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PKF Australia

Accountants and Business Advisers

Financial Reporting Changes On The Horizon

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Hayley Keagan

Technical Director

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Financial Reporting Changes On The Horizon

The Australian Accounting Standards Board has been busy over the last few months which has resulted in some proposed changes to accounting standards being released for comment. 

The changes are summarised below:

Standard

Name
Disclosures in Special Purpose Financial Statements.
Not-for-Profit Entity Definition and Guidance.

Application date
Financial years ended 30 June 2020
(early application is encouraged).
On a date yet to be determined.

Detail of the proposed changes
Additional disclosures will be required for those entities who prepare special purpose financial statements as follows:
1. The reason why Special Purpose Financial Statements are prepared, rather than General Purpose.
2. If the entity is a parent entity and has not prepared a consolidated report, the reason for not consolidating (same requirements for associates and joint ventures).
3. A statement as to whether the stated policies in the financial report comply with the requirements of accounting standards and where they do not comply with, a summary as to the extent of non-compliance.
Various accounting standards currently refer to not-for-profit entities. However, there is currently no clear definition which can be applied across all standards or for the financial report as a whole.
Therefore, the AASB has performed a “clean up” of terminology and formally developed a definition of a not-for-profit entity, being:
“an entity whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders.”

What prompted the changes?
Research conducted by the AASB assessing the impact on entities of transitioning from Special Purpose to General Purpose Financial Statements identified difficulties in interpreting the extent of compliance with accounting standards.
With the deferral of implementing the new revenue standard as well as the introduction of AASB 1058: Income of Not-for-Profit Entities as well as the upcoming changes for removing Special Purpose Financial Statements only being initially applicable to for-profit entities, a clear and easy to understand definition will assist organisations in determining whether they can access the differential reporting allowed to not-for-profit entities.

How might these changes apply to your organisation
If you prepare Special Purpose Financial Reports and apply the recognition and measurement principles of accounting standards, including consolidation, then there will be minimal impact and PKF will be able to provide standard disclosure wording for complying with the changes.
If you do not currently consolidate or depart from some of the requirements of accounting standards (such as not applying tax effect accounting) then more disclosure will be necessary and a tailored disclosure will need to be drafted.
If you are currently preparing financial statements as a not-for-profit entity, it is a good time to consider if the above definition still fits your purpose. If so, it is likely for there to be nothing further to do. 
We expect wording from the Financial Report to be updated to reflect this new definition, but PKF will be able to help entities establish any change to disclosure once the standard commences. 

 The above changes seem to have the flavour of assisting with the AASB’s project to remove Special Purpose Financial Reporting. If you missed our previous article on this project you can find it here.

These changes are now out for comment and PKF is planning to submit a response to the AASB. If you would like to include your opinion or discuss the proposed changes in more detail, then please reach out to our Technical Financial Reporting Team. Submissions close early in August 2019 and so we encourage your feedback as soon as possible.


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