Move from special purpose financial statements and reduced disclosure requirements to Simplified Disclosure – options available
In a previous article, we provided guidance about the type of entities who were affected by the change in the Australian reporting framework, as a continuation of this information we are going to look at the options available to entities depending on the financial statements currently being prepared.
Remember that there are no not-for-profit (NFP) entities that are required to move to general purpose financial statements. The NFP framework is currently being discussed by the AASB with a discussion paper expected later in 2021.
Entities currently preparing Tier 2 reduced disclosure financial statements (RDR)
RDR standards will no longer be maintained from 1 July 2021 and therefore for-profit and not-for-profit entities that are currently preparing RDR financial statements will be required to move to the new Tier 2, which is the simplified disclosure standard (AASB 1060). Note all presentation and disclosure requirements are now included in a stand-alone standard rather than using the other Australian Accounting Standards.
Given that these financial statements are general purpose, the only impact will be relating to disclosures as shown below.
Notes:
- If Simplified Disclosure statements are prepared prior to annual reporting periods beginning on or after 1 July 2021 (i.e. early adopted) then comparatives are not required for these additional disclosures.
- Note that the removal of disclosures no longer needed is optional, however unless they are deemed to provide meaningful and relevant information to the users consider the additional time to be spent in preparing and auditing these disclosures each reporting period.
Entities that are currently preparing special purpose financial statements and are required to transition to general purpose financial statements
The impact and process for the transition to general purpose financial statements will vary depending on the type of financial statements currently being prepared and the date of transition.
Note that early adoption involves preparing financial statements for a period commencing before 1 July 2021. For a June reporter, early adoption would be 30 June 2021 financial statements, whereas mandatory adoption is 30 June 2022.
For entities that expect to see a change in the reported numbers, there is a choice of transition approaches:
| AASB 108 | AASB 1 |
|---|---|
| Apply all standards as if they have been adopted since the date of initial recognition of the balance | Apply the standard in place at end of current reporting period with some flexibility in restatement |
| Line by line disclosures of impacts | Equity reconciliation showing the changes to retained earnings |
We prefer the AASB 1 approach due to the ability to take advantage of certain concessions – not restating business combinations and deeming fair value to be cost, for example.
| Financial statements currently being prepared | Changes to reported numbers? | Changes to disclosures? | Relief / options available | Mandatory date adoption |
|---|---|---|---|---|
| SPFS complying with all recognition, measurement, consolidation and equity accounting requirements | No | Yes | Relief from disclosing comparative information not previously disclosed. | None |
| SPFS complying with all recognition and measurement requirements but not complying with consolidation or equity accounting. | Yes | Yes | No requirement to restatement comparatives Relief from disclosing comparative information not previously disclosed. AASB 1 / AASB 108 option No requirement to distinguish errors in previously applying standards from changes in accounting policy. | AASB 1 / AASB 108 option No requirement to distinguish errors in previously applying standards from changes in accounting policy. |
| SPFS not complying with recognition and measurement requirements. | Yes | Yes | No requirement to restatement comparatives Relief from disclosing comparative information not previously disclosed. AASB 1 / AASB 108 option No requirement to distinguish errors in previously applying standards from changes in accounting policy. | AASB 1 / AASB 108 option No requirement to distinguish errors in previously applying standards from changes in accounting policy. |
We encourage all entities that are potentially impacted by these changes to make contact with your Bentleys advisor to discuss the options for adoption.
We, at Bentleys, are doing everything we can to help businesses come out of this challenging time in good shape.
For resources to assist with your year-end tax planning, visit our EOFY portal.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.
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