Date posted: 3/07/2019 10 min read

Have your say on ‘special purpose’ reporting

Ensuring the AASB introduces an effective replacement for special purpose financial reports in the for-profit and NFP sectors requires members to have their say.

In Brief

  • The AASB is planning to reform Australia’s financial reporting framework, introducing a simplified tier system to replace special purpose financial reporting for many entities
  • These reforms are likely to affect the for-profit sector in the coming two years
  • Make sure you have your say as the reforms progress

Planned AASB reforms will significantly affect the use of special purpose financial reports for many entities, with the changes likely to affect the for-profit sector from as early as 1 July 2020. Member input is vital to allow CA ANZ to advocate effectively with the AASB and achieve workable outcomes.

This article provides a brief overview of the reforms and a link to a short 5-6 minute survey for you to provide input on the costs and benefits of the AASB’s proposals as well as what you would view as workable. The survey aims to help us understand your views in a structured way but feedback in any form at any time is welcome.

CA ANZ special purpose reporting survey

Have your say on the AASB reforms.

Take the Survey

What is the AASB proposing?

The AASB has foreshadowed removing SAC 1 Definition of the Reporting Entity (SAC 1), which means the reporting entity assessment and special purpose approach to preparing financial statements will no longer be part of Australian accounting standards. Entities required to lodge accounts with regulators that comply with accounting standards will need to prepare general purpose financial statements (GPFS). Full IFRS would apply for publicly accountable (Tier 1) entities while a new, simplified disclosure regime will apply to Tier 2 (non-publicly accountable) entities. First to be impacted by the changes would be for-profit lodging entities, including companies, with new rules possibly applying from 1 July 2020. However, changes are in the wind for not-for-profit (NFP) entities and in the public sector as later phases of the AASB’s work.

Why does the framework need to change?

The inclusion of SAC 1 into the Australian reporting framework in 1990 sought to ensure that financial reporting requirements were based on identified user needs. However, since then, the use of the concept has caused a significant variation in the content of financial statements lodged on the public record, which the AASB identified as an area of concern. These differences arise because content can be based largely on management’s assessment of what the financial statements should contain rather than on content requirements set by the AASB or regulators.

What will replace special purpose financial statements?

The AASB proposed two options for the content for the ‘new’ Tier 2 GPFS in its previous consultation, however neither gained widespread support. CA ANZ suggested disclosure requirements needed to be more substantially rolled back to avoid long and superfluous financial statements that would confuse rather than help users and business owners.

In light of the feedback received, the alternative Tier 2 GPFS proposal the AASB is developing contains the following key elements:

  • Mandatory application of all of the recognition and measurement requirements of all the AASB standards
  • Mandatory consolidation of subsidiaries, and equity accounting for associates and joint ventures
  • A simplified disclosure regime, located in a single standard, based on the IFRS for SMEs as a starting point. This is a much lower level of disclosure than previous proposals and is also lower than that in our current reduced disclosure regime under AASB 1053.

The AASB has also decided to offer relief so that affected entities will not need to restate their comparative information on transition.

What sort of non-reporting entities will need to use the new Tier 2 GPFS?

Top of the list for entities affected by the removal of SAC 1 are, of course, large private companies lodging special purpose financial statements with ASIC. However, Treasury’s doubling of the thresholds that define ‘large’ earlier this year reduced their population by about one-third, rendering the AASB’s current plans to mandate a Tier 2 general purpose financial report more workable in this space. Of ongoing concern are a large range of other entities that are required to lodge financial statements to other regulators.

We are working with the AASB and with other regulators to make sure they are aware of the impacts, and where appropriate they may adjust lodgement requirements accordingly. For example, some regulators that currently require financial reports may find their needs are now better served by an information statement or another alternative that provides a degree of proportionality. The AASB is focused on this issue and their recently released Research Report 10 Legislative and regulatory financial reporting requirements identifies the different types of for profit entities likely to be affected.

The AASB’s current plan – that trusts and other entities that have only a non-legislative requirement that their financial reports comply with Australian accounting standards (i.e. in their trust deed) – will not be captured unless their constituting documents are created or amended after 1 July 2020.

What are the AASB’s next steps?

To achieve reform for financial years beginning on or after 1 July 2020 (30 June 2021 year-end) the AASB will release a series of exposure drafts (EDs) over the next few months. CA ANZ will provide feedback and engage with the AASB, and we would encourage all members involved in financial reporting to provide your views through the short survey below or via the link provided for general input.

What about NFPs?

The AASB is considering separately its approach to the NFP sector. It is liaising with the NFP regulators, including the ACNC, to identify appropriate and sector-specific reform requirements. Its initial discussions suggest that three or more tiers may be required to ensure reporting requirements are appropriate for the size and complexity of the entity. A separate consultation paper will be released when the AASB has concluded its deliberations.

How has CA ANZ been involved in this project?

CA ANZ has been actively engaged with the AASB and other regulators and we are focused on advocating for a workable reporting framework that includes appropriate proportionality and that works effectively towards its objectives. We are seeking member input on the costs and benefits of the AASB’s proposals, and what you see as workable.

Provide your feedback

CA ANZ welcomes your feedback on the AASB reporting reforms.

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More Information

Visit our special purpose reporting webpage.

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