In June 2020, the Australian Taxation Office (ATO) announced that amended Australian Accounting Standards
(AAS) were released by the Australian Accounting Standards Board (AASB). The AAS may affect how
certain SMSFs' prepare their financial statements. This article outlines the key changes for SMSFs, including:
The rules relating to reporting financial statements in compliance with accounting standards are complex, and the consequences of non-compliance are serious. Accordingly, it is essential that trustees and members obtain professional advice specific to their fund.
Getting the right advice is even more important when the rules change.
The AASB will alter the reporting requirements of certain for-profit private sector entities (which includes some SMSFs), who will no longer be able to self-assess financial reporting requirements (and therefore can no longer prepare SPFS) if their trust deeds were:
The affected entities will now need to prepare, as a minimum, tier 2 general purpose financial statements (GPFS) that comply with all recognition and measurements requirements in the AAS and minimum simplified disclosures.
These changes were introduced to ensure that entities with economic significance are not preparing SPFS. This is in line with AASB and other regulators longstanding concern regarding SPFS which undermine the creation of an objective, transparent and enforceable financial reporting framework.
The changes, however, do not affect every for-profit private sector entity. There is a threshold requirement that the for-profit private entity is either:
The affected SMSFs will need to comply with AAS, and prepare tier 2 GPFS financial statements.
Whilst the disclosure requirements of a GPFS are greater than the current preferred method of SPFS, they are significantly less onerous than entities which are deemed to have public accountability and therefore must provide tailored reports to meet the information needs of external parties.
The majority of trust deeds for SMSFs refer to financial statements being prepared "in accordance with superannuation laws" (this includes the Cleardocs SMSF trust deed), and therefore, will not be immediately subject to the AAS changes. If this is the case the SMSF can continue to prepares SPFSs.
This is not to say that SMSFs should not be aware of the changes, as without proper diligence a SMSF could unknowingly become subject to the increased accounting standards, and consequently be unable to prepare SPFS.
A SMSF created or amended after 1 July 2021 will need to take great care in the wording of their trust deed, if they wish to be able to prepare SPFS. A SMSF will need to ensure that its trust deed does not contain a clause, which could be construed as imposing accounting standards on the preparation of financial reports. To ensure this, the trust deed should avoid references to 'accounting standards, 'generally accepted accounting principles' or other similarly undefined terms.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics, such as:
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.