UNDERSTANDING FINANCIAL STATEMENTS

General Purpose vs Special Purpose

When a business prepares its periodic financial statements, it is important to consider the needs and requirements of its stakeholders. Different stakeholders, such as investors, banks, regulatory bodies, and owners, have varying expectations from financial statements. To meet these expectations, businesses need to determine whether they should prepare general purpose financial statements or special purpose financial statements. In this article, we will explore the two types of financial statements and highlight their respective requirements.  

 

General Purpose Financial Statements

Entities falling under part 2M of the Corporations Act 2001 are obligated to prepare General Purpose Financial Statements. This includes unlisted public companies, large proprietary companies, and certain small proprietary companies. General Purpose Financial Statements must adhere to the Australian Accounting Standards. 

Key points about General Purpose Financial Statements: 

  • Applicable to entities specified under part 2M of the Corporations Act 2001. 
  • Prepared in accordance with the Australian Accounting Standards. 
  • Intended for a wide range of stakeholders, including investors, banks, and regulatory bodies. 
  • Provide a comprehensive view of the financial position, performance, and cash flows of the entity. 
  • Must meet the disclosure requirements specified by the relevant accounting standards. 
  • Generally prepared on an annual basis. 

 

Special Purpose Financial Statements

Special Purpose Financial Statements are prepared for entities that do not fall under the scope of General Purpose Financial Statements. These statements are tailored for a specific purpose or a limited group of users. 

Key points about Special Purpose Financial Statements: 

  • Prepared for entities not obligated to prepare General Purpose Financial Statements. 
  • Designed for a specific purpose or a limited group of users. 
  • Can be customised based on the specific needs of the stakeholders. 
  • May not fully comply with all the requirements of the Australian Accounting Standards. 
  • Focus on providing relevant information to meet the specific needs of the intended users. 
  • Prepared on a periodic basis as required by the stakeholders. 

 

Understanding your requirements

It is crucial for businesses to determine which type of financial statements they need based on their specific circumstances. Consider the following factors: 

  • Legal requirements: Check if your entity falls under the scope of General Purpose Financial Statements as defined by the Corporations Act 2001. 
  • Stakeholder expectations: Identify the needs and requirements of your stakeholders, such as investors, banks, and regulatory bodies. 
  • Purpose of the financial statements: Determine whether you require comprehensive financial statements for a wide range of users or specialised statements for a specific purpose or limited group of users. 

 

Conclusion

Understanding the distinction between General Purpose Financial Statements and Special Purpose Financial Statements is crucial for businesses. By aligning the financial statements with the needs and requirements of stakeholders, businesses can effectively communicate their financial position and performance. Whether you require comprehensive statements or specialised ones, seeking professional guidance, such as that provided by Regency Partners, can ensure a seamless process and accurate financial reporting.  

If you have any questions regarding your business’s financial statement requirements, Regency Partners can provide guidance and support throughout the process by assisting you from the initial stage of understanding your financial statement needs to the preparation of the statements. 

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