In our previous KSW Insight edition from February 2021, we highlighted the future challenges for SME reporting. The increased burden is particularly relevant for accountants in Sydney. Implementing new regulations applies to reports generated for periods starting after 1 July 2021, making it crucial for accountants in Sydney to grasp the implications and identify the affected parties. Let’s delve into the key considerations once again.
The transition to the General purpose financial reporting requirements is mandatory for accounting periods commencing after 1 July 2021.
General Purpose Financial Statements (GPFS) will be required for all for-profit private sector entities that:
- Are required to prepare financial statements per Australian Accounting Standards by legislation (i.e. the Corporations Act), or
- Where the constitution or other vital documents (e.g. bank loan agreement) required the preparation of financial statements under Australian Accounting Standards when such documents were created or amended on or after 1 July 2021.
- It will also mean GPFS are required for specific circumstances where a document like a business sale agreement requires financial statements to be prepared “per Australian Accounting Standards”.
The changes mean several types of for-profit entities will likely need to prepare GPFS, including:
- unlisted public companies
- large proprietary companies (including grandfathered entities)
- AFSL licensees
- Small proprietary companies that have raised funding via crowd-sourcing
For most entities, our firm recommends early adoption of these requirements as part of the preparation of your financial statements for the year ended 30 June 2021 to take advantage of various transitory reliefs, including not having to restate comparatives when making the 2022 financial statements – this could especially be a significant workload should there be changes in accounting methods/policies needed.
Having done the cost estimates of not adopting the changes in the 2021 financial statements, with a need to restate the accounts for 2021 when 2022 figures are done, compared to adopting the new measures in 2021 and then not having to restate comparatives in 2022, the cost is likely to be higher with the former, where the changes are not adopted in the 2021 financial statements.
We have standard examples of the General Purpose – Simplified disclosure standards (SDS) format that demonstrate some of the new measures we can provide should you wish to compare to the particular purpose financial statement format. Some implications to note with these new disclosures, depending on your business, include the following:
- All measurement and recognition criteria of the Accounting standards need to be adopted.
- The above means that many entities have to ensure, for example, Deferred tax and long service leave are appropriately brought to account.
- There are increased disclosures in areas such as revenue recognition (under AASB 15), leases (under AASB 16), tax, financial risk management and related party transactions.
A fair amount of changes are involved, and the first year of adoption will be where more work is needed to help you transition and meet the requirements. The ongoing preparation of the financial statements should become more routine in the ensuing years. However, it will still be more demanding than the special purpose framework which used to be available to SMEs under the previous reporting regime.
We have been communicating directly with clients affected by these changes, but if you have any queries on your affairs, please don’t hesitate to contact us.
Kreston Stanley Williamson Team
*Correct as of 29 September 2021
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.