We all like to think that we’re special. Many for-profit corporate entities claimed that they had no users dependent upon general purpose financial statements (GPFS) and so were non-reporting entities that could prepare special purpose financial statements (SPFS). However, the rules changed from 1 July 2021 and many companies that claimed they were ‘special’ are no longer so. For these entities, GPFS must be prepared for 30 June 2022.
Who must prepare GPFS
A for-profit private sector entity must prepare GPFS from 30 June 2022 if required by either:
- legislation to prepare financial statements that comply with ‘Australian Accounting Standards’ or ‘accounting standards’ (eg, Corporations Act); or
- a constituting document (e.g. trust deed or constitution) or other document (e.g. bank agreement, sale agreement, shareholders’ agreement) to prepare financial statements that comply with ‘Australian Accounting Standards’ that was created or amended on or after 1 July 2021.
Entities that fall outside these requirements include:
- small proprietary companies that do not have a statutory requirement under Part 2M.3 of the Corporations Act to prepare a financial report.
- public companies limited by guarantee that are not-for-profit entities.
- entities reporting under legislation which requires the preparation of ‘financial information’ (as opposed to financial statements), such as friendly societies, retirement villages and some incorporated associations.
- entities reporting under legislation that requires the preparation of financial statements or financial reports that does not specifically refer to either ‘Australian Accounting Standards’ or ‘accounting standards’, such as SMSFs.
If the constituting document was created before 1 July 2021 and refers to ‘Australian Accounting Standards’, but has not been amended after that date, are exempted and can continue to prepare SPFS. However, these SPFS will be subject to extra disclosure requirements contained in AASB 2022-4 Amendments to Australian Accounting Standards – Disclosures in Special Purpose Financial Statements of Certain For-Profit Private Sector Entities.
Types of GPFS
Entities that have public accountability must prepare Tier 1 GPFS, while those without public accountability can elect to prepare, as a minimum, Tier 2 GPFS using AASB 1060 Simplified Disclosure Standard (SDS).
An entity has public accountability if:
- its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
- it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.
Impact on for-profit entities previously preparing SPFS
Large proprietary companies and unlisted public companies
Large proprietary companies and unlisted public companies are required to prepare financial statements in accordance with accounting standards by Chapter 2M.3 of the Corporations Act. This means, for accounting periods ending 30 June 2022 and beyond, these entities must lodge, as a minimum, Tier 2 GPFS.
Grandfathered proprietary companies
Grandfathered proprietary companies with balance dates ending before 10 August 2022 were exempted from lodging financial statements with ASIC. But these companies still have to prepare financial statements in accordance with accounting standards. Consequently, these entities must now prepare, as a minimum, Tier 2 GPFS.
Small foreign-controlled companies
Small foreign-controlled companies are required to prepare financial statements in accordance with accounting standards by Chapter 2M.3 meaning that such companies are now required to prepare GPFS.
However, small foreign controlled companies that are not part of a large group that rely on the relief from preparing and lodging a financial report under ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204 are exempt from the requirement to prepare financial statements and could choose to prepare SPFS.
Small foreign-controlled companies whose parent (which must be an Australian company or a registered foreign company) has lodged consolidated financial statements with ASIC are also exempt from preparing financial statements and could also choose to prepare SPFS.
AFS Licensees
Australian Financial Services Licensees (AFSL) are affected as a result of either their requirements to report under Chapter 7 of the Corporations Act (eg, if a small proprietary company or trust) or Chapter 2M.3 of the Act (if a large proprietary or public company). Therefore, they will be required to transition to GPFS. AFSLs reporting under Chapter 2M.3 will have to prepare GPFS from 30 June 2022. However, ASIC has provided a one year deferral of the new GPFS disclosure requirements for AFSLs that are only affected by the financial reporting requirements of Chapter 7 and previously prepared SPFS.
The type of GPFS (either Tier 1 or Tier 2 SDS) required by AFSLs will depend on the type of licence held and whether the licensee meets the definition of public accountability. ASIC Form FS 70 describes those licence types that are considered to have public accountability and therefore are required to prepare Tier 1 GPFS. Read our publication for more information on changes to AFSL reporting requirements here.
Are you prepared?
For-profit entities not affected by these changes and which continue to satisfy the criteria as a non-reporting entity are still permitted to prepare SPFS. Otherwise, this 30 June will be a busy time for many as they assess the need to restate their financial statements to comply with the measurement, recognition and disclosure requirements of accounting standards.
If you’re concerned that you’re no longer ‘special’ your Nexia advisor can help you through the transition process.
