AASB 1060 is a new stand-alone disclosure standard to replace the current Reduced Disclosure Requirements (RDR) framework. The standard requires mandatory application for annual periods beginning on or after 1 July 2021, for the following entities:
- Tier 2 for-profit entities
- Tier 2 not-for-profit entities currently reporting under Reduced Disclosure Requirements
If adopted at the due date, full retrospective application is required, meaning comparatives will need to be restated. For this reason, early adoption is permitted and encouraged. Transitional relief is only available if entities early adopt, whereby a reconciliation is provided within the statement of changes in equity.
Why the change and what does it entail?
The standard addresses concerns raised in relation to the current Tier 2 disclosure requirements and supports the removal of Special Purpose Financial Reporting (SPFR) proposed by AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector entities.
The rationale behind the removal of SPFR is due to the inconsistent application of the recognition and measurement requirements of the Australian Accounting Standards by entities preparing on this basis.
Changes required under the standard include the following but are not limited to:
- Reductions in disclosure compared to current Reduced Disclosure Requirements.
- Large Proprietary Companies and AFS Licensees can no longer prepare on a Special Purpose basis.
- An increase in disclosures compared to Special Purpose Financial Statements, particularly surrounding related parties, financial instruments and tax.
- An option not to present a Statement of Changes in Equity permitted under certain circumstances.
- Financial reporting framework referred to as Australian Accounting Standards – Simplified Disclosures.
Which for-profit private sector entities will be impacted?
For-profit entities that meet either of the below criteria are required to prepare in line with AASB 1060:
- Required by legislation to prepare financial statements in accordance with Australian Accounting Standards or ‘accounting standards’; or
- Required by the entity’s constitution or another document, to prepare financial statements in accordance with Australian Accounting Standards, if that document was created or amended after the application date (1 July 2021).
This applies to Large Proprietary Companies and Australian Financial Services Licencees, for example.
Alternatively, for-profit private sector entities that do not fall into either of the above categories, may continue preparing under the Special Purpose framework from the effective date onwards.
What about not-for-profit entities?
AASB 1060 will replace the current Reduced Disclosure Requirements enforced. This means that not-for-profit (NFP) entities preparing under this regime will be required to transition their application under the new standard (AASB 1060).
The standards do not apply to NFP entities currently preparing Tier 1 General Purpose Financial Reports or under the Special Purpose Financial Reporting framework.
Charities registered with Australian Charities and Not-for-profits Commission (ACNC) that prepared SPFR complying with the ACNC reporting requirements and had annual revenue of $250,000 or more (i.e. medium and large entities) will be familiar with the amendment made to AASB 1054 Australian Additional Disclosures at the 30 June 2020 financial year close (31 December 2020 for those reporting on a calendar year end), requiring further disclosure surrounding the recognition and measurement application of the accounting standards, supporting the eventual move away from Special Purpose Financial Reporting.
If you would like to learn more about AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Entities), give us a call on 03 5221 6399 or email firstname.lastname@example.org to be put in contact with one of our Audit team members who will be able to guide you in the right direction.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.