Jaime Lumsden
New reporting requirements now apply to AFS licensees for financial years commencing 1 July 2021.
What are the new financial requirements?
AFS licensees previously relying on special purpose financial statements will now be required to prepare general purpose financial statements due to amendments to the Australian Accounting Standards.
How do the changes to the accounting standards apply to AFS Licensees?
AFS Licensees, who are not APRA regulated, must annually prepare and lodge with ASIC financial statements using form FS70. These financial statements must now be prepared as general purpose financial statements.
General purpose financial statements have either Tier 1 or Tier 2 requirements:
- Tier 1 (full disclosure) requirements apply to entities which have public accountability. Requirements include full application of recognition, measurement, and presentation requirements for all assets, liabilities, income and expenses. Under AASB 1053 Application of tiers of Australian Accounting Standards (AASB 1053) entities which have public accountability must comply with the full disclosure requirements of Tier 1.
- Tier 2 (reduced disclosures) requirements apply to all other entities that have no public accountability. Requirements involve the recognition and measurement requirements of Australian Accounting Standards, but with reduced disclosures. Tier 2 general purpose financial accounts have been recently replaced with the new simplified disclosures as set out in AASB-1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (AASB-1060).
Public accountability applies to entities 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 includes AFS licensees that hold client monies or assets).
Some examples of AFS licensees that have public accountability and would need to meet the Tier 1 requirements, include:
- ASX listed entities;
- General insurance broker that holds client money;
- Retail over-the-counter derivative issuers;
- Corporate advisers that deal in financial products;
- Over-the-counter derivative traders;
- Wholesale trustees;
- Responsible entities of a registered scheme; and
- Corporate directors of a corporate collective investment vehicle.
For some AFS licensees, it is less clear whether they have public accountability, for example, the impact to underwriting agencies who manage a trust account for insurers is not as clear. There may be times where underwriting agencies pay claims or return premiums on behalf of the insurer through a trust account which they manage for the insurer. Under the Corporations Act, those payments are not required to be held in a statutory trust account under s981B of the Corporation Act (because it is not client money) and such money is held at the risk of the insurer. AFS licensees should seek assistance from their accountant/auditor to determine whether they can rely on the simplified disclosure regime of Tier 2.
AFS licensees should update internal processes and provide training to staff involved in managing financial arrangements and statements.
By Jaime Lumsden and Sónia Cruz.