- Over 500 members responded to our survey on special purpose reporting
- This feedback indicates AASB reform plans are heading in the right direction
- However, implementation needs a more managed transition
Reforming the use of special purpose financial reports as a regulatory lodgment option has been a key project for the AASB over the last two years. Since these reports have been an important feature of our reporting framework for many years, understanding members’ views on what reform should look like and advocating this to the AASB has been a critical part of my role.
We greatly appreciate that over 500 members and other industry professionals provided their views through our special purpose reporting survey in July/August 2019. This firsthand experience, drawn from practical involvement in the financial statement supply chain in both the for-profit or not-for-profit sector, has been crucial in helping us assess the latest AASB proposals and make sure the voice of Chartered Accountants are heard loud and clear in these important reforms.
Reforming the use of special purpose reporting
Members have their say on special purpose reporting reformRead more
The for-profit sector – what you told us
- Removal of special purpose financial statements needs careful management
Over 60% of respondents were concerned that if not done right, any widespread removal of special purpose financial reports could be costly and may outweigh benefits for users.
Compared to the previous invitation to comment ( ITC 39), the AASB's SAC 1 removal proposals (ED 297) have adjusted scope to effectively capture large companies and equivalents, which is a move in the right direction.
Our joint submission with CPAA on ED 297 has supported this approach, especially now Corporations Act lodgement thresholds have been raised. However, we also recommended that the AASB permit a two-year implementation window, rather than require immediate adoption next year. This recognises survey feedback that these reforms are a significant change that will require time, careful planning and education to implement cost effectively.
- Disclosure levels need improving
Over 70% of respondents supported the need to reduce and improve the current level of disclosures. The AASB's proposed Simplified Disclosure Standard, detailed in ED 295, is also a move in the right direction and has refined requirements in line with our survey feedback. This new standard will be based even more directly on the requirements of the internationally accepted IFRS for SMEs standard, with both less disclosure and clearer wording than our current Reduced Disclosure Regime.
Our joint submission supports the AASB's direction to reduce and simplify disclosure, making some recommendations for further refinement. However, we are also calling for a two-year implementation window that will allow for a more managed transition.
Where to now?
The AASB's proposals closed at the end of November and the board intends to finalise them for release by 30 June 2020. This will facilitate early adoption for any entities that wish to do so.
Other impacted for-profit entities will only have until June 2021 to transition unless the AASB accepts our calls for the implementation timetable to be brought in line with the normal practice of a two-year window. However, starting the transition process sooner rather than later is encouraged and transition exemptions have been proposed to ease the transition process. Our survey indicates that respondents expect the key transition challenges lie in the areas of leases, related parties, financial instruments, consolidation, impairment and revenue.
The AASB’s planned special purpose reforms are moving in the right direction
Finally, it is important to emphasise that all other types of for-profit entities that do not fall within the scope of ED 297 will still be able to prepare special purpose reports. The ED contains a detailed table of the entity types that the AASB currently proposes to capture and exclude to enable you to begin to ascertain the likely impact of these reforms on your organisation or clients.
What about the not-for-profit (NFP) sector?
Concerns about over-regulation and onerous disclosures were also repeated for the NFP sector with many survey respondents seeking both recognition and measurement simplification and disclosure reductions. The AASB will be separately consulting on appropriate NFP reforms early next year with a view to having a new reporting framework that better meets the need of both preparers and users by 2022. Early indications about that consultation is that it is likely to include three reporting tiers (including simplified recognition and measurement in the third tier) and be based on increased reporting thresholds.
In the meantime, those NFP entities already preparing Tier 2 general purpose financial reports will be able to adopt the Simplified Disclosure Standard that will be based on ED 295.
What we're focused on
Our engagement with the AASB has been focused on ensuring that reform will be proportionate and reasonable in the for-profit sector and we plan to continue to seek a similar outcome from the NFP consultation next year. We will also continue to work with the AASB to inform members and make sure their voice is heard as the changes are implemented, so that any post implementation concerns can be addressed. Read our Reporting & Assurance newsletter for updates to the projects as they occur or visit the AASB website.
Joint submission ED 295: GPFS – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities