ASIC Financial Reporting Guidelines for AFSL Holders – Financial Services

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All Australian Financial Services Licensees (AFSL) are now required to prepare General Purpose Financial Statements (GPFS) due to the new Australian Financial Reporting Framework issued by the Australian Accounting Standards Board (AASB). ASIC has just released additional guidance to help AFS licensees determine whether these financial statements can be Level 2 simplified disclosure financial statements or whether they will need to prepare Level 1 financial statements in full compliance with the Australian Accounting Standards (AAS). It also delayed the application date by 12 months for licensees who do not have financial reporting obligations under Chapter 2M of the Companies Act (2001).

ASIC position

All AFS licensees are required to prepare GPFS under the new financial reporting framework. Where licensees have “public liability”, they will be required to prepare fully AAS-compliant accounts, also referred to as Level 1 accounts. Although “public liability” is a defined term, there was confusion as to which ASF licensees would be required to prepare these Level 1 accounts rather than the Simplified Disclosure (SDS) or Level 2 that journalists without public accountability can prepare.

ASIC issued 22-128MR ASIC Announces Financial Reporting Changes for AFS Licensees, to clarify its position on which organizations will be required to prepare Level 1 Financial Statements. The following AFSLs will have public liability and be required to prepare fully AAS-compliant Level 1 financial statements:

  • regulated by the Australian Prudential Regulatory Authority

  • licensed market participants

  • participants in a clearing and settlement system

  • retail OTC derivative issuers

  • wholesale electricity dealers

  • business advisers who deal with financial products

  • over-the-counter derivatives dealers

  • wholesale trustees

  • entities responsible for a registered plan

  • corporate officers of a company collective investment vehicle

  • custodial or custody service providers

  • operators of an investor-led portfolio service

ASIC has taken this position to avoid any doubt as to which AFS licensees are publicly liable because they typically hold customer funds or assets or because they are large or sophisticated licensees with greater impact on the market. ASIC also noted that other AFS licensees should always consider public accountability requirements when determining whether they are required to prepare Level 1 financial statements.

Implications for AFSL holders

For certain AFS licensees, including entities responsible for managed investment plans and insurance brokers and others who hold client money in trust, this will result in a substantial increase in your financial reporting requirements. Due to the ASIC press release, you will now need to prepare Level 1 financial statements with all the information required by the full AAS.

Financial statements of AFS licensees must comply with all recognition and measurement requirements of the AAS, but some may not have consolidated controlled entities on the grounds that they are not a reporting entity. In addition, many SPFS have prepared limited disclosures. All AFS licensees will now be required to prepare consolidated financial statements (if you have controlled entities). The transition to Level 1 or Level 2 financial statements will also result in a significant increase in the level of disclosure required.

Transition time

AFS licensees who also have financial reporting obligations under Chapter 2M of the Corporations Actthe new reporting requirements apply to years beginning on or after July 1, 2021 (fiscal years ending June 30, 2022).

AFS licensees who not have reporting obligations under Chapter 2M may elect to defer the new disclosure and consolidation requirements to fiscal years beginning on or after July 1, 2022 (fiscal years ending June 30, 2023). As a result, you can still prepare SPFS for June 30, 2022, as long as all AAS recognition and measurement requirements, other than consolidation, are met. This gives these organizations an additional 12 months to study the implications on their financial statements and improve their disclosures.

Context of the financial reporting framework

The new financial reporting framework published by the AASB is effective for annual periods beginning on or after July 1, 2021. In accordance with the requirements of AASB 1057 Application of Australian accounting standards all organizations that are required by law to comply with Australian Accounting Standards (AAS), or Accounting Standards, must prepare GPFS and will no longer be able to prepare Special Purpose Financial Statements (SPFS).

AFS licensees are required under Chapter 7 of the
Companies Act (2001) prepare financial reports in accordance with accounting standards and will therefore now have to prepare the GPFS. These GPFS will be required to comply with all measurement and accounting requirements of all AAS, including consolidation.

There are two types of GPFS with different disclosure requirements:

Level 1: full ASA; Where

Level 2: Simplified information

Your organization will be required to prepare Level 1 financial statements if it is “publicly accountable”. Organizations are publicly accountable if they:

  • 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

  • It holds assets in trust for a large group of foreigners as one of its main activities.

This article is posted as a general comment – please contact us about your particular situation.

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