FAQs: Financial reporting and audit

The following FAQs relate to current matters affecting financial reports and audits. We will update the FAQs as needed, in response to emerging issues and changing circumstances.

The FAQs refer to the financial reporting and audit requirements in Chapters 2M and 7 of the Corporations Act 2001 (Corporations Act), unless otherwise stated.

The FAQs cover:

Transitional arrangements under the new financial reporting framework for AFS licensees

1. What is the new financial reporting framework for AFS licensees?

A new financial reporting framework applies to Australian financial services (AFS) licensees under Chapter 7 of the Corporations Act from years commencing 1 July 2021. The new framework is consistent with the framework in accounting standards for full-year financial reports of companies, registered schemes and disclosing entities under Chapter 2M of the Corporations Act.

The accounting standards allow entities that do not have public accountability to use a simplified disclosure regime (Tier 2 reporting). Entities that have public accountability must comply with the disclosure requirements of the full standards (Tier 1 reporting). All entities must apply the full recognition and measurement requirements for assets, liabilities, income and expenses.

An entity has public accountability where:

  • its debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
  • it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (this would include AFS licensees that hold client money).

Public accountability is used in determining whether AFS licensees must apply the full accounting standards (Tier 1 reporting) or the simplified disclosure regime (Tier 2 reporting) in their Chapter 7 financial statements. However, some specified types of licensees (e.g. licensees that are regulated by the Australian Prudential Regulation Authority and responsible entities of registered schemes) must apply the full accounting standards (Tier 1 reporting).

Accounting standards apply to full-year Chapter 2M financial reports under section 296 of the Corporations Act. Accounting standards apply to Chapter 7 financial reports under the certification section of Form FS70 Australian financial services licensee profit and loss statement and balance sheet (which has the force of law). Section 989C requires a licensee to follow reporting requirements specified by the Corporations Regulations 2001 (Corporations Regulations) on disclosure and accounting principles. Regulations 7.8.13(1) and 7.8.13A(a) of the Corporations Regulations and section 350 of the Corporations Act allow ASIC to prescribe reporting requirements through Form FS70.

2. What are the transitional arrangements?

AFS licensees may be able to apply certain transitional arrangements relating to disclosures in their Chapter 7 financial statements for a financial year commencing 1 July 2021 to 23 June 2022 (the first year) and/or the comparative information in financial statements for financial years commencing before 23 June 2023 (the first and second years). They will be able to apply the transitional arrangements if they:

  • are not reporting entities (within the meaning of the first paragraph of the definition of ‘reporting entity’ in Accounting Standard AASB 1057 Application of Australian Accounting Standards), and

Note: AASB 1057 can be downloaded from the Accounting Standards webpage on the Australian Accounting Standards Board (AASB) website.

  • prepared a special purpose financial report for the immediately preceding financial year.

The full recognition and measurement requirements of accounting standards continue to apply.

Under the transitional arrangements:

  • a licensee that is not required to prepare a Chapter 2M financial report can choose to only disclose the profit and loss account, balance sheet, and information necessary to give a true and fair view for the first year. They can also do this for comparatives in the second year
  • a licensee that is required to report under Chapter 2M and does not have public accountability can report under Tier 2 requirements for the first year and in comparatives for the second year, even where Tier 1 reporting would otherwise have been required for that licensee by Form FS70.

While reporting current year figures on a Tier 1 basis and comparatives on a Tier 2 basis may be possible under the transitional arrangements for Chapter 7 reporting, that is not permitted for Chapter 2M reporting. This is because accounting standards require comparative information for all amounts reported in the current period’s financial statements and for narrative and descriptive information if it is relevant to understanding the current period’s financial statements (see paragraph 38 of Accounting Standard AASB 101 Presentation of financial statements).

Note: AASB 101 can be downloaded from the Accounting Standards webpage on the AASB website.

3. How do I describe the basis of preparation of the financial statements?

The basis of preparation note for an AFS licensee that reports only under Chapter 7 and applies the transitional arrangements should refer to compliance with the reporting requirements specified in Form FS70. The note should state:

  • that the full recognition and measurement requirements have been applied
  • whether the disclosures for the current year figures are on a Tier 1, Tier 2 or special purpose financial reporting basis
  • that the comparative disclosures are on a special purpose financial reporting basis
  • for special purpose financial reporting, the accounting standards for which disclosure requirements were not applied.

Otherwise, the basis of preparation note in a Chapter 7 financial report that complies with Form FS70 could refer to compliance with accounting standards. This includes financial reports that comply with Chapter 2M, irrespective of the Chapter 7 transitional arrangements for licensees without public accountability.

In all cases, the accounting policy note should also refer to compliance with the true and fair view requirement (section 989B of the Corporations Act).

4. How is the auditor’s report affected by the transitional arrangements?

Where an AFS licensee that reports only under Chapter 7 reports on a special purpose financial reporting basis under the transitional arrangements in the current year and/or comparative information, the audit opinion should refer to compliance with the basis of preparation outlined in the notes to the financial report. The auditor should first ensure that the basis of preparation is appropriately disclosed.

In other cases, the auditor’s report should include an opinion concerning compliance with the accounting standards.

Further information can be found in AUASB Bulletin, Audit considerations on the removal of special purpose financial statements for certain for-profit private sector entities (PDF 306 KB), April 2021 and AUASB Bulletin, Auditor’s responsibilities and the financial reporting framework (PDF 230 KB), 22 July 2019 (updated April 2021).

This FAQ refers to the audit opinion attached to the financial report, rather than Form FS71 Auditor’s report for AFS licensee.

5. Are consolidated financial statements required for intermediate parent entities?

This FAQ originally clarified that paragraph 11(a)(iii) of the certification in the version of Form FS70 released on 22 August 2022 was not intended to override the exemption that applies, in certain circumstances, to an intermediate parent in a group from preparing consolidated financial statements under paragraph 4(a) of Accounting Standard AASB 10 Consolidated financial statements. Form FS70 was reissued on 19 September 2022 with an amended paragraph 11(a)(iii) that clarifies the situation.

Note: AASB 10 can be downloaded from the Accounting Standards webpage on the AASB website.

Extensions of time for financial reports

6. Are extended financial reporting deadlines available for unlisted entities at 30 June 2022?

Refer to Media Release (22-187MR) ASIC to extend deadlines for 30 June 2022 unlisted entity financial reports (22 July 2022).

What's new

More releases on financial reporting and audit

Last updated: 29/04/2024 11:26