For annual reporting periods beginning on or after 1 July 2021, Australian for-profit reporting entities can no longer prepare special purpose or Reduced Disclosure Requirements (RDR) financial statements. Instead, they must prepare general purpose financial statements.
Tier 2 entities, however, can report using AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.
Accountants might assume preparing under simplified disclosures would reduce their compliance workload, but recent modelling by financial reporting software company Accurri suggests this isn’t the case.
“We took a typical set of financial statements prepared under the full general purpose standards and we restated them using Simplified Disclosures,” says Michael Berrington, a director at both Accurri and Financial Reporting Specialists (FRS). “The result was just a three-page reduction: the 50-page general purpose report became a 47-page Simplified Disclosures report.”
“The result was just a three-page reduction: the 50-page general purpose report became a 47-page Simplified Disclosures report.”
What has changed?
So, what’s actually been removed under the Simplified Disclosures framework? “Being ‘simplified’, you might expect a long list,” Berrington says. “But, in fact, the significant disclosures not required when compared to full general purpose financial statements are quite limited.”
Disclosures that have been removed include:
- Restatement of comparatives – third statement of financial position
- Discontinued operations – most disclosures
- New accounting standards and interpretations not yet mandatory or early adopted
- Removal of comparatives for reconciliations (such as plant and equipment, intangibles, issued capital and reserves)
- Intangible assets note – removal of impairment testing
- Issued capital note – removal of capital risk management
- Financial instruments note removed (but future payments for leases introduced and disclosures required to describe hedges)
- Fair value measurement note removed (but some other valuation disclosures introduced, such as land and buildings, investment properties, financial assets and financial liabilities)
- Summarised financial information for significant subsidiaries and associates
- Reconciliation of profit after income tax to net cash from operating activities
- Changes in liabilities arising from financing activities.
Remuneration of key management personnel can now also be presented as a total, rather than as a breakdown (the same disclosure that applied under RDR).
What stays the same?
The directors’ report disclosures remain the same because the directors’ report is governed by the Corporations Act 2001 (not accounting standards), and the format in the primary statements (profit and loss, financial position, changes in equity and cash flows) is unchanged, too. The values will remain the same if the recognition and measurement requirements of the accounting standards have been followed, including for consolidations.
Timings and exemptions
If you adopt the Simplified Disclosures framework for periods beginning before 1 July 2021, you will not be required to restate comparative information.
In addition, if you use Simplified Disclosures for periods beginning before 1 July 2022, Appendix E of AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities allows short-term exemptions. That means you don’t need to distinguish corrections of errors from changes in accounting policies, and you don’t need to provide comparative information not previously disclosed in the notes.
“Preparers shouldn’t forget to update the wording in the basis of preparation and the directors’ declaration, stating that the report complies with Simplified Disclosures,” adds Berrington.
Outlook for Simplified Disclosures
Simplified Disclosures is based on the IFRS for SMEs standard – currently under review by the International Accounting Standards Board (IASB). This means that the AASB may not yet be done refining and improving the standard.
“The AASB has pledged a period of stability and to not rush any changes through, but there is no timeframe as the IASB review is yet to be completed,” Berrington says.
While accountants using financial software such as Accurri will be able to simply select Simplified Disclosures and allow the software’s AI to generate a compliant statutory financial report, those still using Word and Excel shouldn’t underestimate the time it will take to prepare their statements – especially in this first reporting period.
“When preparers get used to Simplified Disclosures, it will soon become as familiar as special purpose or RDR was,” Berrington says. “It just won’t be any simpler.”
Key differences between special purpose reports & Simplified Disclosures
|Disaggregation of revenue||New accounting standards and interpretations not yet mandatory or early adopted
|Income tax breakdowns (income tax expense, deferred tax asset and deferred tax liability)||Prior period reconciliations for equity (issued capital and reserves)|
|Details of financial asset and financial liability fair value measurements||Reconciliation of profit after income tax, to net cash from operating activities|
|Investment properties – reconciliation, valuations and lessor commitments
||Changes in liabilities arising from financing activities.
|Land and buildings – valuations
|Reconciliations (such as plant and equipment, intangibles and provisions; for the current period only)
|Right-of-use assets – additions during the period and details of agreements
|Borrowings information (total secured liabilities, assets pledged as security, ﬁnancing arrangements, and terms and conditions of long-term debt)
|Lease liabilities – future lease payments
|Key management personnel disclosures (aggregate compensation)
|Related party transactions.
Key differences between RDR & Simplified Disclosures
|General information (registered office, principal place of business, and principal activities)
||Prior period reconciliations for equity (issued capital and reserves)
|Details of financial asset and financial liability fair value measurements
||Fair value hierarchy
|Borrowings – terms and conditions of long-term debt
||Business combinations – acquisition costs
|Lease liabilities – future lease payments
||Interests in associates – commitments.
|Remuneration of auditors
|Business combinations – qualitative description for goodwill|
|Interests in subsidiaries – significant restrictions.
Find out more
Visit accurri.com/resources to download PDFs of Accurri’s guides to simplified disclosures. These guides include a page-by-page comparison of RDR and Special Purpose financial statements with Simplified Disclosures financial statements – helping you see what’s changing and what’s staying the same.
Disclaimer: The views and opinions expressed in this article are those of Accurri Pty Ltd and may not necessarily reflect the views and opinions of Chartered Accountants Australia and New Zealand.