ASIC announces financial reporting changes for AFS licensees

Following changes to the accounting standards, ASIC has given long-awaited clarity to Australian financial services (AFS) licensees, announcing new financial reporting requirements.

This announcement on Friday 3 June effectively removes annual special purpose financial statements as an option for AFSL holders.

Under the new reporting requirements, many AFS licensees’ annual financial reports must be prepared in accordance with the disclosure requirements of all Australian Accounting Standards as set by the Australian Accounting Standards Board (AASB). Some AFS licensees will be able to apply a simplified disclosure regime.

Some AFSL holders will also be able to choose to defer these changes by one year, if they meet the requirements described below.

Changes to AFSL reporting requirements

From financial years commencing 1 July 2021, entities preparing financial statements in accordance with the Corporations Act 2001 (the Act) can no longer prepare special purpose financial reports (SPFRs) that do not contain all disclosures required by the accounting standards set by the AASB.

All entities must apply the full recognition and measurement requirements for assets, liabilities, income and expenses. Accounting standards, however, allow entities that do not have public accountability to use a simplified disclosure regime.

Entities that have public accountability must comply with the disclosure requirements of the full standards.

An entity has public accountability where:

• its debt or equity instruments are currently, or in the process of being, traded in a public market, or
• it holds assets in a fiduciary capacity e.g. entities that hold client monies.

ASFL entities with Public Accountability

For the avoidance of doubt of ‘Public Accountability’, ASIC has also stated that the following entities will be required to comply with the disclosure requirements of all AASB standards:

• Large or sophisticated licensees with greater market impact
• Regulated by the Australian Prudential Regulatory Authority
• Participants in a licensed market
• Participants in a clearing and settlement facility
• Retail over-the-counter derivative issuers
• Wholesale electricity dealers
• Corporate advisors that deal in financial products
• Over-the-counter derivative traders
• Wholesale trustees
• Responsible entities of a registered scheme
• Corporate directors of a corporate collective investment vehicle
• Providers of a custodial or depository service
• Operators of an investor directed portfolio service.

All licensees will be required to prepare a cash flow statement. In addition to single entity financial statements, consolidated financial statements must be presented where the licensee has controlled entities.

Option to defer by 12 months

AFS licensees that prepared SPFRs last year, and that do not prepare reports under Chapter 2M, can choose to defer the new disclosure requirements to financial years commencing on or after 1 July 2022, i.e. until 30 June 2023.

In deciding whether to defer adoption of this standard, AFSL holders should consider the costs and benefits of adopting the new reporting framework from 1 July 2021 vs deferring to 1 July 2022.

Investors, lenders and other stakeholders may have an expectation of the entity to comply with disclosure requirements of Australian Accounting Standards and might have concerns about the quality of the entity’s financial reporting if the entity continues to prepare special purpose financial statements in FY22. However, adopting a new financial reporting framework is likely to incur additional compliance costs.

We recommend that AFSL holders reach out to their trusted SW advisor to discuss the most suitable approach for 30 June 2022.

Transitional relief

Comparative information need not contain the new disclosures in the first report prepared under the new requirements.

Update form FS70

We are expecting ASIC to release an amended version of form FS70 in late June

Action to Be Taken

Consider whether the entity would be required to comply with the full disclosure requirements of all AASB standards (Tier 1); or can apply simplified disclosures (Tier 2)

• Consider whether the entity qualifies for a 12 month deferral and whether deferring would be beneficial
• Update the financial statement template as soon as possible to avoid last minute problems

Reference

ASIC media release 3 June 2022: 22-128MR ASIC announces financial reporting changes for AFS licensees

Important Dates

Annual reporting periods beginning before 1 July 2021 i.e. financial year ending 30 June 2022

How SW can assist

Contact René, Rami or your trusted SW expert for assistance to:

• assess whether deferral of adoption is beneficial or detrimental to the company
• migrate and prepare new reports under AASB reporting requirements.