Most people find the ins and outs of the financial world somewhat incomprehensible. Because many of the ideas and language utilised are not well defined, it is simple to become confused.
Consequently, when the topic of Special Purpose Financial Statements (SPFS) enters the conversation, it is quite simple to become overwhelmed by the intricate world of finance.
So what is SPFS exactly? How will it affect organisations, and what will be changing this upcoming financial year?
What is SPFS?
Financial reports created to present financial information to a select audience are known as special purpose financial statements.
Reporting for tax purposes, reporting to banks, and reporting that is specialised to an industry all typically make use of special purpose financial statements.
Special purpose vs. general purpose financial statements
Companies must fulfil reporting requirements to avoid breaking the country’s laws in which they are headquartered.
The International Financial Reporting Standard (IFRS) is the source that companies should seek in order to find the common standards applicable to all financial reporting.
There are typically two categories of financial reports to choose from. First, let’s take a more in-depth look at the differences between financial statements used for general and special purposes and how they are reported.
Special purpose financial reporting
Special purpose financial statements are reports that provide most small and medium-sized businesses access to greater flexibility.
This is because the statements may be presented in a simpler format. The rules for reporting established by the directors, owners, or members of a company are often adhered to by this straightforward financial report.
General purpose financial reporting
When making decisions about whether to contribute resources to a specific company, investors, lenders, and other creditors can benefit from having access to general purpose financial reporting since it offers financial information relevant to making such decisions.
For this reason, the reports must be standardised and adhere to the criteria for financial reporting established in the country in which the firm is headquartered.
The preparation of financial statements for general purpose preparers takes place during the year. It comprises a balance sheet, income statement, owner’s equity/retained earnings statement, and a statement of cash flows.
These kinds of declarations are restricted to organisations that have a significant number of workers on staff. Nevertheless, this terrain is undergoing shifts in Australia.
Rule changes as of July 1st, 2022
Special purpose financial statements will no longer be required in Australia as of July 1st, 2022, for certain kinds of for-profit private sector enterprises. This event will mark the end of an era.
The majority of organisations that will be impacted are those in the private sector that operate for profit and are required to file financial statements with the Australian Securities and Investments Commission (ASIC).
These entities will not be allowed to prepare and lodge SPFS for years, ending on June 30th, 2022; nevertheless, there is an incentive to migrate to GPFS before that date because such entities will be liberated from the requirement to restate comparative information if they make the switch.
Common changes organisations will need to look out for
As a result of such a significant shift, some organisations may be confused and left in the dark as they find themselves operating in uncharted waters. Just a handful of areas to look out for are as follows:
- Income tax effect accounting—accounting for tax assets and liabilities concerning timing differences may not have been done previously
- Long service leave—It is possible that accounting for long service leave in accordance with AASB 119 has not been implemented in the past.
If this is the case, then only nominal amounts for long service leave obligations will have been recorded. From this point forward, businesses will be required to use wage inflation, discounting, and probability rates.
- Related party disclosures—If an organisation has been generating special-purpose reports in the past, it is highly doubtful that they were required to disclose any information regarding related parties.
However, organisations will need to investigate the need to make these disclosures moving forward.
The aforementioned modifications are more common ones that organisations will need to be aware of. There may be other changes to the financial reports depending on the organisation and the financial information it possesses; however, the ones that have been discussed above are the most common that we come across. Consider the possibility that you require further information about this article or assistance finding your way around the forthcoming changes. In this situation, your Accru contact will assist you with any queries.