Changes to constitution and banking agreements from 1 July 2021 may trigger GPFS

If your entity prepares financial statements because your constitution or another document requires you to do so, you may need to convert these to general purpose financial statements (GPFS) for 30 June 2022 reporting.

For-profit private sector entities must prepare GPFS for years ended 30 June 2022 if their constitution or other document, created or amended on or after 1 July 2021, requires them to prepare financial statements in accordance with Australian Accounting Standards.

Constitutions and documents created before 1 July 2021 are ‘grandfathered’

Entities can continue to prepare special purpose financial statements (SPFS) if the constitution or document was created before 1 July 2021. This ‘grandfathering’ principle applies, irrespective of whether the document(s) referred to Australian Accounting Standards.

Constitutions and documents created from 1 July 2021

Careful consideration is required where a constitution or document was created on or after 1 July 2021.

Reference to Australian Accounting Standards

If these documents refer to financial statements prepared in accordance with Australian Accounting Standards, then GPFS must be prepared. These can generally comply with Tier 2 Simplified Disclosures. However, a reference to ‘financial statements issued by the Australian Accounting Standards Board (AASB)’ is the same as Australian Accounting Standards.

No reference to Australian Accounting Standards

If there is no other legislative requirement for financial statements (e.g. Part 2M of the Corporations Act 2001), you may continue to prepare SPFS if your constitution or other document makes no reference to Australian Accounting Standards.

What if constitution or document requires compliance with GAAP?

In the Basis for Conclusions to AASB 2020-2, paragraph BC79, the AASB notes that it considers the term ‘generally accepted accounting principles (GAAP)’ or ‘accounting principles’ to be more broad. Therefore, it would not be reasonable to assume that these terms intend compliance with Australian Accounting Standards. Entities required by constitutions or other documents to prepare financial statements in accordance with GAAP or ‘accounting principles’ can therefore continue to prepare SPFS.

Constitutions and documents amended on or after 1 July 2021

As noted above, constitutions and documents requiring financial statements prepared in accordance with Australian Accounting Standards are ‘grandfathered’ if these were created before 1 July 2021. In such cases, entities can continue to prepare SPFS.

From 1 July 2021, if these documents change for any reason, then entities must switch to GPFS. For example, if amendments are made to the repayment terms in a banking agreement, with no change made to the financial statement clauses, GPFS will be required. The same applies if very minor amendments are made to the entity’s constitution for reasons unrelated to the financial statements. At each reporting period, previously ‘grandfathered’ entities must reassess whether SPFS are still appropriate.

Need assistance?

Please contact our IFRS Advisory team if you require assistance with deciphering your financial reporting requirements and preparing your first GPFS.