Continuing financial reporting missteps warrant a closer look

Public practitioners operate in an environment where financial reporting needs to balance efficiency against accuracy and compliance.

The breadth of financial reporting requirements is often wide and complex, ranging from listed entities requiring sophisticated financials based on international accounting standards to micro businesses needing only basic financial statements for annual tax return purposes.

In conducting regular best practice assessments to ensure members are complying with the mandatory pronouncements issued by the Accounting Professional & Ethical Standards Board (APESB), CPA Australia’s Best Practice Program assessment has identified a rise in financial reporting errors, mainly among small practices.

Often, these errors arise from not correctly assessing and understanding client needs, applicable reporting frameworks, software settings and staff competencies.

Understanding these pitfalls — and implementing practical safeguards — is essential for maintaining high quality reporting and protecting clients and practitioners.

Using incorrect reporting formats

One of the most persistent issues identified in practice reviews is the use of reporting formats that are unnecessarily complex for the engagement. 

“The IFRS Accounting Standards have been developed with large entities in mind, mainly listed entities,” says CPA Australia’s Financial Reporting Lead, Ram Subramanian. “But small businesses, which generally only need basic financial reports for their tax returns, may not have to apply accounting standards.

“The starting point is you don’t have to apply any of these accounting standards, although some accountants might feel this gives the most accurate information because you’re following a set of rules in how you’re preparing those numbers.

“I call this ‘accounting standards creep,’ where practitioners sometimes want to apply a particular accounting standard to a specific economic transaction.

“But it comes at a cost, and more importantly, you’ve got to apply the standards properly, otherwise don’t apply them. There’s no halfway house here,” Subramanian says.

A common issue is practitioners defaulting to general purpose financial statements when a client requires only special purpose financial reporting or preparing full accounting standards-based disclosure notes for a micro-entity with no statutory reporting obligations.

Another aspect to this is registered Australian charities that are incorrectly applying accounting standards to their annual financial reports.

The Australian Charities and Not-for-profits Commission, which conducts reviews each year to identify errors in reporting, noted it had contacted 143 charities during 2024–25 “to help them fix material errors made in their 2023 financial reporting”.

“Predominantly what we’re seeing is an increase in members not actually planning the compilation engagement,” says Jodie Smith, CPA Australia’s Best Practice Program Manager.

“That’s what would capture the type of report they need to produce, then what standards [if any] or requirements that report has to meet, and it would enable them to make sure they’re consistently producing the correct type of report.

“In our assessments, most of our members are performing work for small-to-medium business clients. They don’t require general purpose financial statements. It’s more special purpose financial reporting or it’s reporting just for tax purposes,” Smith says.

Selecting the wrong software format

Even when practitioners understand the appropriate reporting framework, accounting software choices can undermine that intention. 

Many practice assessments reveal that staff inadvertently select system templates that do not align with the engagement.

“They’re either setting up the client in the software using the wrong template or inadvertently selecting the wrong report when producing a particular compilation,” Smith says.

Compilation errors remain a common finding in practice assessments. These errors vary widely but often stem from inaccurate reconciliations, misunderstanding of accounting treatments or over reliance on software automation.

They can include a lack of planning for the compilation engagement, inconsistent application of accounting policies, missing or inappropriate disclosures and failure to provide working papers that demonstrate all procedures performed in the engagement.

Lack of oversight of staff

Smith says that practice reviews frequently reveal that insufficient oversight leads to errors that could have been prevented with a structured review process.

This can occur in smaller practices where partners are juggling compliance, advisory work and client management, which can result in processing errors that accumulate over time.

“There should be a final review to ensure the compilation is performed to the correct standard, the compilation report within the document is accurate and the notes to the financial statements reference the correct procedures performed,” Smith says.

“And then it should be signed by the relevant responsible individual, whether that’s the sole practitioner or the partner responsible for a particular client in a multi-partner firm.”

Knowledge gaps in reporting requirements

Knowledge gaps can occur when members inherit clients from another practitioner or where a client may not fully understand what their requirements are under their certain structures.

“There’s an onus on the client to also understand what their entity structure is and what their reporting requirements are,” Smith says. “Sometimes, there is also a knowledge gap among practitioners regarding what needs to be included in the various types of reports.”

How to stop reporting issues from occurring

Smith says there are a number of steps practitioners can take to reduce compilation errors.

“When a job comes in, ensure that during the initial meeting with the client, your terms of engagement clearly define the scope of the compilation to be performed.”

Smith says that each year, when practices review their quality and risk management systems, it is also a good time to check that software is up-to-date and all templates are still accurate.

For members who may be approached by a client to perform a set of financials they are not necessarily familiar with, Smith recommends making sure they seek advice from another practitioner or gain that knowledge through an authority or the completion of accredited training.