Changes to Financial Reporting
If you are a for-profit entity that is required to prepare financial statements, there are changes that may affect you from 1 July 2021. You will no longer be permitted to prepare Special Purpose Financial Statements (SPFS) after 30 June 2021 if you are an entity affected by the changes. These changes do not currently apply to not-for-profit (NFP) entities.
If you are a for-profit entity with obligations to prepare financial statements which comply with Australian Accounting Standards, you will be required to prepare General Purpose Financial Statements. Special purpose financial reports will no longer be an option for these entities.
What is Changing?
The Australian Accounting Standards Board has introduced a new conceptual framework which is changing the definition of a reporting entity. An entity was previously permitted to choose whether it was a reporting entity or not.
The changes to the reporting entity definition will now assess whether the entity (company, trust, partnership etc..) has a legislative requirement to prepare financial statements OR is a party to any documents/agreements which require the entity to prepare financial statements which comply with Australian Accounting Standards.
The most common documents that this requirement may be found in are:
- Constitutional documents (Company constitution, Memorandum and Articles of Association, Trust Deed, Partnership Agreement)
- Shareholder Agreements
- Finance Agreements (Bank covenants, leases, hire purchase, loan agreements)
- Franchise Agreements
- Customer or supplier contracts
It is also important to consider any documents moving forward which may trigger the need to apply GPFS. Examples of this include:
- Changes/Amendments on or after 1 July 2021 to existing documents which have a requirement to prepare financial statements which comply with Australian Accounting Standards will trigger the requirement to prepare General Purpose Financial Statements
- New documents/agreements created on or after 1 July 2021 which have a requirement to prepare financial statements which comply with Australian Accounting Standards will trigger the requirement to prepare General Purpose Financial Statements
What do I do?
- Preform an initial assessment and review of all documents/agreements across your business. Check if they mention Australian Accounting Standards.
- Speak to us at JTP Assurance. If you prepare your own financial statements, we can help identify the changes that you will need to your current financial statements. If we currently prepare your financial statements using Caseware, then talk to us about when you would like to adopt the new presentation and what additional information will be required.
- Preparing General Purpose Financial Statements is more complicated and costlier than preparing Special Purpose Financial Statements. It requires compliance with all accounting standards, specific disclosures and presentations.
When do I need to act?
If you are affected then these changes are mandatory for the 2022 financial year, however if you adopt these changes early, there are concessions that will make the process easier. If you believe you are affected and would like more information about early adoption for the 2021 financial year then please speak to us at JTP Assurance.