New SPFS disclosures take effect
Under AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements, new disclosure requirements take effect for the first time for financial years ending 31 December.
NFPs will need to make new disclosures about their compliance with recognition and measurement requirements in Australian Accounting Standards.
They apply to:
- Charities registered with the ACNC, with an annual revenue of $250,000 or more preparing special-purpose financial statements, and
- NFPs lodging SPFSs with the Australian Securities & Investments Commission under theCorporations Act 2001 (for example, companies limited by guarantee).
Your SPFSs will need to disclose:
- Why the decision was made to prepare an SPFS
- For each material accounting policy that does not comply with the recognition and measurementrequirements, an indication of where it does not comply, or that the assessment has not been made
- The overall compliance of your SPFS with the recognition and measurement requirements ofaccounting standards (except for consolidation and equity accounting), or whether this assessment has not been made, and
- How the consolidation–and–equity accounting requirements have been applied.
AASB 2019-4 makes amendments to AASB 1054 Australian Additional Disclosures.
ASIC focus areas for 31 December
Under COVID-19 conditions, ASIC expects directors, preparers of financial reports and auditors to pay particular attention to asset values, provisions, solvency and going concern assessments, events occurring after year–end and before completing a financial report, and disclosures in financial reportsand operating and financial reviews.
Assumptions underlying estimates and assessments should be reasonable and supportable. Assumptions should be realistic and not overly optimistic or pessimistic.
Disclosures about uncertainties, key assumptions and sensitivity analysis are important to investors.
OFRs should complement the financial report and tell the story of the pandemic’s effects on a business. Underlying drivers of results and financial position should be explained as well as risks, management strategies, and prospects.
Appropriate experience and expertise should be applied in reporting, particularly in more difficult and complex areas such as asset values and other estimates.
Directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates, and assessments.
Directors should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work.
ASIC has also extended by a month the deadline for lodging financial reports for certain balance dates up to and including 7 January.
COVID-19 and going concern
COVID-19 is having an unprecedented impact on the economic outlook for Australian and global economies.
For 31 December balance date, many NFPs for the first time will be required to consider in more detail their solvency and ability to continue operating as a going concern.
Surprisingly, there are only two paragraphs in AASB 101 Presentation of Financial Statements thatdirectly address the going–concern basis:
‘25 When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.’
‘26 In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.’
To help with this assessment, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board have released a new 27-page publication The Impact of COVID-19 on Going Concern and Related Assessments. It provides an overview of directors’ and management’sresponsibilities. They are:
- Duties in relation to assessments of solvency and going concern, how these concepts interact and how they might be affected by COVID-19, and
- Responsibilities to assess whether the going-concern basis of preparation is appropriate and how this affects preparation and disclosures in financial statements.
Click here to download.
New disclosure standard for Tier 2
Disclosures relevant to Tier 2 entities have been detailed in a new standard – shading will no longer be used to show which disclosures in other standards may be omitted.
AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities will apply for financial years beginning on or after 1 July 2020.
It aims to reduce the reporting ‘burden’ of for-profit and not-for-profit entities using current Tier 2 requirements for preparing general-purpose financial statements. Some existing disclosures have been removed and new disclosures required.
AASB 1060 does not change which entities are permitted to apply Tier 2 reporting requirements nor Tier 2’s recognition and measurement requirements, which are the same as for Tier 1 entities.
If you have to step up from special–purpose to general-purpose financial reports, you will see an overall increase in disclosures (for example, in related parties, tax and financial instruments), but you will also be able to remove some disclosures because of not having to comply fully with:
- AASB 101 Presentation of Financial Statements
- AASB 107 Statement of Cash Flows
- AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors
- AASB 1048 Interpretation of Standards, and
- AASB 1054 Australian Additional Disclosures.
Early adoption of AASB 1060 is encouraged via special transitional relief (provided in AASB 2020-2)from disclosing certain comparative information in the first year.