Certain for-profit entities may continue to prepare special purpose financial statements (SPFS) despite the reforms that see the end of special purpose reporting for many for-profit private sector entities. To ensure the basis on which such SPFS are prepared is clear to users, new disclosures have recently been introduced to meet this objective.
The for-profit private sector entities that may continue to prepare SPFS for 30 June 2022 onwards are those that meet all the following conditions:
- the entity’s constituting document or another document requires the preparation of financial statements that comply with Australian Accounting Standards (AAS);
- such document was created before 1 July 2021; and
- such document has not been amended on or after that date.
Entities that meet the above requirements are permitted to continue preparing SPFS despite their non-statutory financial reporting requirements that require the preparation of financial statements that comply with AAS.
To ensure the basis of preparation is apparent to users of these SPFS, the Australian Accounting Standards Board has mandated that disclosures regarding the extent of compliance with the recognition and measurement requirements of AAS be made.
The new disclosures will be added to AASB 1054 Australian Additional Disclosures via amending standard AASB 2022-4 Amendments to Australian Accounting Standards – Disclosures in Special Purpose Financial Statements of Certain For-Profit Private Sector Entities. The amending standard applies to annual reporting periods ending on or after 30 June 2022 meaning that entities caught by AASB 2022-4 must add the disclosures to their SPFS for the first time for 30 June 2022. These disclosures will need to be made every year whilst the entity’s financial reporting requirements continue to stipulate compliance with AAS and the entity prepares SPFS.
The additional disclosures to be included in the SPFS of affected entities are as follows:
- why the entity is preparing SPFS
- the material accounting policies applied in the SPFS as well as any changes in these policies
- if these policies do not comply with the recognition and measurement requirements in AAS, an indication of how they do not comply
- whether the SPFS comply with the consolidation and/or equity accounting requirements for any interests in other entities
- an explicit statement as to whether the financial statements, overall, comply with the recognition and measurement requirements of AAS.
The SPFS will also be required to disclose the entity’s reporting framework, that the entity is a for-profit entity and that the financial statements are special purpose financial statements. These disclosure requirements are already included in AASB 1054 and will be applied to these entities.
This article was first published in The Bottom Line, issue 13.