Financial Statements – must SMSF’s prepare General Purpose Financial Statements?

29 November 2023

 

AASB 2020-2:  What could be more innocent than an accounting standards board deciding to create a simple, objective, consistent, comparable, transparent and enforceable financial reporting framework?  Well if the financial reporting framework was also sustainable, diverse and carbon neutral then we would have a “world’s best” financial reporting framework.  What rational person could possibly take exception?  Well read on…

 

Let’s begin with the acronym: AASB.  This refers to the Australian Accounting Standards Board.  The Board is a Commonwealth Government Agency which derives its legislative authority from the Australian Securities and Investments Commission Act 2001.  One of the Board’s principal functions is to make accounting standards.  These accounting standards are given mandatory application by the Corporations Act and must be applied by various entities including companies, registered schemes and disclosing entities.  SMSFs do not fall within this list of entities. 

 

As SMSFs are not reporting entities, they would prepare financial statements according to the financial reporting requirements specified by the trust deed or governing rules.  If the trust deed or governing rules did not specify any particular financial reporting requirements, then the SMSF could (subject to the professional standards of the accountant preparing the financial statements and the auditor’s professional standards) self-assess which financial reporting requirements they adopted.  The view of the ATO (which obviously influenced the SMSF trustees, accountant and auditor) is that financial statements for SMSFs should apply one particular Australian Accounting Standard which requires that accounts should be on an accrual basis and using current market value for assets and liabilities. Which seems reasonable enough. 

 

Consequently most SMSFs prepared Special Purpose Financial Statements (SPFS) which satisfied the requirements of the ATO and also the requirements of the members given the members were generally the management of the SMSF, by reason of being the trustees or directors of the corporate trustee.  The cousin of SPFS are General Purpose Financial Statements (GPFS) which are materially more expensive to issue given the additional information required to be disclosed (which additional information provides little use to the members).

 

The end position (before AASB 2020-2) was that most SMSFs prepared Special Purpose Financial Statements, which satisfied the regulatory requirements of the ATO and also the information requirements of the members without being unnecessarily expensive to issue.  For a minority of SMSFs, as their trust deeds/governing rules required financial statements to be prepared according to “Australian Accounting Standards”, issued the more expensive General Purpose Financial Statements.

 

The position after the introduction of AASB 2020-2 from 1 July 2021 is for those SMSF’s who prepared Special Purpose Financial Statements, they must now prepare General Purpose Financial Statements.  Further for these SMSFs, even if they amend the trust deed/governing rules on or after 1 July 2021 to remove any reference to “Australian Accounting Standards" thereby (hopefully) avoiding the application of AASB 2020-2 and the requirement to issue General Purpose Financial Statements, they will be disappointed.  This amendment will not stop the application of AASB 2020-2 to the Fund as the application terms of AASB 2020-2 provide that if the SMSF was subject to the Australian Accounting Standards as at 30 June 2021, subsequent amendments cannot undo the application of those standards.

 

Position of SUPERCentral Governing Rules

The SUPERCentral Governing Rules has never imposed the requirement that financial statements must be prepared according to the requirements of the Australian Accounting Standards.

 

In summary then

  • For SMSFs which were established using the SUPERCentral system, whether on or before 30 June 2021 or after that date, these SMSFs can prepare Special Purpose Financial Statements
  • For SMSFs which have converted to the SUPERCentral system, on or before 30 June 2021, these SMSFs can prepare Special Purpose Financial Statements, whether or not the previous trust deed or governing rules referred to Australian Accounting Standards
  • For SMSFs which have converted to the SUPERCentral system, on or after 1 July 2021, if the funds were required to prepare General Purpose Financial Statements before converting to SUPERCentral they will have to continue to prepare General Purpose Financial Statements. If these funds were not required to prepare General Purpose Financial Statements before conversion, they can, post conversion, still issue Special Purpose Financial Statements.

 

Is all lost for funds required to issue General Purpose Financial Statements?

No.  Many accountants and auditors are aware of the very limited additional utility (and materially increased expense) of issuing General Purpose Financial Statements over Special Purpose Financial Statements for SMSFs.  Additionally, it seems the Board adopted the approach set out in AASB 2020-2 without a keen regard as to what were the practical increased utility to either the ATO or the members for the increased expense of preparing General Purpose Financial Statements.  It seems the Board was more attracted by the splendour of the improvement to the regulatory landscape than practical benefits to the users of the financial statements, namely the ATO and the members.

 

There is hope that the Board, after representations by the accounting bodies and other interested parties to the powers that be, may reconsider its splendid vision and adopt a sensible approach to the requirements of financial disclosure.

 

NOTE:  This article was prepared as at November 2023.  The article has not been updated in light of subsequent developments.

 

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