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ASIC Financial Reporting Guidance for AFSL holders

ASIC Financial Reporting Guidance for AFSL holders

Kristen Haines

All Australian Financial Services Licensees (AFSLs) are now required to prepare general purpose financial statements (GPFS) as a result of the new Australian financial Reporting Framework issued by the Australian Accounting Standards Board (AASB).  ASIC has just released additional guidance to assist AFS Licensees to determine whether these financial statements can be the Tier 2 Simplified Disclosure financial statements or whether they will have to prepared Tier 1 financial statements with full compliance with Australian Accounting Standards (AAS).  It has also deferred the application date by 12 months for those Licensees that do not have financial reporting obligations under Chapter 2M of the Corporations Act (2001).

ASIC Position

All AFS Licensees are required to prepare GPFS under the new financial reporting framework. Where Licensees have ‘public accountability’ they will be required to prepare accounts fully compliant with AAS, also known as Tier 1 accounts.  Whilst ‘public accountability’ is a defined term there was confusion as to which ASF Licensees would be required to prepare these Tier 1 accounts rather, than the Simplified Disclosure (SDS) or Tier 2 which reporters without public accountability can prepare. 

ASIC released 22-128MR ASIC Announces financial reporting changes for AFS Licensees, to clarify their position on which organisations will have to prepare Tier 1 financial statements.   ASIC has stated that that following AFSL Holders will have public accountability and must prepare Tier 1 financial statements that are fully compliant with AAS:

  • regulated by the Australian Prudential Regulatory Authority
  • participants in a licensed market
  • participants in a clearing and settlement facility
  • retail over-the-counter derivative issuers
  • wholesale electricity dealers
  • corporate advisors that deal in financial products
  • over-the-counter derivative traders
  • wholesale trustees
  • responsible entities of a registered scheme
  • corporate directors of a corporate collective investment vehicle
  • providers of a custodial or depository service
  • operators of an investor directed portfolio service

ASIC have taken this position as to avoid doubt as to which AFS Licensees are publicly accountable because they typically hold client monies or assets or because they are large or sophisticated licensees with grater market impacts.  ASIC also noted other AFS Licensees should still consider the public accountability requirements to determine whether they are required to prepare Tier 1 financial statements.

Implications for AFSL Holders

For some AFS Licensees including Responsible entities of managed investment schemes, and insurance and other brokers who hold client monies on trust, this is going to result in a substantial increase in your financial reporting requirements.  As due to ASICs media release you will now need to prepare Tier 1 financial statements with all the disclosures required by full AAS. 

AFS Licensees’ financial statements should have complied with all recognition and measurement requirements of AAS, however some may have not consolidated controlled entities on the basis that they are not a reporting entity.  In addition, many prepared SPFS with limited disclosures.  All AFS Licensees are now going to have to prepare consolidated financial statements (if you have controlled entities). Transitioning to Tier 1 or Tier 2 financial statements, will also result in a significant increase in the level of disclosures required. 

Timing of Transition

AFS Licensees that also have financial reporting obligations to report under chapter 2M of the Corporations Act, the new reporting obligations are applicable for years beginning on or after 1 July 2021 (30 June 2022 year-ends). 

AFS Licensees that do not have reporting obligations under chapter 2M can elect to defer the new disclosure and consolidation requirements to financial years commencing on or after 1 July 2022 (30 June 2023 year-ends).  Accordingly, you can still prepare SPFS for 30 June 2022, as long as all recognition and measurement requirements of AAS, other than consolidation are complied with.  This provides these organisations with an additional 12 months, to work through the implications on their financial statements and enhance disclosures.  

Background to the Financial Reporting Framework

The new Financial Reporting Framework issued by the AASB is effective for years beginning on or after 1 July 2021.  Under the requirements of AASB 1057 Application of Australian Accounting Standards all organisations who are required by legislation 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 Corporations Act (2001) to prepare financial reports that comply with accounting standards and therefore will now need to prepare GPFS.  These GPFS will need to comply with the full measurement and recognition requirements of all AAS including consolidation. 

There are two types of GPFS with different disclosure requirements:
Tier 1: Full AAS; or
Tier 2: Simplified Disclosures

Your organisation will be required to prepare Tier 1 financial statements if they are a ‘publicly accountable’. Organisations 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 a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

Further information

For further information on transitioning to the new financial reporting framework including guidance on transitional relief, please refer to our Guide to Transitioning to Simplified Disclosure Reporting or contact your local Moore Australia Advisor.