Special purpose financial reporting removed for AFSLs

This article was current at the time of publication.

Some for-profit entities are no longer able to prepare special purpose financial statements (SPFS) to satisfy their statutory financial reporting obligations. 

According to a media release from the Australian Securities and Investments Commission (ASIC), the changes, which cover accounting periods beginning on or after 1 July 2021 (years ending 30 June 2022 and beyond), impact Australian Financial Service Licensees (AFSLs). 

AFSLs will now have to prepare General Purpose Financial Statements (GPFS) to comply with their statutory obligations to prepare financial reports under Chapter 7 of the Corporations Act 2001 (the Act).

As a result of the changes, AFSLs that are companies may also have new financial reporting obligations under Chapter 2M of the Act. 

The changes are because the Australian Accounting Standards Board (AASB) has decided to disallow the preparation of SPFS by certain for-profit entities.  

See CPA Australia’s guide “Can I still prepare special purpose financial statements?” for more information on the implications of the AASB decision on different entities, including AFSLs.

Tier 1 GPFS will be required by AFSLs that have public accountability and some AFSLs deemed by ASIC to always be required to prepare Tier 1 GPFS. A Tier 1 GPFS will have to comply with all the recognition, measurement, presentation, and disclosure requirements of Australian Accounting Standards (AAS).

Those AFSLs that do not have public accountability and are not deemed by ASIC as having to prepare Tier 1 GPFS can prepare a Tier 2 GPFS to satisfy their statutory financial reporting obligations.  

A Tier 2 GPFS will have to comply with all the recognition, measurement, and presentation requirements of AAS but with reduced disclosures as set out in AASB 1060 (General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities).

AFSLs that currently prepare SPFS (and are not required to prepare financial reports under Chapter 2M of the Act) are given a one-year deferral, to 30 June 2023, to comply with the new requirements.  

The extant Form FS 70, which sets out the financial reporting requirements for AFSLs in detail, has always required AFSLs that prepare SPFS to comply with all the recognition and measurement requirements of AAS. Therefore, due to the changes, the deferral will only be for any additional disclosures required when preparing GPFS.  

ASIC has also announced that comparatives will not be required in respect of the new disclosures.  

The updated Form FS 70 sets out the new AFSL financial reporting requirements in detail.

Ram Subramanian CPA is CPA Australia’s Senior Manager Reporting and Audit Policy