Changes to financial reporting will require directors of many companies to meet new requirements, says ASIC Commissioner John Price. Directors of companies should begin their preparations by considering the following changes:
Changes to financial reporting will require directors of many companies to meet new requirements, says ASIC Commissioner John Price.
Directors of companies should begin their preparations by considering the following changes:
- Large proprietary company threshold increases are likely to impact which organisations can prepare special purpose financial statements (SPFS) for reporting periods ending 30 June 2020, as opposed to general purpose financial reports that comply with all accounting standards.
- New lease accounting requirements (effective for reporting periods ending 30 June 2020) may increase reported assets to above the ‘large’ proprietary company threshold.
- Not-for-profit companies currently preparing SPFS will need to make clearer disclosures on their compliance with recognition and measurement requirements of Australian Accounting Standards (for reporting periods ending 30 June 2020).
- Australian Accounting Standards Board (AASB) proposals (consistent with the recognition and measurement requirements in ASIC’s Regulatory Guide 85 Reporting requirements for non-reporting entities) are proposed to apply to for-profit large companies, small foreign-controlled companies, and public companies (for annual reporting periods after 1 July 2020).
Can we still prepare SPFS if we’re a ‘large’ proprietary company?
Directors of large proprietary companies currently preparing their SPFS will likely no longer be able to do so for years ending 30 June 2020.
Many directors welcomed the recent doubling of ‘large’ proprietary company thresholds to $50 million in revenue, $25 million in assets and 100 or more employees (for financial years commencing on or after 1 July 2019). The explanatory guidance about the changes says that the increases are to ensure that the financial reporting obligations continue to be targeted at economically significant companies. Further, the proprietary companies above the new threshold have, on average, significantly more users accessing their financial statements from ASIC, compared to those companies currently reporting that will be under the new thresholds.
All of this is relevant to the question of whether companies over the increased thresholds can use SPFS. This is because these economically significant entities are more likely to have users who are dependent on general-purpose financial reports, and these users cannot demand the company to prepare the financial information they need.
Am I small or large? Impact of new accounting standards
To assess whether or not your ‘small’ proprietary company now exceeds the new ‘large’ proprietary company thresholds, you need to apply accounting standards to determine revenue and assets.
The new leasing standard AASB 16 (effective for reporting periods ending 30 June 2020) requires operating leases to be treated as assets and liabilities. Significant leases or outsourcing agreements may well increase your company’s assets above the $25 million threshold definition for a large proprietary company.
New SPFS disclosures for not-for-profit companies
To provide greater transparency and comparability, not-for-profit companies (e.g. those limited by guarantee) that previously lodged SPFS with ASIC or the Australian Charities and Not-for-profits Commission will need to make an explicit statement as to whether or not they have complied with recognition and measurement requirements of accounting standards, and provide details of investments in other entities (for reporting periods ending 30 June 2020).
Impact of the AASB’s proposals
Finalising the AASB’s proposals to mandate general-purpose financial reporting (consisting of full recognition and measurement with simplified disclosures) would result in directors of for-profit large companies, small foreign-controlled companies, and public companies having fewer risks and clearer financial reporting responsibilities.
These proposals would be consistent with ASIC Regulatory Guide 85 requirements with additional disclosures, and would increase the transparency, comparability and enforceability of financial reporting requirements.
Self-assessment of financial reporting requirements would no longer be permitted. If finalised, these AASB proposals would apply for annual reporting periods after 1 July 2020 and the transitional relief could be used by early adopters.
ASIC supports the AASB’s consultation on this issue. For more information visit aasb.gov.au.