Australian Accounting Standards 2020-2 describes which entities will be obliged to prepare general purpose financial statements in the future and which entities will not be captured by the change.
We have researched the background to this new Standard, including a YouTube presented by Kimberley Carney and Carmen Ridley of the Australian Accounting Standards Board, who are the authors of the new Standard. You will be pleased to learn that it is not as draconian as you may have been led to believe.
What does the new Accounting Standard mean?
The option to choose special purpose financial statements will be forever closed to those entities listed in Group 1, with the change becoming effective as from 1st July, 2021. For the 2020/21 financial year, the Group 1 entities can continue to prepare their financial statements in accordance with their historical requirements.
Group 1 entities – will be affected
The following entities will need to comply with the new requirement, and prepare general purpose financial statements starting from the 2021/22 financial year:-
- large proprietary companies;
- unlisted public companies;
- small foreign-controlled companies;
- financial services licensees;
- small proprietary companies using crowd-sourced funding;
- private sector entities required by legislation to prepare financial statements that comply with AAS;
- entities which existed prior to 1st July, 2021 (including small proprietary companies, discretionary trusts, unit trusts, partnerships, self-managed superannuation funds and joint ventures):-
- whose constituting document (ie its constitution or its trust deed) requires the preparation of financial statements that comply with Australian Accounting Standards (the Requirement); and
- whose constituting document is amended on or after 1st July, 2021 and the amendment does not remove the Requirement; and
- entities created on or after 1st July, 2021 whose constituting document requires the preparation of financial statements that comply with the Requirement.
Group 2 entities – will not be affected
Entities which will not be affected by this change to the Accounting Standards will be one of the following:-
- not-for-profit entities;
- public sector entities;
- entities created at any time who are required by their constituting document to prepare financial statements that comply with “accounting standards”, “generally accepted accounting practices or principles” or other terminology that does not specifically refer to Australian Accounting Standards; and
- entities which existed prior to 1st July, 2021 whose constituting document requires the preparation of financial statements that comply with Australian Accounting Standards (the Requirement) – if those entities:-
- make no changes to their constituting document for the life of the entity; or
- change their constituting document before 1st July, 2021 to remove the reference to the Requirement; or
- change their constituting document on or after 1st July, 2021 and, in the first such change, the reference to the Requirement is removed.
What expressions can be used or retained?
If the constituting document of an entity which existed prior to 1st July, 2021 is never going to be changed, any expression can be used, including a requirement to prepare financial statements which comply with Australian Accounting Standards. This enables that entity to avoid having to incur the cost of changing its constituting document, given that the constituting document was prepared in a pre-AAS2020-2 environment.
If the constituting document of a Group 2 entity is going to be changed at any time in the future, any reference to preparing financial statements which comply with Australian Accounting Standards must be removed in the first such change. Those references can be replaced with the following terms:-
- prepare financial information as specified by the beneficiaries/partners/joint venturers;
- prepare financial statements in accordance with the directions of the trustee/partners/joint venturers;
- accounting standards;
- generally accepted accounting principles; or
- true and fair view.
It should be noted that the preferred options are the first two on the above list and, if you are amending a constituting document, it may be wise to choose a suitable version of one of the preferred options.If you have any questions about this subject matter, please feel free to speak with Jenny or Steven Hamley on (03) 9898 6666.
From Castle Corporate Pty Ltd and Castle Legal Pty Ltd
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