The Australian Accounting Standards Board (AASB) is proposing changes to Tier 2 (Simplified Disclosure) financial statements:
- ED 341 was issued for comment in June 2026, with comments due to the AASB by 24 August 2026.
- The changes outlined in ED 341 would align Tier 2 financial statements with the presentation and classification requirements of AASB 18 Presentation and Disclosure in Financial Statements.
- The changes are proposed to be effective for years commencing on or after 1 July 2030, with earlier application permitted.
The proposals at a glance
For those entities currently applying AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities, adoption of the proposed amendments will involve the following:
- Changing the structure of the statement of profit or loss.
- Classifying income and expenses into ‘Operating’, ‘Investing’ and ‘Financing’ categories, in addition to existing categories for ‘Discontinued operations’ and ‘Income tax’.
- Presenting two new subtotals: ‘Operating profit’ and ‘Profit or loss before financing and income tax’.
Why are changes being proposed?
AASB 18, issued in June 2024 and effective for most Tier 1 entities for years commencing on or after 1 January 2027, introduced new presentation and classification requirements for Tier 1 general purpose financial statements.
Feedback received by the AASB indicated strong support for aligning the presentation of primary financial statements of Tier 2 entities with those of Tier 1 entities.
In response, the AASB has now issued their proposals for change in ED 341 and is asking for comments.
Key proposed changes
The main change affects how income and expenses are presented in the statement of profit or loss. The proposed amendments would also provide updated guidance on the aggregation and disaggregation of items and the roles of the primary financial statements and the notes.
Importantly, the proposals do not include all the additional disclosure requirements included in AASB 18 – only those determined by the AASB to be relevant to Tier 2 entities.
The proposed changes to the statement of profit or loss would require Tier 2 entities to:
- classify income and expenses into three new categories: ‘Operating’, ‘Investing’ and ‘Financing’;
- continue presenting existing categories for ‘Discontinued operations’ and ‘Income tax’; and
- present two new subtotals: ‘Operating profit’ and ‘Profit or loss before financing and income tax’.
The items classified in the ‘Operating category’ will depend on the entity’s main business activities. This assessment is based on the entity’s facts and circumstances and will require judgement. Some entities may have more than one main business activity, which may make classification more complex.
Entities will also need to consider whether they have a ‘specified main business activity’ This means a main business activity of investing in assets (such as investments or property) or providing financing to customers. If an entity has a ‘specified main business activity’, income and expenses related to that activity would be classified in the ‘Operating category’, even if they might otherwise have been classified as Investing or Financing.
Illustrative statement of profit or loss (applying the proposed amendments to AASB 1060), excluding discontinued operations, for an entity with no ‘specified main business activity’
| *This presentation is not suitable for an entity with a specified main business activity of investing in assets and/or providing financing to customers. |
What should you do now?
Although the proposed effective date is a few years away, preparers of Tier 2 (Simplified Disclosure) financial statements should begin assessing the potential impact of the proposals. Practical steps include:
- reviewing how the proposed categories and subtotals would affect the statement of profit or loss;
- assessing whether the entity has one or more main business activities, including any specified main business activities;
- considering whether systems, chart of accounts or reporting processes may need to change;
- making a submission to the AASB by 24 August 2026 if the proposals raise concerns or implementation issues; and
- engaging early with external auditors and other advisers to understand the expected reporting impacts.
More information
For further guidance on the AASB 18 presentation and classification requirements, refer to the following Pitcher Partners technical article Revamping the P&L under AASB 18: Impact for asset investors (September 2025), our webinar recording from October 2025 and our upcoming webinar in October 2026.
