Preparing financial statements can be a painful, yet necessary, compliance exercise for most organisations, big and small. It can take up valuable time and resources, yet financial statements not only tick the box for compliance, they also serve as a very important communication tool to your key stakeholders.
Here are our key tips for reducing your compliance burden:
1. Engage your auditors early
Most large audit firms produce updated model financial statements at least every 6 months taking into consideration the required disclosure changes from new accounting standards. Obtaining these up-front can provide you with a guide as you prepare your accounts. This can save time by not having to process mark-ups from your auditors at the last minute. Ensure you consult with your advisers and ask them to highlight any changes which may be applicable to your organisation.
2. Check ASIC focus areas
ASIC publish their focus areas for each reporting period and most audit firms include these focus areas in their audit plans. Being aware of the ASIC focus areas that affect your organisation will ensure you prioritise critical judgemental areas and provide adequate disclosure. If in doubt, consult with your auditors on which areas are most likely to be relevant for your organisation.
3. Streamline your disclosures
Often financial statements contain disclosures that may be immaterial or don’t add value for the users. Streamlining your financial statements involves challenging the type of information you disclose and where and how it is presented. The key is to reduce the clutter, avoid repetition and highlight critical judgmental areas. Streamlining projects can also be phased over a couple of reporting cycles, starting with grouping or reordering note disclosures, reducing immaterial disclosures and advancing to adopting graphs or charts to display information. If you plan to streamline your accounts, ensure you consult early to confirm which disclosures are material, this will avoid having to add them back in at the last minute.
4. Plan ahead
Some of the steps required to prepare your financial statements can be done outside of the ‘usual’ financial reporting timeframes (e.g. July to September or January to March). For example, preparing new accounting disclosures or setting up your templates may be activities that can be done ahead of time. It also helps to plan ahead for critical dates, such as audit and risk committee paper deadlines or audit visits and work backwards to see when information will be required. This exercise may highlight bottlenecks or times where additional resources may be required. It will also assist in creating a time line to help you meet your tight reporting timeframes.
5. Consider outsourcing
Take stock of the pain points in your reporting cycle and the time they take. It can sometimes be easier and more cost effective to outsource all or parts of your financial statement preparation to relieve the compliance burden for your organisation. Month-end or adhoc financial reporting that helps management deliver your organisation’s strategy can often be a better focus for your finance team’s resources. Don’t underestimate the benefits of outsourcing some more complex and time consuming areas of your financial statements such as financial instruments, hedging or tax accounting.
Do you spend a lot of time processing audit comments or minor changes? Consider tracking this time and weighing up the cost versus benefit of using an independent proof reader or key advisor during your reporting cycle to review the financial statements and assist with processing changes from the auditors.
If you require any assistance in preparing your financial statements or would like to discuss some suggestions for making your reporting cycle a little more bearable, please feel free to contact a member of our team.
It is once again reporting season for those preparing 31 December 2017 half-year or full-year accounts. Fortunately, for most entities there are only minor changes to accounting standards that could potentially impact on their financial statements. Below is a summary of the main areas of note for this reporting season.
Reduction in Tax Rates for Small Businesses
On 9 May 2017, the final approval for the reduction in tax rates for small businesses was given by the House of Representatives for a second time. The amendments were therefore considered substantively enacted on that date and are now law. As such, the corporate tax rate is now reduced to 27.5% for companies carrying on a business with an aggregate turnover not exceeding: - $10m for the income tax year ending 30 June 2017 - $25m for the income tax year ending 30 June 2018 - $50m for the income tax year ending 30 June 2019 AASB 112 Income Taxes requires that the reduction in the corporate tax rate impact the measurement of the current tax in the year in which the new rate becomes effective. For entities with 31 December 2017 annual reporting dates, this means careful consideration of which tax year their accounting period relates to in order to assess their eligibility for the reduced rate based on their aggregate turnover.
More Cash Flow Statement Disclosures
New disclosures about the changes in financial liabilities arising from cash flow and non-cash flow items have been introduced by AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107. The changes are mandatory for annual periods beginning on or after 1 January 2017 and therefore 31 December 2017 financial statements will need to disclose a reconciliation of cash and non-cash movements in liabilities arising from financing activities and movement in financial assets used to hedge liabilities arising from financing activities. AASB 2016-2 does not specify how the additional disclosures must be presented, however includes Example C as an illustration of one possible way of providing the disclosures. Paragraph 44D of AASB2016-2 requires the items disclosed in the reconciliation to be reconciled with movements in the cash flow statement and therefore the Example C reconciliation will need to be adapted by each entity to suit their needs.
ASIC Areas of Focus
The Australian Securities and Investments Commission’s (‘ASIC’) areas of focus for 31 December 2017 are very much similar to 30 June 2017 and broadly focus on the following three areas: - Accounting estimates: including impairment testing and asset values; - Accounting policy choices: including revenue recognition, expense deferral, off-balance sheet arrangements and tax accounting; and - Key disclosures: including estimates and accounting policy judgements and the impact of new revenue, financial instrument, lease and insurance standards.
Significant Global Entities
Significant Global Entities, businesses with annual global income of $1b or more or businesses that are members of international consolidated groups with annual worldwide income of $1b or more, will now be required to lodge audited general purpose financial statements with the Australian Tax Office (‘ATO’). This will only impact on entities that are currently not preparing general purpose financial statements as they may be lodging special purpose financial statements with ASIC or relying on relief available from ASIC. Entities affected will be able to use reduced disclosures when preparing the general purpose financial statements and will need to lodge the financial statements with the annual tax return. Guidance has been issued by the ATO on who will be required to lodged general purpose financial statements.
If you require any assistance in the preparation of your 31 December 2017 financial statements or have any questions, please feel free to contact a member of our team.