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19RU-011 Be clear on basis of preparation – ED 293

19RU-011 Be clear on basis of preparation – ED 293

The AASB has released proposals around disclosure of additional items in special purpose financial statements (SPFS) regarding basis of decision, consolidation and equity accounting and recognition and measurement requirements of Australian Accounting Standards. The AASB see the amendments in ED 293 as a practical interim means of improving the quality of information provided to users of SPFS.

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In a nutshell…

The AASB has issued Exposure Draft 293 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Compliance with Recognition and Measurement Requirements (ED 293). It is the next step in the wider Australian financial reporting reform project currently being undertaken by the Australian Accounting Standards Board (AASB).

The wider project is to implement the Conceptual Framework for Financial Reporting (RCF) in Australia. For a summary of steps in this project refer to the Appendix (PDF 297.8KB).

ED 293 proposes to amend AASB 1054 Australian Additional Disclosures. It will impact all entities preparing special purpose financial statements (SPFS) that are required, through legislation, to comply with AASB 101 Presentation of Financial Statements and AASB 1054. This includes:

  • each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act 2001
  • each entity lodging SPFS with the Australian Charities Not-for-profits Commission (ACNC) in accordance with the ACNC Act 2012.

The disclosures proposed by ED 293 do not require entities to change their existing accounting policies. They are instead based on an entity’s existing financial reporting policies and practices.

What’s being proposed?

At a high level the proposals cover disclosure of information about the compliance with the recognition and measurement (R&M) requirements in Australian Accounting Standards. More specifically, an entity preparing SPFS must cover the following three areas.

Basis of decision

The basis on which the decision was made to prepare special purpose financial statements will be required to be disclosed.

Illustrative disclosure

The illustrative disclosure could be as simple as:

Example Proprietary Company Ltd, a for-profit entity, has prepared special purpose financial statements as, in the opinion of the directors, there are unlikely to exist users of these financial statements who are not in a position to require the preparation of reports tailored to their information needs.

Subsidiaries, associates, joint ventures

Where the entity has investments in subsidiaries, associates or joint ventures, an entity will be required to disclose whether they have been consolidated or equity accounted as appropriate, in accordance with Australian Accounting Standards. If not consolidated or equity accounted, an explanation of why not is required. If the entity is a NFP entity, and hasn’t undertaken this assessment, it would instead disclose this fact.

Illustrative disclosure

A number of examples are provided in the ‘Implementation guidance and illustrative examples (PDF 891.8KB)’ section of ED 293.

Recognition and measurement

An entity must disclose whether the accounting policies applied in the financial statements comply with all the R&M requirements in Australian Accounting Standards, and if not, an indication of where they do not comply.

Illustrative disclosure

The illustrative disclosure could be as simple as:

The special purpose financial statements comply with all recognition and measurement requirements in Australian Accounting Standards. The significant accounting policies adopted in the special purpose financial statements are set out in ….


Importantly the extent of any non-compliance does not need to be quantified. This is deliberate as the AASB is not aiming to make the required disclosures onerous.

Alternative example wording where an entity has not applied all R&M is contained in the ‘Implementation guidance and illustrative examples (PDF 891.8KB)’ section of ED 293.

The AASB see the amendments in ED 293 as a practical interim means of improving the quality of information provided to users of SPFS. The broader Australian financial reporting reform project still proposes to address the problems of SPFS – by removing that ability for certain entities to prepare SPFS when they are required to comply with Australian Accounting Standards.

 

“We acknowledge the consistent feedback that the AASB has received on the need to improve comparability, consistency, transparency and enforceability in SPFS. 

On our initial reading of ED 293 it appears that the additional disclosures are based on an entity’s existing financial reporting and practices. The additional compliance cost should be minimal. 

As an interim measure it will address (albeit to a limited extent) the AASB’s concerns on the quality of disclosures in SPFS.” 

– Michael Voogt
Director, Department of Professional Practice

 

Further discussion around the proposals can be found in the PDF version of the Reporting Update.

Timing

The AASB’s current expectation is that the amending standard proposed by ED 293 will be effective for annual periods ending on or after 30 June 2020.

Submissions on ED 293 are due by 19 August 2019.

The AASB encourages all stakeholders to submit comments via the AASB website, LinkedIn or email.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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