Changes to Special Purpose Financial Statements reporting

From 1 July 2021 following approval of AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities, certain for-profit private sector entities will no longer be permitted to prepare special purpose financial statements (SPFS). This change does not apply to everyone, with only some for-profit private sector entities (and any not-for-profit entities currently reporting under the general purpose reduced disclosure framework) affected.

The new requirements apply to for-profit private sector entities which prepare a financial report under:

• Legislation which requires financial statements to be in accordance with Australian Accounting Standards, or accounting standards;
• Other arrangements (e.g. constitution, trust deed, loan agreement) which requires financial statements to be in accordance with Australian Accounting Standards specifically, and those arrangements were in a document that was created of amended on or after 1 July 2021. Those created prior to 1 July 2021 are grandfathered to continue to allow preparation of SPFS.

Reporting Framework

The change will not require affected entities to prepare full tier 1 general purpose financial statements (GPFS). If the entity is not publicly accountable, then tier 2 requirements are permitted. Tier 2 requirements have been collated in new standard, AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities, which replaces the reduced disclosure requirements (RDR) which have been withdrawn from 1 July 2021.

The new Simplified Disclosure framework contains fewer disclosures than the RDR framework it is replacing. For those entities transitioning from the RDR framework, the transition to AASB 1060 is expected to reduce overall disclosures.

Recognition and Measurement

Entities preparing GPFS will be required to apply the full recognition and measurement requirements of the Australian Accounting Standards.

For entities who are transitioning from special purpose to general purpose, an assessment of the entity’s current compliance with all recognition and measurement requirements of Australian Accounting Standards should be made to ensure that any gaps are appropriately addressed.

Early Adoption

Early adoption of AASB 1060 is permitted, with some transition relief provided, including:

• Relief from distinguishing the correction of errors from changes in accounting policy;
• Relief from providing comparative information not previously disclosed in the notes to the financial statements.

Restated comparatives will be required where an entity prepares tier 1 GPFR for the first time.

As always, please contact your WLF Advisor if you would like further information. 

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