SMSFs and financial statements - changes from 1 July 2021

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:

• that existing SMSFs, that intend to change their trust deed after 1 July 2021, should ensure their trust deed does not contain a clause imposing financial reporting compliance with the AAS, if they wish to continue preparing special purpose financial statements (SPFS):
• certain SMSFs will no longer be able to self-assess financial reporting requirements; and
• the requirement of preparing financial statements that comply with AAS for SMSFs whose deeds require this post 1 July 2021.

Get the right advice

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.

What are the changes to the accounting standards?

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:

• created or amended on or after 1 July 2021; and
• require preparation of financial statements that comply with AAS.

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.

Which entities are affected?

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:

• required by legislation to prepare financial statements that comply with either AAS or accounting standards; or
• required by their own constituting document or another document to prepare financial statements that comply with AAS, provided that the relevant document was created or amended on or after 1 July 2021 - SMSFs may fall into this category.

AAS Requirements

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.

Impact on SMSFs

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.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

• Superannuation Contributions - A Guide
• Superannuation Contributions and Income Tax - for Self-Managed Superannuation Funds
• Understanding - Contributions, Contributions Caps and Reserves

Order related document packages

• SMSF Minutes and Resolutions Package
• SMSF Pension Commutation
• SMSF Pension Pack
• Superannuation Trust (SMSF)
• Update to SMSF