Financial reporting is a job that can take time and planning, however many leave it until the last minute, leading to mistakes and less time for strategy. Like a student cramming the night before a vital exam, there does come a point where it is actually too late to start to plan for the year-end.
When should finance teams start planning?
With heightened environmental risks and changes to reporting standards, ideally finance teams should look to start planning well before their year-end submission deadline. By getting on the front foot of reporting, this frees up the couple of months before the year-end to pause and reflect and actually consider what needs to be done. Even the most experienced accountant who has faced the year-end process many times (and who has always delivered) should consider adding in extra time. It may be that you are in a compliance role and waiting for the opportunity to check the year-end information prepared by someone else. Either way, there are clear benefits to pausing for a moment and undertaking even the most seemingly-basic of planning.
Current environmental risks
Here are some current risks facing organisations and requiring attention as you start to budget for the next financial year:
- Variable speed economy – Depending what part of the country, and what sector you are operating in, the current economy is unlike one we have seen for many years or even decades.
- Inflation rising – The March quarter has made headline news as it is the first time inflation has been over 5% in more than 20 years. This is undoubtedly leading many organisations to look at their own costs, consider their own pricing structures and also being mindful of remuneration settlements with their own employees that may be due soon.
- Interest rates on the move – The RBA decision in May is likely to be the first of several to follow. Along with rising inflation, how will this impact assumptions on impairment assessments at 30 June?
- Staff retention – Many organisations are seeing key staff leaving for a wide range of reasons and are also struggling to recruit replacements. Do you have contingency plans in place to cover any departures of key personnel or shortages if you can’t recruit?
What are the major changes to consider?
With your organisation’s budget facing these uncertainties, it’s probably reassuring for accountants to know that this year-end reporting cycle will see fewer changes than recent years. While there are changes, most are subtle and not wide ranging. The significant changes seen in recent years on revenue recognition and leases are now mostly embedded as business as usual. Even the emergence of the IFRIC decision on software as a service and recognition of intangibles have been received with minimal requirements for finance teams.
The big mandatory changes this year are the move away from special purpose financial statements to general purpose and the option of simplified disclosures, along with the elimination of the reduced disclosure regime. The good news is that this doesn’t apply to everyone, so knowing whether these changes apply to your organisation is extremely important and should be the first thing you determine in your year-end planning.
If you do find that you have to change from special purpose reporting, then the size of the task will depend on if you currently comply with all recognition and measurement elements of the accounting standards in your special purpose financial statements. If you comply, then the impact is likely to be one of disclosure. If not, then we’d recommend starting that year-end planning with a call to your advisors.
Emerging changes include the growing global demand for more environmental, social and governance ‘ESG’ reporting. While not yet mandated in Australia, the Australian Accounting Standards Board is currently working on a project to develop specific reporting requirements for organisations. In the meantime, investors are seeking voluntary reporting on ESG matters and thus you should consider what additional disclosures you can prepare now to satisfy the needs of the users of your financial statements.
A tangible output of all this may be agreeing up front a template for your financial statements for this year with all the respective changes processed and the template simply awaiting your final year end numbers.
Given the other challenges facing you with the economy, this could be one pre year-end task that would be worthwhile committing to and planning ahead for.
Learn more about how our Audit services can help you
