AUDIT UPDATE - SPECIAL PURPOSE FINANCIAL STATEMENTS TO DISCLOSE NEW COMPLIANCE MEASURES

The AASB has issued exposure draft 293 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Compliance with Recognition and Measurement Requirements

It proposes that entities preparing special-purpose financial statements disclose explicitly whether accounting policies they applied comply with all the recognition and measurement requirements of Australian Accounting Standards.

Draft 293 proposes that for-profit entities lodging SPFSs with ASIC and NFPs lodging them with the ACNC disclose compliance in an explicit statement.

Information about whether entities have subsidiaries or investments in associates or joint ventures and how they have accounted for them would also be required.

AASB contends that although users of SPFSs should be able to demand any information they need; this not always happens.  The proposals in draft 293 are aimed at addressing concerns that the quality of disclosures in a significant number of SPFSs fails to enable users to determine what additional information they might need.

Draft 293 proposes that entities lodging SPFSs with either ASIC or the ACNC (that is, entities required to comply with AASB 1054 Australian Additional Disclosures), disclose:

  • The basis on which a decision to prepare an SPFS was made
  • Where the entity has subsidiaries, investments in associates or joint ventures, whether or not they have been consolidated or equity-accounted in a manner consistent with the requirements set out in Australian Accounting Standards.  If an entity has failed to consolidate its subsidiaries or equity-accounted its investments in associates or joint ventures consistently with requirements, it must disclose it, and give reasons.  If an NFP has failed to determine whether or not its interests in other entities give rise to interests in subsidiaries, associates or joint ventures, it must instead disclose it, and
  • An explicit statement as to whether or not accounting policies applied in statements comply with recognition and measurements, and, if not, give an indication of where they do not comply. 

Where an entity's accounting policies fail to comply with recognition and measurements, the AASB is not proposing, and does not expect, a quantification or reconciliation of the extent of non-compliance.

The proposed standard is an interim measure intended to provide greater transparency for users of publicly-lodged SPFSs and to improve their comparability with other financial statements.  

A broader project proposes to remove the ability of certain entities to prepare SPFSs when they should comply with Australian Accounting Standards and replace them with general-purpose financial statements.

The draft proposes that the disclosures apply to annual reporting periods ending on or after 30 June 2020.  Entities are encouraged to adopt early the proposed disclosures.