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.

The post ASIC announces financial reporting changes for AFS licensees appeared first on SW Accountants & Advisors.

On 6 December 2019 ASIC issued a press release which included the following statement:

“Many Australian Financial Services (AFS) Licensees are subject to financial condition requirements that may be affected by the new standards. For example, a net tangible assets requirement would include lease liabilities, but intangible assets such as a lease right-of-use asset would not be counted in meeting that requirement.

Directors and auditors of AFS licensees should report any breaches of financial condition requirements to ASIC as required by the Corporations Act 2001. Because the financial condition requirements are on an ‘at all time’ basis, compliance needs to be considered from the commencement of the financial year to which the standard first applied. This is the case even if ASIC were to subsequently change a licensee’s conditions to allow right-of-use assets to be counted. Similar issues may arise with contract assets recognised in accordance with the revenue standard.”

Effectively this is telling AFSL holders that any right-of-use asset under AASB 16 will be intangible, and therefore be excluded from the Net Tangible Asset requirement calculation; however, the liability will need to be included. Resulting in potential AFSL breaches.

ASIC currently has a sharp focus on AFSL breach reporting by the auditor and the Directors. During stakeholder consultation, ASIC advised that the purpose of their press release was to remind AFSL holders to report breaches, rather than about how to account for leases.

They further advised that if they receive a number of breach reports because of accounting for leases, they will consider changing all AFSL licencing conditions to rectify the issue.

While AFSL holders may not have a lease directly in its own name, the entity may have a sub-lease for office space, for example.

The AFSL conditions are in force ‘at all times’, so it is advisable not to wait for the year end to consider if you’re impacted. 

How we can help

Any AFSL holder that has a property lease or a lease of another asset, even if it is a sub-lease, can speak with their ShineWing Australia representative to ensure they are not in breach of their licencing conditions.

Contact Us

Contact one of our experts below to discuss how these changes might present an opportunity for your business.

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