Last editedJuly 20212 min read
The accounting world is full of jargon and concepts which aren’t very clear. Special purpose financial statements (SPFS) might also be considered part of this category as a niche form of financial statement. So what exactly are special purpose financial statements? Find out everything you need to know, starting with our special purpose financial reports definition.
Special purpose financial statements definition
Special purpose financial statements are financial reports that are intended for presentation to a limited group of users. Generally, these types of statements are required by a government entity when they wish to present specific information laid out in a reporting framework. Special purpose financial statements are generally used for tax reporting, bank reporting, and industry-specific reporting.
Special purpose vs. general purpose financial statements
It is important for businesses to meet reporting requirements to not fall foul of the rules in their home country. Businesses should look to the International Financial Reporting Standard (IFRS) for the common standards applicable to all financial reports. Generally, there are two types of financial reports. Let’s take a closer look at special purpose vs. general purpose financial statements and how they are reported.
Special purpose financial reporting
Earlier we spoke about what exactly special purpose financial statements are. Essentially these types of reports offer a greater degree of flexibility to most SMEs as they can be in any format that the business requires. This is usually a simple profit and loss sheet that follows the reporting requirements established by the directors, owners or members of a business.
General purpose financial reporting
General purpose financial reporting provides financial information that is useful to existing and potential investors, lenders and other creditors in making decisions on providing resources to a particular business. For this reason, it’s important that the reports are standardised and follow the accounting standards of the company’s domicile.
General purpose financial reporting is done throughout the year and includes a balance sheet, income statement, statement of owner’s equity/retained earnings and statement of cash flows. As a general rule, these statements are reserved for companies with a large number of employees. However, in Australia, this landscape is changing.
Rule changes in Australia from 1 July 2021
In March the Australian Accounting Standards Board (AASB) issued amendments that apply to all annual reporting periods commencing from 1 July 2021. The amendments state that all for-profit entities that are required by law to prepare financial statements must prepare general purpose financial statements (GPFS). This does away with the previously mentioned rule that general purpose financial statements are reserved for large companies, so it is important for SMEs to not get caught out by the new rule change.
What about NFPs?
The AASB has acknowledged that this process will not be as smooth for NFPs. A huge challenge faced by this sector is that statutory requirements start at much lower thresholds than their for-profit counterparts. Removing the option of preparing special purpose financial statements will create unnecessary red tape for many small NFPs.
To combat this the AASB have revised its NFP definition to widen the gap between the for profit and not for profit sectors. The new definition of an NFP is as follows:
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