The much anticipated AASB announcement in March that special purpose financial reporting was coming to an end was a landmark day for accountants. From 2022 all entities required to prepare financial statements under accounting standards, (either by legislation or through a documented requirement eg: constitution, lending agreement) will have to prepare general purpose financial statements. The days of limited disclosures and the option of picking and choosing standards will soon be over for most.
All entities currently preparing general purpose financial statements will have the option of Tier 1 full disclosures (most suitable for companies with public accountability) or Tier 2 “simplified” disclosures, (with significantly less disclosures than Tier 1, but not as forgiving as special purpose). All entities required to prepare general purpose financials will be required to follow all of the measurement and recognition principles of all accounting standards, including consolidations and equity accounting, which may previously have been avoided by some.
Large Proprietary companies
Large proprietary companies will be required to prepare general purpose financial statements for the year ended 30 June 2020. When ASIC doubled the thresholds for large reporting entities last year, Treasury said it was due to these entities being “economically significant”. Due to Treasury’s stated position it’s difficult to justify even under the current requirements that anyone large would not be a reporting entity. Some will no doubt try.
Companies that report to ASIC – not large
AFSL license holders, small foreign owned companies, companies reporting at shareholder or ASIC request, and other entities required to report to ASIC will have until 2022 to move to general purpose reporting. These are likely to be the entities hardest hit by the changes due to the significant increase in disclosure requirements they may face. Also they may not have their accounting processes set up to capture the additional disclosures.
Entities choosing to early adopt general purpose financial reporting prior to 1 July 2021 will be able to avoid restatement of comparatives. Practically this early adoption appears to be a very appealing.
For – Profit Entities, required through documentation
These entities report because documentation such as their constitution, bank facility, distribution agreement or shareholder agreement requires them to report under “Accounting standards” or “Australian Accounting Standards”, (they have no legislative requirement). These entities will need to prepare general purpose financial statements from 2022 but only if these documents are created or amended after 1 July 2021. Given the high probability of these documents changing we strongly recommend that entities review and correct these documents before 1 July 2021.
Other Entities and Not for Profits
Can still prepare special purpose financials under the same conditions that exist presently, however from 2021 a statement of compliance with accounting standards and the consolidations standard should be included.
So as some of us say a sad goodbye to the Era of “special” we now say hello and look forward to the Era of “Simplified”. For others they may be able to hold onto the past for a little bit longer with some timely action.
If you need any assistance in planning for the end of special purpose financial reporting, or exploring transitional arrangements please contact ESV on 02 9283 1666.