Financial statements are crucial for businesses to share financial information, ensure transparency, and hold senior management accountable. Australian Accounting Standards direct the General Purpose Financial Statements (GPFS) to meet diverse stakeholder information needs.
The Difference Between Special Purpose and General Purpose Financial Statements
General purpose financial statements are designed for users who cannot directly request information from a business and are standardised to cater to broad user needs. In contrast, special purpose financial statements (SPFS) are tailored for specific stakeholders, allowing them to customise information based on their requirements, providing greater flexibility for small and medium-sized businesses.
Recent changes in Australia, effective July 1, 2022, eliminate the requirement for SPFS for certain for-profit private sector enterprises, impacting those obligated to lodge financial statements with ASIC.
What details are expected in General Purpose Financial Statements?
A General Purpose Financial Statement (GPFS) drafted in adherence to Australian Accounting Standards is expected to offer a well-organised depiction of a business or organisation’s financial position, performance, and cash flows. It should provide stakeholders with information to assist with informed economic decision-making and showcase how the organisation’s management has spent its resources.
In pursuit of this goal, financial statements include details about the organisation’s:
- assets
- liabilities
- equity
- income and expenses, including profit and losses
- contributions by & distributions to owners in their capacity as owners and
- cash flows
This information, along with additional information in the notes, assists the stakeholders who use the financial statements in predicting the organisation’s future cash flow and, in particular, their timing and accuracy.
A complete set of financial statements comprises:
- a statement of financial position as of the end of the period
- a statement of profit or loss and other comprehensive income for the period
- a statement of changes in equity for the period
- a statement of cash flows for the period
- notes, comprising significant accounting policies and other explanatory information and
- comparative information with respect to the prior period
What is a Simplified Disclosure Framework?
Your business, organisation or charity can choose to prepare full General Purpose Financial Statements (Tier 1), or General Purpose Financial Statements under a simplified disclosure framework (Tier 2). If you choose to prepare a GPFS with a simplified disclosure framework, the statements are still considered to be General Purpose Financial Statements. However, the key distinction is the eligibility to provide fewer, uncomplicated disclosures.
There were some changes to the disclosure standard recently. The new simplified disclosure standard replaces the former Tier 2 Reduced Disclosure Requirements (RDR) framework, from 1 July 2021. The changes have been introduced as part of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. Under AASB 1060, all relevant disclosure requirements are contained in a single standard. The changes will apply to all Tier 2 entities and do not affect which entities are permitted to apply Tier 2.
The recognition and measurement requirements of Tier 2 also remain unchanged and the same as Tier 1. For more information about the changes and the new disclosures that will be required, refer to AASB 1060 on the AASB website, www.aasb.gov.au.
Vesting Structure
ESOPs generally follow a predetermined and fixed vesting schedule, providing employees with a level of certainty that might not be present in PPUs with their profit-dependent vesting schedules. Regardless of the fluctuations in specific projects or overall company profitability, ESOP holders can anticipate a clear timeline for receiving their equity, ensuring stability and predictability.
Reach out for auditing help
Remember, the need to prepare general purpose financial statements or special purpose financial statements may also require you to have these audited.
If you would like to discuss your organisation’s requirements to prepare general purpose financial statements or auditing services please reach out to us for professional help.
