Changes to financial reporting

By Marcus Ohm*

Late last year both the Australian Accounting Standards Board (AASB) and the Federal Treasury released proposals for substantial changes in financial reporting in Australia.
If enacted, they will give rise to far-reaching changes in how and what many businesses report. In particular, there is likely to be a significant impact on those businesses that currently prepare special purpose financial statements.
Special purpose statements do not necessarily comply with all the requirements of accounting standards. They are commonly prepared by small and medium sized businesses who have only a limited range of users of their accounts (eg financial data for management, basis for tax return, etc).
Under the proposals, the ???reporting entity??? concept will be removed and all lodged accounts will be considered general purpose. However, there will be a ???reduced disclosure regime??? for those organisations without public accountability.
AASB???s consultation paper contained examples of reduced disclosures and these indicate that the changes will not be as far-reaching as many had hoped for. It is likely that the changes will give rise to a greater compliance burden for those currently preparing special purpose accounts. These changes will therefore need to be planned for appropriately.

Parent entity financial statements
It has also been proposed that the Corporations Act requirement (which requires parent company accounts to be prepared when consolidated accounts are prepared) will be removed. Instead, organisations will need to present summarised financial information for the parent within the notes to the accounts.
At first glance this would appear to be a sound move. However, the benefits are reduced by the fact that summarised financial information still has to be prepared and because this requirement is extended to half-yearly reporting.

Another change is that the existing ???profits??? test is likely to be replaced with a ???solvency??? test in determining the ability to pay dividends.
This may give greater flexibility to companies in determining when dividends can be paid, particularly where substantial non-cash items may have adversely affected profit in a particular year.
The proposal allows for early adoption of the reduced disclosure regime from 30 June 2010 but the mandatory adoption date will be for annual reporting periods beginning on or after 1 July 2012. ??

* Marcus Ohm is a partner with accountants and business and financial advisers HLB Mann Judd Perth