New AASB 1060 standards were issued in March 2020 by the Australian Accounting Standards Board (AASB) to come into effect from periods beginning on or after 1 July 2021 (years ending 30 June 2022 and onwards).
So what do these new standards actually mean for your business? Will you have to change your disclosure systems? And how can you make sure your reporting structure will conform with these important changes?
Who is affected and how?
All Tier 2 businesses will be required to conform to the new rules brought by the AASB 1060. This entails any business which is a ‘reporting entity’ without ‘public accountability’ as defined in AASB 1053 and not otherwise deemed to be a Tier 1 entity by AASB 1053.
For these Tier 2 businesses, AASB 1060 replaces current special purpose financial statement procedures to require all Tier 2 for-profit and not-for-profit entities to significantly increase their disclosure practices. Businesses will be required to as a minimum prepare the simplified disclosure standard (SDS) framework outlined by the AASB.
The motivation behind this change is to create greater consistency within disclosure statements and avoid discrepancies between reports.
What are special purpose financial statements?
As opposed to general purpose financial statements – which provide a standardised and comprehensive report of a business’s financial situation in compliance with AASB regulations – special purpose financial statements offer greater diversity, flexibility and are shorter form, as their purpose is specific to the business.
Special purpose financial statements are often much simpler and require less documentation than general purpose financial statements. For example, a business may require just a profit and loss sheet, produced with the intention of being presented to a small group of stakeholders. These statements will usually be used for tax reporting, bank reporting, and industry-specific reporting or to satisfy legislative requirements or the entity’s constitutional obligations.
What is the impact of the change?
Following the introduction of AASB 1060, businesses will no longer be able to produce these special documents and will be required to increase disclosure reports to follow the general purpose SDS framework requirements of AASB 16 and other accounting standards.
Full IFRS application will be compulsory for Tier 2 entities, requiring accounting consolidation of subsidiaries, associates and joint ventures. Businesses will need to produce statements including a balance sheet, income statement, statement of owner’s equity and a statement of cash flows.
How can you transition into the new framework?
Eary application of the framework is both permitted and encouraged as this can reduce any unnecessary disclosures and provide a more meaningful, useful and standardised product.
A comparison year is usually required for audit and financial reporting purposes. Therefore, adoption for the 2021 financial year is highly recommended.