Special Purpose Financial Statements: Not As Restrictive As You May Think

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:-

1. large proprietary companies;
2. unlisted public companies;
3. small foreign-controlled companies;
4. financial services licensees;
5. small proprietary companies using crowd-sourced funding;
6. private sector entities required by legislation to prepare financial statements that comply with AAS;
7. 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
8. entities created on or after 1st July, 2021 whose constituting document requires the preparation of financial statements that comply with the Requirement.

1. not-for-profit entities;
2. public sector entities;
3. 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
4. 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.

• 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.