Commentary from Nicholas Benbow, Director Audit and Assurance at William Buck Accountants and Advisors
AFSL licensees will be caught in the crossfire of new financial reporting requirements for companies that previously were not reporting entities.
From 1 July 2021, AASB 2020-2 Amendments to Australian Accounting Standards will come into effect, which will end the usage of Special Purpose Financial Reports by entities that report to ASIC, principally large proprietary companies, unlisted public companies, and foreign-controlled subsidiaries. These entities are currently and mostly self-designated as non-reporting entities under Australian Accounting Standards.
The Australian Accounting Standards Board (AASB) also makes it clear that AFSL licensees fall within the scope of AASB 2020-2, notwithstanding that under s.989B of the Corporations Act their annual financial reporting requirements to ASIC consist only of an audited balance sheet and profit and loss statement.
ASIC is yet to formally address the impact of AASB 2020-2 on AFSL licensees – presently the Form 71 which auditors attach to an AFSL licensee’s disclosures under s.989B refers to the current status quo – i.e.: reporting and non-reporting entities.
As a consequence, the majority of Australia’s 6,248 AFSL licensees will face elevated reporting and auditing requirements under a General Purpose framework, with disclosure obligations not too dissimilar from that of ASX listed entities. Such an elevation will place significant cost and compliance pressures on those AFSL licensees.
Nicholas Benbow, Director, Audit and Assurance at William Buck said there is likely to be “carnage” in the financial services industry, as AFSL licensee holders, looking to manage costs of compliance, en-masse retire their own licence and seek a Corporate Authorised Representative (CAR) arrangement in order to continue to ply their trade.
“In a couple of years, and without further clarification from ASIC on this matter, expect a markedly different AFSL compliance industry, dominated by much larger, corporatised ‘super-AFSL’ licensees, with extensive CAR networks,” said Mr Benbow.
“This will mean a corporatising of the responsibility for policing AFSL compliance effectively farmed out to these ‘super-AFSLs’, rather than having a direct relationship between licensee and ASIC,” he urged.
“Also expect the rise of a new job description – the ‘CAR-Broker’ – responsible for connecting these former AFSL licensees with a ‘super-AFSL’.”
For more information on why AFSL licensees will likely be required to prepare General Purpose Financial Statements and the raft of new accounting and disclosure requirements they’ll be privy to, please read Nicholas Benbow’s article New reporting requirements likely to precipitate a major exodus of AFSL licensees here.
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William Buck is a leading mid-tier firm of accountants and advisors with over 100 Directors and 700 professional staff across Australia and New Zealand. Throughout our 125-year history, we have assisted individuals, progressive businesses and community organisations, with a particular focus on the middle market.
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