Riding The Rollercoaster Of Financial Reporting Reform In Australia
Reform is upon us and some of the following topics may have some in a head spin!
- Ending Special Purpose Financial Statements (SPFS)
- Disclosing extent of compliance with Australian Accounting Standards (AAS)
- Moving to consolidated financials
- A new reduced disclosure standard
It’s all moving too fast for some.
Most financial report preparers have recently gone through a transition to new requirements for financial instruments, revenue and leasing. Now we all need to get across the next suite of changes – which are coming through at velocity.
AASB requirement for additional disclosures for SPFS
Recent push back has seen the Australian Accounting Standards Board (AASB) retract the proposed requirement to disclose the extent of compliance with AAS for SPFS. This follows overwhelming feedback from stakeholders that the change was excessive, time consuming and be of little consequence to those using financial statements.
Whilst drafting the proposed changes, the AASB became aware that the requirements had become more burdensome and overengineered with exceptions and guidance which left many readers confused.
Another issue voiced was that the requirements would be in place for one year only where a business will need to move to general purpose financial statements (GPFS) from 30 June 2021 anyway; thus, anticipating little value from the changes.
It seems the AASB tried to achieve their wish list, however, there is not enough time to fully grasp the impact for a one-year benefit while financial report users are already battling a barrage of other accounting standard changes.
Moving to GPFS
The big project underway at the AASB is the removal of SPFS. The project is moving ahead quickly and the AASB is currently requesting responses to the proposed changes that impact for-profit entities.
The changes have been discussed in previous Clarity editions but the largest issue for some is that consolidation will need to be applied in accordance with AASB 10: Consolidated Financial Reports.
Currently, several large groups in Australia are lodging only single entity financial statements for the head group. Subsidiary businesses within the group may be exempt from lodging altogether which results in financial information regarding the groups trading not being made publicly available. After the SPFS removal, the veil of reduced reporting is lifted, and financial information will become publicly available. Many ‘mum and dad companies’ believe this is a privacy risk.
The problem with this concern is that it is not something the AASB can fix but is an issue with reporting requirements under the Corporations Act. Businesses facing this issue have no way to avoid the inevitable and will need to start preparing and lodging their consolidated financial reports on the public record.
The reason why consolidation cannot be avoided is due to it only being possible under the SPFS framework. It is an unintended consequence of the AASB’s project to streamline the financial reporting framework in Australia. Whilst unintended, it may be the best outcome as it creates a level playing field for all businesses with a requirement to lodge.
Moving your financial records to group consolidation can be a difficult and timely exercise. It is important to plan ahead and be ready for the change well before the June 2021 reporting season hits.