Key changes to the Australian financial reporting framework
The new Payment Times reporting regime
The Australian financial reporting framework is changing
The existing reporting framework requires an entity that is not publicly accountable (as defined in AASB 1053) to consider whether it is a reporting entity i.e., an entity in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making an evaluating decision about the allocation of scarce resources. An entity that is required to prepare financial reports under the Corporations Act 2001 could be self-assessed by its directors to be a non-reporting entity and prepare Special Purpose Financial Statements (SPFS) instead of General-Purpose Financial Statements (GPFS) or General-Purpose Financial Statements – Reduced Disclosure Regime (GPFS – RDR). SPFS’s can bypass most of the compliance with the accounting and disclosure requirements of the Australian Accounting Standards.
What is changing?
A long-term feature of the Australian reporting framework, the ‘reporting entity concept’, will be removed effective 1 July 2021. This mean many entities previously reporting under the SPFS framework will be required to prepare GPFS compliant financial reports.
The changes only apply to for-profit private sector entities that are required by:
legislation to prepare financial statements in accordance with Australian Accounting Standards or ‘accounting standards’, or
Their constitutions or other documents (e.g. lending agreements) require to prepare financial statements in accordance with Australian Accounting Standards, provided that the relevant document was created or amended on or after 1 July 2021.
Examples of entities reporting under the Corporations Act 2001 that will no longer be able to prepare SPFS include:
Large proprietary companies (including ‘grandfathered’ large proprietary companies that don’t lodge financial statements with ASIC).
Unlisted public companies (excluding companies limited by guarantee).
Small proprietary companies controlled by a foreign company.
Financial services licensees (AFSL).
Small proprietary companies with crowd-sourced funding.
These entities, provided they are not publicly accountable entities, will be permitted to prepare GPFS by applying the Tier 2 requirements of AASB 1053. For periods beginning on or after 1 July 2021, GPFS-RDR will be withdrawn and replaced with Simplified Disclosures for Tier 2 entities preparing GPFS. Simplified Disclosures were issued by the AASB on 19 March 2020, and are included in a new standard, AASB 1060 General Purpose Financial Statements – Simplified Disclosures (GPFS-SDR) for For-Profit and Not-for-Profit Tier 2 Entities.
What is the impact?
This is good news for entities that are currently preparing their financial statements under GPFS-RDR because GPFS-SDR has fewer disclosure requirements. However, not such good news for entities currently preparing their financial reports under SPFS because there will be a significant number of new disclosures, including those relating to related party transactions, taxation, and financial instruments.
Payment Times reporting framework.
The Payment Times Reporting Scheme or (‘PTRS’) will require large businesses with over A$100 million in annual turnover to publish information on their small business payment times and practices. The reporting will be bi-annual and daily penalties will apply for failure to report. Reports need to be lodged 3 months from the reporting deadline i.e. 30 September for the 30 June deadline. There is a 12-month penalty free transition from the implementation date of the scheme to assist businesses and their advisors as the penalties are very substantial (from A$13,320/day to A$66,600/day depending on the structure of the business).
Which entities are covered?
A constitutionally covered entity (‘CCE’) that carries on enterprise in Australia and has a total income that satisfies the income test.
Any other entity that wishes to report on a voluntary basis.
Entities registered with the Australian Charities and Not-for-profits Commission (ACNC) are exempt.
What is a CCE?
An Australian or foreign corporation covered by the Constitution.
A foreign entity as defined in the income tax law (e.g. foreign trusts and partnerships).
An entity that carries on an enterprise in a Territory (that is not a body politic) (e.g. certain Australian trusts and partnerships).
Certain body corporates incorporated or registered in a Territory.
Certain Commonwealth corporate entities.
What is the Income Test?
A CCE becomes a reporting entity at the start of the income year if the entity’s total income (income for tax purposes) for the most recent income year was more than A$100 million on a group basis. If the entity was a subsidiary of a group with total income of more that A$100 million, the entity will become a reporting entity if its income was at least A$10 million.
What must be reported?
The standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods (and any changes over the 6-month reporting period).
The proportion (in terms of total number and total value) of small business invoices paid within 20 days, between 21 and 30 days, between 31 and 60 days, between 61 and 90 days, between 91 and 120 days and more than 120 days after the invoice was issued.
The proportion (by total value) of procurement that was procurement from small business suppliers.
Other information prescribed by the Payment Times Reporting Rules (the Rules), which have currently only been released in draft form. The Rules are expected to prescribe reporting requirements in relation to supply chain financing arrangements.
The regulator is the Department of Industry, Science, Energy and Resources (DISER).
ECOVIS Clark Jacobs
Tel : +61 2 9264 1111