Removal of Special Purpose Financial Statements (SPFS) for certain FOR-PROFIT entities and new simplified disclosure standard on FOR-PROFIT and NOT-FOR PROFIT entities
Two standards that will greatly change the way financial reports are prepared and presented were approved by the Australian Accounting Standards Board (AASB). We see both standards particularly affecting AFSL holders and large proprietary companies who may have previously prepared SPFS. AASB 1060 will have some impact on not-for-profit entities who have completed SPFS as well. Please note that the new standards will not affect entities that do not have a requirement to prepare financials for lodgment with ASIC or the ACNC.
These standards are as follows:
AASB 2020-2: Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities
AASB 1060: General Purpose Financial Statements (GPFS) – Simplified Disclosures for For-Profit and Not-For-Profit Tier 2 (Reduced Disclosure) Entities
AASB 2020-2: This eliminates certain for-profit private sector entities of their ability to prepare SPFS. AASB 2020-2 applies to annual reporting periods beginning on or after 1 July 2021, with earlier application permitted. These entities can no longer apply the Reporting Entity Concept which allows them to self-assess whether they should prepare GPFS or SPFS. AASB 1060: This will replace the simplified disclosures under Tier 2 (Reduced Disclosure) reporting requirements for for-profit and not-for-profit entities.
Rationale for the newly approved standards:
There is concern that SPFS lack consistency, comparability transparency and enforceability. Regulatory scrutiny of SPFS has also increased.
To remove the ability of certain for-profit private sector entities to self-assess their financial reporting requirements and prepare SPFS when they are required to prepare financial statements that comply with Australian Auditing Standards (solution to the SPFS problem).
Treasury doubled the thresholds used for determining what constitutes a large proprietary company. The revised thresholds were set with the expectation of capturing entities with economic significance and noted the larger the entity, the more likely it is that there are GPFS users.
Please contact your engagement partner or our Audit Director, Shakeel Khan, should you wish to discuss the impact of these changes in Accounting Standards. You can reach Shakeel at our office by emailing email@example.com or calling us on 02 9908 4744.