SPFS), should ensure an MFR Report is signed before 31 October 2022 and lodged with the QBCC before 30 November 2022 at the latest.
MFR Reports must be signed by an independent accountant no more 30 days prior to lodging with the QBCC, and dated no more than 4 months after the balance date of the financial statements being certified.
Where to from here?
The full requirements of Australian Accounting Standards are extremely complex – often beyond the current level of expertise of many suburban accounting professionals. As a result, licensees should discuss their ability to provide appropriate advice in key areas with their providers – particularly:
- AASB 9 Financial Instruments, around Expected credit losses on receivables;
- AASB 15 Revenues from Contracts with Customers, around revenue on a percentage of completion basis;
- AASB 16 Leases, around recognising leases on-balance sheet (not straight-lined);
- AASB 119 Employee Benefits, to discuss recognition of employee-related provisions such as annual & long-service leave and RDOs; and
- AASB 137 Provisions, Contingent Liabilities and Contingent Assets, to discuss the recognition of constructive obligations, of warranty provisions and of remediation provisions.
These accounting standards are likely to cause the most complexity in conversion to GPFS and will require significant investment by professionals to ensure appropriate competence in application.