Aug 04, 2021 / News

Audit and Assurance / Financial Reporting

Financial Reporting Developments - Winter 2021

At this time of year, a young accountant’s thoughts turn to the excitement of year end and the joys of having the auditors come round for their annual tea and biscuits.

Well, maybe we're being optimistic – or delusional. Either way, at this time of year attention turns to preparing for annual reporting. To help you dazzle your colleagues and auditors with your knowledge of all things new in financial reporting, here’s some conversation starters.

During our online Financial Reporting Update in May, we covered a number of important topics affecting companies and directors. We discussed the key changes to accounting standards applicable at 30 June, including the extension of the amendments to AASB 16 Leases for COVID-19 related rent concessions and the amendments to the definition of a business in AASB 3 Business Combinations.  Other accounting standard changes applicable for the first time from 30 June include:

• Amendments to AASB 101 to refine the definition of material in accounting standards;
• Disclosure of the potential effect of an IFRS Standard that has not yet been issued by the AASB; and
• The introduction of AASB 1059 which sets out the accounting by public sector entities for service concession arrangements.

Last year the Federal Treasurer issued a Determination under the Corporations Act permitting the use of virtual technology to hold meetings and permitted the electronic dispatch of notices of meetings.  The Determination set out a number of conditions and processes that must be followed if a company holds a virtual general meeting to ensure that no shareholders are disadvantaged by not being able to attend in person.  However, that Determination lapsed in March 2021.  

Subsequently, ASIC issued a ‘no action’ position relating to the convening and holding of meetings held between 21 March 2021 and 31 October 2021 using virtual technology, meaning that ASIC won’t take any action against a company for any potential non-compliance with the Corporations Act. The no action position does come with some conditions that companies have to comply with which are set out in ASIC Media Release 21-061.

ASIC also previously permitted companies an extra 2 months to hold their AGM by issuing a ‘no-action’ position for financial years ending up to 7 April 2021. ASIC has extended that relief to permit companies with financial years that end up to 7 July 2021 an extra 2 months to hold their Annual General Meeting, meaning they have up to seven months after year end to do so.  

ASIC licencing conditions impose certain financial measures on Australian Financial Services (AFS) Licensees.  One of these can be a Net Tangible Asset condition.  ASIC has now clarified that a right-of-use asset is not treated as an intangible asset and excluded for the purpose of the calculations.  Consequently, a AFS licensee now includes both the lease liability and right-of-use asset in its Net Tangible Asset calculations.

Finally, ASIC extended the 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 for both listed and unlisted companies with balance dates ending between 23 June and 7 July 2021.  

As a result, the ASIC deadline to lodge an annual financial report for a listed company or registered scheme with a 30 June balance date has been extended from 3 months to 4 months, that is, from 30 September to 30 October 2021.  The deadline for lodging half-year financial reports, directors’ reports and audit/review reports for listed entities and unlisted disclosing entities with ASIC is extended from 75 days to 106 days (ie, 14 October 2021).   

Proprietary companies with a 30 June 2021 balance date will now have until 30 November 2021, from 31 October previously, to lodge their financial statements with ASIC.  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.

The Australian Securities Exchange (ASX) also extended their Class Waiver which provides equivalent one month extensions to lodge audited or reviewed financial information under the ASX Listing Rules.  An entity, other than exploration entities, is still required to give to ASX its Preliminary Final Report (Appendix 4E) by 31 August, but that financial information may be unaudited. 

If a listed entity intends to extend the lodgment date for its audited or reviewed half-year accounts with ASX, it must disclose to the market before the normal reporting deadlines that it is applying the relief.

A key topic of conversation around the water cooler this year end is the removal of the ability of certain companies from preparing special purpose financial statements.  From 1 July 2021 for-profit entities that are required by legislation to prepare financial statements that comply with either ‘Australian Accounting Standards’ or ‘accounting standards’ will have to prepare general purpose financial statements.  In addition, the AASB is replacing the existing Tier 2 Reduced Disclosure Regime (RDR) with a new simplified disclosure standard, AASB 1060 (SDS).  30 June 2021 will be the last year that those entities will prepare Tier 2 RDR financial statements before moving to the new Tier 2 SDS disclosures.  Some early adopt transition relief is available for those entities considering early adopting AASB 1060 SDS at 30 June 2021.

You can find more information on the above topics in the recording of our Financial Reporting Update webinar, along with a full list of the new standards, on our website here.

Cloud computing

In April, the IFRS Interpretation Committee (IFRIC) issued an agenda decision on how a customer should account for costs of configuring or customising a supplier’s application software in a Software as a Service (SaaS) arrangement. IFRIC noted that:

• In limited circumstances, certain configuration and customisation activities undertaken in implementing SaaS arrangements may give rise to a separate asset where the customer controls the intellectual property of the underlying software code. For example, the development of bridging modules to existing on-premises systems or bespoke additional software capability. 
• However, if the supplier controls the application software to which the customer has access, the customer often would not recognise an intangible asset because it does not control the software being configured or customised and those configuration or customisation activities do not create a resource controlled by the customer that is separate from the software.  As a result, such configuration and customisation costs will be an operating expense and recognised in profit or loss as the customisation and configuration services are performed or, in certain circumstances, over the contract term the supplier provides access to the SaaS application software. 

Entities that have previously capitalised costs relating to the configuration and customisation of SaaS cloud computing arrangements should consider whether any of those costs no longer satisfy the conditions for capitalisation.  Any adjustments to reflect the IFRIC decision should be treated as a change in accounting policy and adjusted retrospectively.