In March 2020 the Australian Accounting Standards Board (AASB), the governing body responsible for developing, issuing and maintaining accounting standards under Australian law, released a new standard that has wide application and may impact your business and investment entities when it comes into effect this coming financial year.
AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities will remove the ability for some entities to prepare Special Purpose Financial Statements (SPFS) for 30 June 2022 year ends (for June balancing entities).
Currently, most of our clients prepare SPFS solely for their use, and the application of all Australian Accounting Standards is not required. However, AASB 2020-2 will require some entities to prepare General Purpose Financial Statements (GPFS) with full application of recognition, measurement, and presentation requirements of all Australian Accounting Standards.
This will result in significantly expanded disclosure requirements compared to the SPFS that are currently prepared, along with an associated substantial increase in costs of compliance.
Who will have to prepare GPFS for the first time?
The new requirements apply to for-profit private sector entities where:
- The Corporations Act 2001 or other legislation requires them to prepare financial statements that comply with either “Australian Accounting Standards” or “Accounting Standards”.
Examples of entities reporting under the Corporations Act 2001 that will no longer be able to prepare SPFS include:
- Large proprietary companies (including ‘grandfathered’ large proprietary companies that do not lodge financial statements with ASIC)
- Unlisted public companies (excluding companies limited by guarantee)
- Small proprietary companies controlled by a foreign company
- Financial services licensees (AFSL) and
- Small proprietary companies with crowd-sourced funding
- Their constituting document or another non-legislative document requires them to prepare financial statements that comply with “Australian Accounting Standards”, and only where that document is created or amended on or after 1 July 2021.
Entities that are not publicly accountable entities will be permitted to prepare GPFS applying Tier 2 requirements. This means preparing GPFS applying all recognition and measurement requirements of Australian Accounting Standards, but with reduced disclosures.
What should you do?
- If you are a Large Proprietary Company or may be approaching the thresholds for a Large Proprietary Company, or if you are one of other entities that will no longer be able to prepare SPFS, speak to your advisor to discuss what action you need to take.
- Do not amend your constituting documents or other non-legislative documents on or after 1 July 2021 without first seeking advice and confirming that the documents do not refer to “Australian Accounting Standards”.
- Ensure constituting documents or other non-legislative documents entered into after 1 July 2021 do not refer to “Australian Accounting Standards” if you do not want to be required to prepared GPFS.
To understand more about these changes, click here.
