Nov 19, 2020 / News

Financial Reporting

Financial Reporting Developments - November 2020

Extension of reporting deadlines for 31 December 2020

In response to business disruptions caused by COVID-19, the Australian Securities and Investments Commission (ASIC) has announced a one month extension of the reporting deadlines for companies to lodge their audited financial reports under Chapters 2M and 7 of the Corporations Act 2001.  The extension applies to both listed and unlisted companies with a balance date up to and including 7 January 2021. The 7 January 2021 date accommodates entities that use a provision in the Corporations Act that allows their financial year to be changed by plus or minus seven days each year.  The relief mirrors the previous extensions granted to companies in respect of their 30 June 2020 balance dates.  

This means that the deadlines for reporting to ASIC: 

• for listed entities – 31/12/2020 full year accounts are due within 4 months (now 30 April 2021) instead of 3 months;
• for listed entities – 31/12/20 interim financial reports are due within 75 days plus 1 month (now 16 April 2021);
• for proprietary companies - 31/12/2020 full year accounts are due within 5 months (now 31 May 2021) instead of 4 months;
• for AFSLs (unlisted corporates – disclosing entities) - 31/12/2020 full year accounts are due within 4 months (30 April 2021) instead of 3 months;
• for AFSLs (unlisted corporates – non-disclosing entities) - 31/12/2020 full year accounts are due within 5 months (now 31 May 2021) instead of 4 months.

Where a grandfathered proprietary company uses the extended deadline relief, it will continue to retain its grandfathered status. 

The directors’ report must disclose that the company has applied the ASIC relief to report to members no later than one month after the normal reporting deadline.

ASIC’s relief is automatic and entities do not need to apply to ASIC in order to take advantage of the reporting extensions. 

ASIC has also extended its ‘no action’ position where public companies do not hold their Annual General Meetings within five months after the end financial years that end from 31 December 2019 to 7 January 2021, but do so up to seven months after year end.

Notwithstanding these extensions, ASIC encourages companies to complete and lodge their annual financial report within the normal period, where possible.  More information is available in ASIC’s Media Release 20-276MR.

The ASX has indicated that it intends to issue a Listing Rule waiver to mirror the above ASIC lodgment extensions.  We expect that this relief will be similar to that issued by the ASX in respect of entities lodging their Appendix 4D or Appendix 4E for 30 June 2020.  A listed entity will be required to inform the market before its normal reporting deadline if it is relying on the extended period for lodging its audited financial report.  The ASX waiver is expected to be issued soon.

Not-for-profit entities considering early adopting AASB 1060 simplified disclosures

AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (SDR) applies from 1 July 2021.  AASB 1060 is the replacement to the Tier 2 Reduced Disclosure Regime referred to in AASB 1053. 

AASB 2020-2 contains the following optional short-term exemptions if a for-profit entity early adopts AASB 1060 for periods beginning before 1 July 2021:

1. relief from restating comparative information (ie, the comparatives remain under their SPFR GAAP or GPFR RDR amounts); and
2. relief from providing comparative information required by AASB 1060 that was not previously disclosed in their previous financial report.

While AASB 1060 may be applied by not-for-profit entities, the wording of AASB 2020-2 meant that those early adoption transition exemptions only apply to for-profit private sector entities.  Consequently, a not-for-profit entity was unable to utilise those transition exemptions and would have to retrospectively apply those new requirements which would put them at a disadvantage compared to for-profit entities. 

Following feedback to the AASB, the Board has now indicated that it intends to amend the standard to extend transition relief from presenting comparative disclosures not previously disclosed to not-for-profit entities transitioning from RDR to SDR.  An exposure draft to extend the transition relief should be issued shortly. Affected entities are encouraged to provide their feedback to the AASB. 

Proposals to improve audit quality

In August 2019 the Parliamentary Joint Committee on Corporations and Financial Services (the Committee) established an inquiry into the regulation of auditing in Australia. The Committee has completed its public hearings and has now issued its final report to the Federal government. The final report made no changes to the 10 recommendations contained in the interim report issued in February.  Those recommendations that could effect how entities engage with their auditors include:

1. Defining a list of non-audit services that audit firms would be explicitly prohibited from providing to an audit client;
2. Introducing a mandatory tendering regime for entities under the Corporations Act 2001 to undertake a public tender process every ten years, or if not, why not; and
3. Introducing a requirement under the Corporations Act 2001 for entities to establish and maintain an internal controls framework for financial reporting.  This would require management to report annually on the effectiveness of the entity’s internal control framework.  The auditor would then be required to report on management’s assessment of that internal control framework. 

We now await the government’s response to the Committee’s recommendations and its timetable for any legislative changes.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.