Clarity in financial reporting - August 2022 monthly newsletter

In this issue

Key actions

• Extension of financial reporting deadlines
• ASIC publishes FAQs on financial reporting, initially focused on AFS licensees
• Not-for-profit financial reporting update

Key developments

• Grandfathered exempt proprietary companies lodgement relief removed
• Two minute update

                        Global sustainability reporting developments

Key actions

Extension of financial reporting deadlines

Why does it matter? Some unlisted entities will have longer to meet their financial reporting obligations at June 2022.

On 22 July 2022, ASIC announced that it will extend reporting deadlines for various unlisted entities reporting under the Corporations Act 2001 to respond to resourcing issues for the June 2022 reporting period. An amending Corporations Instrument is expected to be issued shortly, which will amend a number of existing Corporations Instruments to give effect to the extension.

The extension will apply to unlisted entities with balance dates from 24 June 2022 to 7 July 2022. The extension of financial reporting deadlines will be:

• Lodgement of full year financial reports of unlisted disclosing entities and unlisted registered schemes under Chapter 2M will be extended from three to four month

• Lodgement of other unlisted entities reporting under Chapter 2M will be extended from four to five months

• Lodgement of half year financial reports under Chapter 2M will be extended from 90 days to 90 days and one month

• Lodgement of the profit and loss and balance sheets under Chapter 7 by unlisted Australian financial service (AFS) licensees that are bodies corporate that are disclosing entities or registered schemes will be extended from three to four months

• Lodgement of the profit and loss and balance sheets under Chapter 7 by unlisted AFS licensees that are bodies corporate that are not disclosing entities or registered schemes will be extended from four months to five months

• Lodgement of profit and loss and balance sheets of AFS licensees that are not bodies corporate will be extended from two to three months.

Consequential one month extensions have been implemented:

• For the sending of reports to members (however, this remains linked to the date of the AGM)

• In respect of the time to hold the AGM for unlisted public companies

• To ensure grandfathered proprietary companies retain their status (however, there may be complications arising from the removal of the grandfathering status discussed below

• To extend the reporting deadlines for wholly-owned groups relying on relief under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.

We will provide further updates on the ASIC extension in due course.

(The Australian Charities and Not-for-profits Commission (ACNC) has also provided a limited deferral of financial reporting obligations for ACNC registered entities impacted by the floods in New South Wales.)

More information:

ASIC media release 22-187MR ASIC to extend deadlines for 30 June 2022 unlisted entity financial reports

ASIC Corporations (Extended Reporting and Lodgment Deadlines—Unlisted Entities) Instrument 2020/395 (to be amended)

ASIC Corporations (Extension of Time to Hold AGM) Instrument 2021/770 (to be amended)

ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (to be amended)

ASIC publishes FAQs on financial reporting, initially focused on AFS licensees

Why does it matter? Australian financial services (AFS) licensees implementing the new financial reporting requirements applying to AFS licensees at 30 June 2022 should be aware of recent further guidance issued by ASIC.

ASIC has published a new series of frequently asked questions (FAQs) responding to commonly asked questions on the financial reporting and audit requirements in Chapter 2M and Chapter 7 of the Corporations Act 2001.

The initial FAQs are focused on the recent changes to the financial reporting requirements for Australian financial services (AFS) licensees, particularly:

• How the transitional provisions in Form FS70 Australian financial services licensee profit and loss statement and balance sheet operate, including how the basis for preparation and auditor's report should be presented

• Acknowledgement that the wording in Form FS70 regarding the requirement for consolidated financial statements is not intended to override the consolidation exemption in paragraph 4(a) of AASB 10 Consolidated Financial Statements. This matter is particularly relevant for intermediate parent entities that are AFS licensees and may ultimately see Form FS70 amended to provide clarification.

More information: ASIC Financial reporting and audit: Frequently asked questions (FAQs)

Not-for-profit financial reporting update

Why does it matter? Recent accounting developments and regulatory updates in the not-for-profit (NFP) sector may present significant challenges for the June 2022 reporting period.

We’ve published Clarity publication Not-for-profit 2022 financial reporting update which outlines the key matters for NFP entities to consider in the current reporting season, including:

• Post-implementation issues on income recognition

• Adoption of the new AASB simplified disclosures framework

• Amendments to Australian Charities and Not-for-profits Commission

•  Regulations 2013 dealing with financial reporting thresholds and new mandatory disclosures for certain entities

• Sustainability reporting

• Aged care

• Other regulatory obligations.

  Access the publication to learn more.

Key developments

Grandfathered exempt proprietary companies lodgement relief removed

Why does it matter? Proprietary companies relying on their ‘grandfathered’ status for relief from lodging financial reports with ASIC under the Corporations Act 2001 should be aware of recent legislative changes that removes the lodgement exemption.

What’s happened?

On 4 August 2022, the Senate passed amendments put forward by the Greens to an unrelated Bill. The amendments had the effect of removing the lodgement relief for the grandfathered exempt proprietary companies under the Corporations Act 2001: The amendments were reconsidered by the House later that day and passed. Accordingly, the amendments became law on Royal Assent and apply to financial years ending on or after commencement (10 August 2022).

The amendments give effect to the lodgement changes by repealing ASIC Corporations (Exempt Proprietary Companies) Instrument 2015/840 and prohibiting ASIC from giving similar relief to entities within its scope.

What are the impacts?

Entities previously grandfathered will be required to lodge financial statements with ASIC under Chapter 2M of the Corporations Act 2001. Previously, such entities were required to prepare financial statements, but were not required to lodge them with ASIC. This change will mean that those financial statements will become publicly available through ASIC.

For clarity, grandfathered entities with a 30 June reporting date will NOT be required to lodge financial statements for the financial year ended 30 June 2022 with ASIC, but WILL be required to lodge financial reports for the financial year ending 30 June 2023. Similarly, any grandfathered entities with a financial year ending on or after 10 August 2022 will also have to lodge their financial statements with ASIC.

The amendments do not impact grandfathered entities that are ‘CBC reporting entities’ and which are required to lodge general purpose financial statements (GPFS) with the Australian Taxation Office (ATO) under s.3CA of the Tax Administration Act 1953. Accordingly, these entities with a June reporting date will be required to lodge their GPFS with the ATO for 30 June 2022, but will lodge their GPFS with ASIC for financial years ending 30 June 2023 and later financial years.

More information: Treasury Laws Amendment (2022 Measures No. 1) Act 2022

Two minute update

Why does it matter? Being aware of recent developments allows a timely and informed response.

A summary of recent developments:

Global sustainability reporting developments

Recent updates on progress toward new global sustainability reporting disclosure standards:

• The IFRS Foundation and Value Reporting Foundation (VRF) have finalised the consolidation of the VRF into the IFRS Foundation. Entities are encouraged to continue to adopt the Integrated Reporting Framework to drive high-quality corporate reporting and to provide full support for, and use of, the SASB Standards

• The International Sustainability Standards Board (ISSB) has announced it has received over 1,300 comment letters on its two proposed sustainability disclosure standards.