Special Purpose Financial Statements are history. Learn the new rules.
Special Purpose Financial Statements (SPFS) are a thing of the past.
As you may be aware, the Australian Accounting Standards Board (AASB) approved the removal of the SPFS in early 2020, introducing a significant change applicable to for-profit entities who routinely prepare those statements.
Since 1 July 2021, these documents have not been permitted. Now, it’s compulsory for all for-profit entities to prepare what’s known as General Purpose Financial Statements (GPFS).
At the same time, the General Purpose Reduced Disclosure Requirement (RDR) has been removed. It’s been replaced by General Purpose Simplified Disclosure Standards (SDS). This is a welcome change, as it has eliminated some of the ambiguity businesses have experienced around reporting obligations.
This article will tell you everything you need to know about the shift from the SPFS to the GPFS. We’ll explain precisely what these documents are, what they require, who needs to prepare them and when they must be lodged with the Australian Tax Office (ATO).
General Purpose Financial Statements: what they mean
A GPFS is a comprehensive financial statement required to be lodged with the ATO. It may also be issued to investors and lenders.
The statement typically includes a bundle of documents such as a balance sheet, income statement, cash flow statement, shareholders equity statement and other disclosures. They should also include an audit report if the financial statements have been audited.
The new obligation to prepare General Purpose Financial Statements (rather than the SPSF) has come into effect. It obligates entities running for profit to comply with a broad swathe of requirements sent by Australian Accounting Standards (AAS).
Australia used to be the only country in the world that allowed for the creation of SFPSs. The reason behind the change was that was to bring the country in alignment with international standards, being the International Financial Reporting Standards (IFRS).
The changes that have been introduced include:
- AASB 2020-2 – Amendments to Australian Accounting Standards- Removal of Special Purpose Financial Statement for Certain For-Profit Private Sector Entities (which you can read here); and
- AASB 1060 – General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. (which you can read here).
Many companies have already adopted GPFSs into their operations as part of the early transition initiative.
What the GPFS needs to disclose
The GPFS needs to disclose the information contained in the AAS. It essentially needs to capture all the financial information that is useful to a wide range of so-called “users” in making financial decisions.
The GPFS is typically based on criteria that represents your entity’s financial performance, including assets and liabilities, as well as equity, income, expenses and cash flow. You should also disclose any contributions made by and distributions to the entity’s owners in their capacity as owners.
The idea of the GPFS is that it is supposed to help a user reading the statement predict the future of the entity and specifically its cash flow.
You can read more about GPFS requirements on the Australian Tax Office website right here.
The two “tiers”
There are two tiers of GPFS:
Tier 1 AAS – these incorporate the requirements in the IFRS standards which are issued by the International Accounting Standards Board (IASB)
Tier 2 AAS – SDS – these incorporate all the recognition and measurement requires of Tier 1, but also simplified disclosures (set out in AASB 1060, which we outline below).
Who needs to prepare General Purpose Financial Statements?
The new requirements will affect you if you’re running an entity for profit and:
- must comply with the AAS or “accounting standards” as required by law; or
- your constitution or other document requires you to comply with the AAS or prepare financial statements.
This includes organisations such as:
- Large proprietary companies
- Small proprietary companies that are foreign controlled
- Financial services licensees
- Crowd-sourced funding small proprietary companies
- Public companies that are not listed on the ASX (i.e. unlisted companies) which prepare financial statements under the Corporations Act 2001 (Cth)
- Higher education providers
Some of these entities (namely, the final three) have traditionally assess themselves as non-reporting and prepared SFPS. They will now need to complete GPFS.
You do not have to worry about GPFSs if you are running a not-for-profit or an entity or a public sector entity.
However, some of these entities still need to comply with the new disclosure standards, which we outline below (for example, not-for-profits if they prepare GPFS (Tier 2).
New disclosure standard: AASB 1060
A new and much simpler disclosure standard has now come into effect known as the General Purpose Simplified Disclosure Standards (SDS). This has now replaced the old RDR standard for entities preparing Tier 2 GPFS.
The underlying reason behind this change is to align Tier 2 disclosure requirements in the IFRS, for small and medium enterprises.
These new standards will apply to all entities who prepare Tier 2 GPFS, which includes public sector entities and not-for-profit entities in the private sector.
These entities, called “Tier 2 entities”, include:
- Large property companies
- Public sector reporting entities (except for state, federal, local and territory governments)
This move may be difficult for some, especially if these entities did not previous apply all recognition and measurement requirements in the as (or if they did not prepare consolidated financial statements).
How do I prepare a General Purpose Financial Statement?
Precisely how you prepare a GPFS will depend on the type of entity you are running and its obligations under the Corporations Act 2001.
This is primary corporate piece of legislation that regulates companies in Australia and their financial obligations.
If you have an obligation under Part 2M.3 of the Corporations Act
If you have an obligation under this part of the legislation, then you’ll need to prepare a GPFS in accordance with the Act’s accounting standards and the AASB’s pronouncements.
You’ll need to provide the Australian Tax Office with a GPFS in according with the reporting requirements contained in Tier 1 (see above) in certain circumstances, such as if you meet the requirements in AASB 1053 – Application of Tiers of Australian Accounting Standards by having “public accountability” (you can read more about that here).
“Public accountability” is defined in Appendix A of AASB 1053. You will have “public accountability” if your entity:
- has “debt or equity instruments” traded in a public market or “is in the process of issuing such instruments for trading in a public market (note that this includes either a domestic or a foreign stock exchange, but also an over-the -counter market); or
- hold “assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses””
If your entity is able to use Tier 2 reporting (see above), then you can lodge a GPFS according to Tier 2. Note that even if you are eligible for Tier 2 reporting, you can still rely on Tier 1 if you wish.
If you’re unsure if your entity has an obligation under Part 2M.3 of the Corporations Act, please give us a call today and we’ll be more than happy to assist you.
If you don’t have an obligation under Part 2M.3 of the Corporations Act
If you don’t have an obligation as detailed above, then you’ll need to prepare and lodge a GPFS in accordance with commercially accepted accounting principles (CAAP).
CAAP is essentially:
- The IFRS
- Standards of accounting that comply with IFRS
- Generally accepted accounting principles (GAAP) of the United States
- Standards of accounting accepted by the Australian Stock Exchange for its listing rules.
If you fall into this category, you’ll need to prepare the GPFS in accordance with the relevant CAAP.
What if my company is in a corporate group of entities?
The regulations are a bit different if your entity is within a corporate group of entities which has been grouped together for accounting as a single group.
If this is the case, you may need to lodge what is called a “consolidated GPFS” depending on your precise circumstances.
When do I need to issue a General Purpose Financial Statement?
You’ll need to lodge your GPFS with the Australian Tax Office either on or before the day you’re obligated to lodge your income tax return.
The GPFS will need to correspond with the financial year that most closely aligns with your income year.
Penalties do apply if you fail to give the ATO a GPFS in its approved form before the due date.
However, the ATO does allow you to request an extension.
Need help to comply with the new requirements?
The requirements to lodge a GPFS are highly technical so it is important to engage a professional accountant that can help you navigate through the process.
Here at 2account, we specialise in helping businesses of all sizes navigate the trenches of financial statements, including the new obligations to shift from SPFS and GPFS.
Book your discovery call today and learn how we can help you and your organisation.