As we enter into the financial year commencing 1 July 2021, we remind you that the removal of special purpose financial statements for certain for-profit entities is now upon us.
This means that if you are caught by the new requirements for years commencing on or after 1 July 2021 you will no longer be able to produce special purpose financial statements and you must produce general purpose financial statements.
You are captured by the new requirements in the following circumstances:
- For-profit private sector entities that are required by legislation to prepare financial statements that comply with either “Australian Accounting Standards” or “accounting standards”.
- Other for-profit private sector entities, whose constituting document or another document requires the preparation of financial statements that comply with “Australian Accounting Standards” if the relevant document was created or amended in any way on or after 1 July 2021.
For more information on these circumstances, please refer to an earlier article on this topic from March 2021.
The type of general purpose financial statements that can be produced from 1 July 2021 has also changed. Tier 1 requirements remain the same (i.e., adoption of the full recognition, measurement, presentation and disclosure requirements of Australian Accounting Standards), and are applicable to publicly accountable entities.
However, most for-profit entities (particularly private companies) that are required to prepare general purpose financial statements will produce Tier 2 general purpose financial statements. Tier 2 general purpose financial statements will still adopt the full recognition and measurement requirements of Australian Accounting Standards, but their presentation and disclosure requirements will be simplified compared to that required by Tier 1 entities. The new Tier 2 general purpose financial statements are required to comply with what is called ‘Simplified Disclosures’, which replaces the ‘Reduced Disclosure Requirements’ of Australian Accounting Standards. ‘Simplified Disclosures’ requires the adoption of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.
For a summary of the primary disclosure differences between Tier 2 ‘simplified disclosures’ (under AASB 1060) and the information commonly disclosed in special purpose financial statements (when applying the disclosure requirements of AASB 101, AASB 107, AASB 108 and AASB 1054 – those standards required to be complied with when financial statements are prepared under the Corporations Act 2001) refer to our publication on this topic.
We also have available a more detailed illustrative guide of financial statements that adopt the new simplified disclosure standard.
The requirements of the new simplified disclosure standard can be early adopted and there is some relief available if you wish to adopt these new requirements for your current reporting period. More information on this is available from our earlier article on this topic from March 2021.
Contact your Pitcher Partners representative for further information and assistance on the changes to the ability to prepare special purpose financial statements and the introduction of the new simplified disclosure standard.