The Corporations Act requires a financial report to provide a true and fair view of the financial position and performance of an entity and comply with Accounting Standards, but at present it does not specify what form of financial report must be prepared.There may be amendments proposed to the Corporations Act in response to the issues around the reporting entity concept in Australia.Reporting requirements resulting from the SAC 1 classificationThe reporting frameworks for reporting and non-reporting entities based on a user’s information needs, both for GPFRs and SPFRs, are summarised below:General purpose financial reportReporting entities(SAC 1)Comply with all Accounting StandardsSpecial purpose financial reportNon-reporting entities(SAC 1)Specific financial reporting is based on information needs of specified users – may or may not comply with some or all Accounting StandardsSpecial purpose reportingAs discussed above, the ability to produce special purpose financial reports may soon be removed from the Australian financial reporting landscape. Special purpose reporting involves the reporting of information that meets the needs of specific users (e.g. a financial report prepared on a tax basis for lodgement with the taxation authority, or a financial report prepared on a cash basis for specific users). These types of reports, however, are outside the scope of this unit.The discussion in this section is focused on an SPFR that is prepared by entities under the Corporations Act. As mentioned, an SPFR is prepared based on the needs of its specified users; however, the Corporations Act requires the financial report to still present a true and fair view of an entity’s financial position and performance, and comply with Accounting Standards.The application paragraphs in certain Accounting Standards (e.g. AASB 107 Statement of Cash Flows), state that the Standards apply to all entities that prepare financial reports under Part 2M.3 of the Corporations Act (i.e. regardless of whether they are reporting entities or not).AU
Chartered Accountants Program Financial Accounting & ReportingPage 1-21 Core content – Unit 1Despite these application paragraphs, there is some debate as to whether preparing an SPFR in compliance only with these Accounting Standards is sufficient to allow the presentation of a financial report that gives a true and fair view under the Corporations Act.To provide guidance on classifying a non-reporting entity and the financial reporting requirements, ASIC issued Regulatory Guide 85 Reporting requirements for non-reporting entities (RG 85). In this guide, ASIC states that, in its view, the recognition and measurement requirements of all accounting standards must be applied in order to determine the financial position and profit or loss of an entity reporting under the Corporations Act (RG 85 paras 2.1-2.10). In practice, most preparers of SPFRs, if required to prepare and lodge a financial report under the Corporations Act, follow the requirements of RG 85.