Comparatives when for-profit entities transition to Simplified Disclosures

Many for-profit entities currently preparing special purpose financial statements (SPFS) are looking to transition early to general purpose financial statements (GPFS), and in particular, Simplified Disclosures (i.e. for years ending 30 June 2021) in order to take advantage of the relief available from having to restate comparatives in certain circumstances.

Note that this relief, contained in Appendix E5-E7 of AASB 1053 Application of Tiers of Australian Accounting Standards, is only available if the entity chooses the AASB 1 method for transitioning to Australian Accounting Standards (AAS), which will result in transition adjustments recognised via retained earnings at the beginning of the period of the first Simplified Disclosures financial statements (e.g. 1 July 2020), rather than at the opening balance sheet date (e.g. 1 July 2019).

When no relief is available from restating comparatives

There are two broad categories of for-profit entities that cannot get relief from restating comparatives in their first Simplified Disclosure financial statements (if early adopted for 30 June 2021):

An individual entity that applied all of the recognition and measurement (R&M) requirements of AAS in its most recent previous SPFS, and
Entities where financial statements were not required in the previous period (for example where a small proprietary company becomes large for the current period).

R&M requirements of AAS

All recognition and measurement previously applied

Entities that previously applied all the recognition and measurement requirements of AAS (including preparing consolidated financial statements, if applicable for a group) must present comparatives in their first GPFS Simplified Disclosures financial statements (paragraph 38 of AASB 101 Presentation of Financial Statements). Also, there is no exemption from restating comparatives because the previous period financial statements have been prepared in accordance with AAS.

However, these entities can choose not to present comparative information for new Simplified Disclosures (notes) if the entity did not disclose such information in the most recent previous SPFS.

Financial statements not required in previous period

Where financial statements were not required for the previous period, there is no relief from restatement because there were no comparatives in the first place. Practically such entities will have to prepare an opening balance sheet on 1 July 2019, and recognise and measure all transactions and balances from this date in accordance with AAS. In addition, the financial statements for the comparative period ended 30 June 2020 will have to be prepared and presented. However, the opening balance sheet on 1 July 2019 is not required to be presented in the 30 June 2021 financial statements.

AASB 1053, Appendix E4 provides exemption from having to include information for new disclosures required by AASB 1060 that were not included in the entity’s most recent previous financial statements. Because these entities did not prepare financial statements in the prior year, they are unable to use this exemption and must include all AASB 1060 note disclosures for both the current and prior period.

When relief is available from restating comparatives

The table below shows examples of when relief is available from restating comparatives on early adoption of GPFS Simplified Disclosures (i.e. for 30 June 2021 year-ends), as well as what comparatives for 30 June 2020 will look like and the additional transitional disclosures required:

Scenario

Comparatives for 30 June 2020 will be …

Additional transitional disclosures

An individual entity did not apply all the recognition and measurement requirements of AAS in its most recent previous SPFS

Previous SPFS:

Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of cash flows
Statement of changes in equity
Notes (can apply relief in AASB 1053, Appendix E4 not to include additional Simplified Disclosures not required previously).

Reconciliation of equity:

Most recent previous SPFS (30 June 2020), to
Date of transition to AAS (1 July 2020).

Describe the main adjustments that would have been required to make the comparative statement of profit or loss and other comprehensive income compliant with AAS (no quantification required).

A parent entity in a group previously prepared consolidated financial statements but did not apply all the recognition and measurement requirements of AAS in its most recent previous consolidated SPFS

Previous consolidated SPFS:

Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated financial statements (can apply relief in AASB 1053, Appendix E4 not to include additional Simplified Disclosures not required previously).

Reconciliation of consolidated equity:

Most recent previous SPFS (30 June 2020), to
Date of transition to AAS (1 July 2020).

Describe the main adjustments that would have been required to make the comparative consolidated statement of profit or loss and other comprehensive income compliant with AAS (no quantification required).

A parent entity in a group is preparing consolidated financial statements for the first time in accordance with AASB 10 Consolidated Financial Statements.

The parent entity SPFS for the previous period complied with all the recognition and measurement requirements in AAS.

Previous parent entity SPFS:

Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of cash flows
Statement of changes in equity
Notes (can apply relief in AASB 1053, Appendix E4 not to include additional Simplified Disclosures not required previously).

Reconciliation of equity:

Parent entity equity in most recent previous SPFS (30 June 2020), to
Consolidated equity at date of transition to AAS (1 July 2020).

Explain that the main adjustments that would have been required to make the statement of profit or loss and other comprehensive income for the parent into a consolidated one, would be to include the results of the subsidiaries for the year ended 30 June 2020 (no quantification required).

Need help?

Navigating the new GPFS Simplified Disclosure requirements, particularly on transition, is a time-consuming and complex exercise. Many entities that previously prepared SPFS may think that they complied with all recognition and measurement requirements of AAS, but may not have in all respects. As noted in the above article, understanding the extent of compliance with recognition and measurement is key to determining what relief, if any, is available on transition with respect to restating comparatives and adding extra disclosures in the comparative notes for new Simplified Disclosures. Please contact BDO’s IFRS Advisory team if you need help getting GPFS Ready.