AFSLs face ‘carnage’: Auditor warns on tightened financial reporting

From 1 July, new accounting standards will come into effect, set to capture AFSL licensees.

AASB 2020-2 Amendments to Australian Accounting Standards is set to be implemented, ending the use of special purpose financial reports by entities that report to ASIC, principally large proprietary companies, unlisted public companies and foreign-controlled subsidiaries.

The entities covered by the new standards currently are mostly self-designated as non-reporting licensees.

The Australian Accounting Standards Board (AASB) has also made it clear that AFSL licensees fall within the scope of AASB 2020-2, despite the Corporations Act stating their annual financial reporting requirements to ASIC only consist of an audited balance sheet and profit and loss statement.

As reported by William Buck Accountants and Advisors, ASIC is yet to formally address the impact of AASB 2020-2 on AFSL holders.

The accounting firm has warned that the majority of Australia’s 6,248 licensees face elevated reporting and auditing requirements under a general purpose framework, with disclosure obligations not too dissimilar from that of ASX-listed entities.

Such an elevation could place significant cost and compliance pressures on AFSL holders.

Nicholas Benbow, director, audit and assurance at William Buck commented there is likely to be “carnage” in the financial services industry. He has predicted licensees will en masse retire their own licence and seek a corporate authorised representative (CAR) arrangement instead – leading to the creation of a few “super-AFSLs”.

“In a couple of years, and without further clarification from ASIC on this matter, expect a markedly different AFSL compliance industry, dominated by much larger, corporatised super-AFSL licensees, with extensive CAR networks,” Mr Benbow said.

“This will mean a corporatising of the responsibility for policing AFSL compliance effectively farmed out to these super-AFSLs, rather than having a direct relationship between licensee and ASIC.

“Also expect the rise of a new job description – the CAR-broker – responsible for connecting these former AFSL licensees with a super-AFSL.”