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20RU-013 Special Purpose Financial Statements: Be clear on the basis of preparation

20RU-013 SPFS: Be clear on the basis of preparation

ED 302 comes on the heels of finalising Phase 2 of the Australian Financial Reporting Framework for for-profit private sector entities. For those entities preparing special purpose financial statements it proposes addition disclosures to enable users to better understand the basis of preparation. These measures aim to improve transparency and comparability. It is expected that the proposals will impact annual reporting periods ending on or after 30 June 2021.

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In summary

The Australian Accounting Standards Board (AASB) has issued Exposure Draft 302 Amendments to Australian Accounting Standards – Disclosures in Special Purpose Financial Statements of Certain For-profit Private Sector Entities (ED 302). It comes on the heels of finalising Phase 2 of the Australian Financial Reporting Framework for for-profit private sector entities.

ED 302 proposes to amend AASB 1054 Australian Additional Disclosures. It will add requirements for certain for-profit private sector entities that are preparing special purpose financial statements (SPFS) to disclose information about those financial statements. This will include information that enables users of the financial statements to understand the material accounting policies applied in the financial statements, changes in those policies and whether or not the policies comply with all the recognition and measurement (R&M) requirements in Australian Accounting Standards (AAS).

The proposals in ED 302 are consistent with the guidance published for not-for-profits private sector entities in AASB 2019-04 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements. Details of this amendment are discussed in 19RU-017 AASB 1054 – What changes for you? 

The required disclosures do not require for-profit entities to change their existing accounting policies. They are instead based on an entity’s existing financial reporting policies and practices.

The AASB believes that the proposed amendments are needed to provide more transparency to the users of SPFS. Further, it should increase comparability with other SPFS and even general purpose financial statements (GPFS) to the extent of compliance with AAS.

At a high level the proposals cover disclosure of information about the compliance with R&M requirements in AAS. More specifically, it is proposed that a for-profit private sector entity must disclose information in relation to each of the following:

Infographic about disclosure requirements for for-profits

In disclosing the information proposed in ED 302, entities are not expected to provide quantitative information, or reconciliations, where accounting policies do not comply with all the R&M requirements in AAS.

KPMG comment

“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 302 it appears that the additional disclosures are based on an entity’s existing financial reporting and practices. The additional compliance cost should be minimal. 

That said we question, on a cost/benefit basis, the application for a single year for those entities required by legislation to prepare financial statements that comply with either AAS or accounting standards and prepare SPFS.” 

Michael Voogt
Director, Department of Professional Practice

Timing

The AASB’s current expectation is that the amending standard proposed by ED 302 will be effective for annual periods ending on or after 30 June 2021.

Submissions on ED 302 are due by 11 September 2020.

Further detail can be found in the PDF version of the Reporting Update including further discussion on:

  • who will be impacted by these proposals?
  • why the AASB is proceeding with these proposals?
  • examples of the proposed additional disclosures.

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