Very soon, certain for-profit private sector entities will no longer be able to prepare special purpose financial statements (SPFS), but will have to prepare some form of general purpose financial statements (GPFS). Affected entities have been given an additional year to get their GPFS house in order, however this comes at a cost in terms of certain transitional relief.

In this article we look at the optional short-term exemptions offered under the changes that aim to simplify the changeover from SPFS to GPFS. Importantly, the exemptions an entity can take advantage of will depend on when it decides to transition to GPFS.


In The Bottom Line issue 6, we outlined the changes that had been recently mandated by the Australian Accounting Standards Board (AASB) relating to the scrapping of SPFS for certain for-profit entities.

As a reminder, the new requirements will only apply to for-profit private sector entities that are required by:

  • legislation to prepare financial statements that comply with either Australian Accounting Standards (AAS) or ‘accounting standards’; or
  • their constituting document (or another document, such as a lending agreement) to prepare financial statements that comply with AAS, provided such relevant document was created or amended on or after 1 July 2021.

Entities that are affected by the changes will be required to replace their SPFS with Tier 2 GPFS that comply with all the recognition and measurement (R&M) requirements of AAS, including consolidation and equity accounting.

Currently, reporting under Tier 2 of the Australian differential reporting framework entails preparing GPFS with reduced disclosures (called ‘Reduced Disclosure Requirements’, or ‘RDR’). However, under the changes, the existing RDR will be withdrawn and replaced by ‘Simplified Disclosures’ which are contained in a stand-alone standard, namely AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. While the recognition and measurement requirements for Tier 2 will remain unchanged, disclosures will be different going forward.

The changes described briefly above are mandatorily applicable for financial reporting periods beginning on or after 1 July 2021. This is one year later than what was initially proposed. Consequently, some of the transitional relief available will depend on whether an entity chooses to apply the requirements early (i.e. to periods beginning before 1 July 2021, such as the financial year ended 30 June 2021), or only from the mandatory effective date of 1 July 2021 (i.e. for the first time in the 30 June 2022 financial year).

Transitional relief explained

AASB 1053 Application of Tiers of Australian Accounting Standards has been amended to include three optional short-term exemptions which are available to entities making the move from SPFS to Tier 2 (Simplified Disclosures) GPFS. Importantly, two of these exemptions are only available on early adoption of AASB 1060, as explained in the table below and by the narrative thereafter:

SPFS Transitional relief explained

Treatment of prior period errors

For entities applying Tier 2 (Simplified Disclosures) GPFS for the first time, there is no need to differentiate between the correction of errors and adjustments arising on changes in accounting policies where the entity becomes aware of errors made in its most recent SPFS. This exemption can be applied even if AASB 1060 is not adopted early.

The effect of this exemption is that errors in an entity’s previous SPFS do not need to be separately disclosed in the first Tier 2 (Simplified Disclosures) GPFS, but can be included in the adjustments arising from changes in accounting policies as a result of moving from SPFS to GPFS. This may be beneficial where an entity is not currently applying all the recognition and measurement requirements of AAS.

Comparative information not previously disclosed in notes

For entities currently preparing SPFS, disclosures will most likely need to be elevated quite significantly on transition to Tier 2 (Simplified Disclosures) GPFS which may involve a fair amount of effort. In order to encourage entities to fast track their transition to GPFS, this optional exemption was included, allowing early adopters to not present comparative information in the notes where such comparative information was not disclosed in the most recent previous SPFS.

Restatement of comparative information

Entities that transition from SPFS to GPFS earlier than the mandatory effective date will not have to restate comparative information in the year of transition.

Where this relief is applied, the date of transition changes to the beginning of the reporting period rather than the beginning of the earliest comparative presented. This means that the comparatives presented in the first Tier 2 (Simplified Disclosures) GPFS will be those amounts presented in the most recent previous SPFS.

In the year of transition, entities making use of this optional exemption must:

  • disclose a reconciliation of its closing equity in its most recent previous SPFS and the opening equity at the date of transition
  • disclose a description of the main adjustments that would have been necessary to make the comparative Statement of Profit or Loss and Other Comprehensive Income AAS-compliant (note that adjustments do not need to be quantified)
  • prominently label comparative information that is not AAS-compliant as such.

Start thinking about your transition journey

It has been a challenging nine months to say the least, and entities captured by the upcoming changes to SPFS can be forgiven for not yet thinking about the financial reporting implications and what it means for them. However, directors and management are encouraged to start thinking about and planning their transition journey, especially considering the time and effort that could be saved by accessing the optional short-term exemptions that are available when transitioning earlier from SPFS to GPFS.