How to Streamline Supporting Documents in Cloud and Desktop Connector

Jun 06 2024

Join George Pinto and Matthew Thomas as they share how you can automate your letters and supporting workpapers using Connector.

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Minimum Financial Requirements (MFR) Compliance: An Essential Guide For Accountants

Apr 09 2024

Since its inception on 1 January 2019, the Minimum Financial Requirements (MFR) Regulation has been a crucial aspect of the construction industry in Queensland, Australia. This regulation, administered by the Queensland Building and Construction Commission (QBCC) aims to fortify businesses and mitigate risks of financial failure, liquidations, and bankruptcies.

But what exactly does MFR entail and why must every accountant understand its nuances?

Understanding the MFR

The MFR Regulation mandates that every building contractor in Queensland maintains a financially sustainable business with adequate working capital. Key components of the MFR include assessing the contractor’s working capital through submitting a financial statement, known as an MFR Report. This report is crucial for demonstrating compliance with the net tangible assets position and minimum current ratio prescribed by the QBCC.

The MFR report: A vital component

Submission of an MFR Report is a prerequisite for maintaining a contractor’s licence and continuing operations within the industry. While annual submission is mandatory, certain circumstances demand the immediate submission of these reports, such as:

  1. Applying for a new contractor-type licence.
  2. Increasing maximum revenue beyond prescribed limits.
  3. Reporting significant changes in net tangible assets (NTA).
  4. Other scenarios include changes in business structure or upon request by the QBCC.

Who prepares MFR reports?

MFR Reports must be prepared and signed by qualified accountants meeting specific criteria. These professionals must:

  1. Meet the requirements outlined in the ASIC Corporations (Qualified Accountant) Instrument 2016/786, or
  2. Be a Registered Company Auditor, or
  3. Hold a current public practising certificate from recognised professional associations.

While QBCC does not require an accountant’s approval to prepare the MFR, it’s important to note that they should maintain complete independence from the contractor. This independence is crucial for ensuring unbiased and accurate financial reporting.

A look at the latest amendments

In a significant update for Queensland’s construction sector, the Queensland Government has addressed concerns regarding escalating costs for contractor licencees by reinstating the use of Special Purpose Financial Statements (SPFS). This change, effective 16 February 2024, replaces the previously mandated General Purpose Financial Statements, which had led to increased costs in report preparation for categories SC1, SC2, 1, 2, and 3 (contractors with maximum revenue of up to $30 million).

Additionally, contractors seeking to adjust their maximum revenue to fit the affected financial categories may apply the new provisions. The change applies to financial information in MFR Reports for the quarter ending 31 December 2023 onwards.

It’s important to note that there are no alterations to the existing requirements for contractor licencees falling within financial categories 4 to 7, those with a maximum revenue of more than $30 million. These contractor licencees are still required to provide General Purpose Financial Statements for MFR Reports and annual reporting purposes.

The amendment offers much-needed relief to affected contractors, simplifying requirements and significantly reducing the financial burden of preparing MFR Reports. Looking ahead, contractors can anticipate convenient reporting procedures and cost savings, allowing them to navigate regulatory compliance more efficiently while focusing on their business objectives.

Consequences of non-compliance

Failure to meet the minimum financial requirements outlined by MFR can result in severe consequences such as suspension, cancellation of a contractor’s licence or imposition of conditions to rectify financial shortfalls. Compliance with MFR is essential for regulatory adherence and sustaining a stable and viable business in the long term.

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Going Concern and Related Assessments

Jan 18 2024

In the current economic climate, assessing the financial stability and going concern status of businesses has become a critical focus. The Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) have reissued their joint publication titled “Going Concern and Related Assessments” to address this concern. The publication now covers broader aspects of solvency and going concern, removing the specific focus on COVID-19.

The concept of going concern assumes that a business will continue its operations in the foreseeable future and can meet its financial obligations. It is a fundamental concept in financial reporting, guiding the preparation of financial statements based on the company’s ongoing existence.

The publication emphasizes the responsibilities of directors and management in assessing solvency and going concern, highlighting the need for diligence and professional judgment in evaluating the entity’s ability to continue as a going concern. This assessment involves reviewing the company’s financial position, cash flow projections, debt obligations, and potential risks.

For financial statement disclosures, if there are significant uncertainties related to going concern, management must provide appropriate disclosures in the financial statements, explaining the nature of the uncertainties and any management plans to mitigate risks.

Auditors play a critical role in the assessment of going concern, exercising professional scepticism and obtaining sufficient appropriate audit evidence. If they identify material uncertainties, they must consider the impact on their audit report, potentially including an emphasis of matter or explanatory paragraph to address these uncertainties.

The reissued publication acknowledges ongoing economic challenges beyond the immediate impacts of COVID-19 and aims to assist stakeholders in navigating the complexities associated with going concern assessments.

In conclusion, assessing solvency and going concern is vital for financial reporting in the current environment. The joint publication by AASB and AUASB offers comprehensive guidance to directors, management, and auditors, promoting transparent and accurate reporting to instil confidence among stakeholders and aid decision-making in challenging times. For further information, you can access the full document here.

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Confirm and clarify the removal of special purpose financial statements

Jan 18 2024

We have finally reached the 30 June 2022 reporting period when certain For-Profit private sector entities are no longer able to prepare special purpose financial statements.

Given the number of queries that continue to be received on this topic on an almost daily basis, we have summarised the considerations for entities currently preparing special purpose financial statements for years ending on or after 30 June 2022 as well as some common misconceptions that seem to exist.

1. False: All for-profit private sector entities have to prepare general purpose financial statements

All for-profit private sector entities should assess whether they meet either of the two criteria for preparing general purpose financial statements as summarised in the diagram below.

2. False: These changes only apply to companies

These changes apply to all for-profit private sector entities, including the following:

  • Trusts
  • Partnerships
  • Joint ventures
  • Incorporated entities

3. False: We only need to consider the Corporations Act 2001 when considering the legislation criteria

The Corporations Act 2001 is the most common legislation which is discussed and will capture a number of companies who are required to prepare financial statements in accordance with Chapter 2M or Chapter 7, however, there are other legislative requirements to prepare financial statements and entities should ensure that all relevant requirements are considered.

The AASB issued Research Report No. 10 Legislative and Regulatory Financial Reporting Requirements which provides indications of other legislation which contains financial reporting requirements.

4. False: We only need to consider the entity’s constitution when considering the ‘documents’ criteria

The criteria that considers the requirements of documents include all documents with which the entity has to comply, these can include:

  • Trust deeds
  • Bank loan agreements
  • Shareholder agreements
  • Sale/Purchase agreements
  • Partnership agreements
  • Joint venture agreements
  • Constitution

5. Depends: All changes to constituting and other documents after 1 July 2021 will cause general purpose financial statements to be prepared

If the document is changed after 1 July 2021 and the sentence requiring ‘preparation of financial statements following Australian Accounting Standards’:

  • IS NOT REMOVED from the document then general purpose financial statements will have to be prepared.
  • IS REMOVED from the document then special purpose financial statements can be prepared.

If you have any queries on this topic contact our customer support team or reach out directly to Carmen Ridley via cridley@afrs.com.au

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Which tier of general purpose financial statements do I have to prepare?

Jan 18 2024

The tiers of general purpose financial statements have changed from 30 June 2022:

  • Tier 1 remains IFRS compliant financial statements which include all recognition, measurement, presentation and disclosure requirements from the Australian Accounting Standards (AASB’s)
  • Tier 2 is Simplified Disclosures which requires all recognition and measurement from the AASB’s, however presentation and disclosure requirements are included in AASB 1060 which is a stand-alone standard for this purpose.

Tier 1 financial statements are required for publicly accountable entities or other entities specifically required by a regulator to prepare Tier 1 financial statements.

The decision trees below will assist entities in determining which tier of general purpose financial statements they need to prepare.

For-Profit Private Sector Entities

Not-For-Profit Private Sector Entities

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Cloud Security: Iron-clad Protection for Modern Accounting Firms

Sep 13 2023

Many business leaders believe the cloud isn’t a secure environment for their applications and data. But they couldn’t be more wrong. Modern cloud platforms offer you excellent security for storing your most important data and an easy and reliable way to access applications. 

Major cloud services today feature comprehensive, advanced cybersecurity tools and solutions, backed by teams of security experts. 

The Caseware white paper, Cloud Security: Iron-clad Protection for Modern Accounting Firms, examines how the cloud has evolved to become a highly secure computing environment. It details the security standards and protocols you should look for when seeking a cloud service.

Download this whitepaper to discover:

  • Why you shouldn’t be reluctant to move to the cloud
  • What components make up the cloud
  • How the cloud has evolved over time
  • Why cloud use by business is growing
  • What advantages the cloud can bring to your organization

The COVID-19 pandemic, which forced many organizations to adopt remote-work strategies, proved the cloud is secure enough to support a wide range of enterprise data and applications. 

Caseware’s 2023 State of Accounting Firms Trends Report found more firms are moving either to pure cloud offerings or a hybrid environment featuring a mix of cloud and traditional desktop services. 

And with new security solutions on the horizon, cloud platforms promise to become even more flexible and secure. 

Find out how your practice can create a highly secure operation that simplifies protection and keeps clients reassured by shifting to the cloud. 

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A Guide to Automated Financial Reports

Apr 25 2023

Financial reporting automation relies on software to automatically find, organize and analyze financial data from a company’s transactions and operations. These programs can not only source data, but they can also use artificial intelligence to fill out ledgers, create financial statements and meet compliance requirements for financial reporting and tax filing. 

According to McKinsey, most businesses will be able to automate one-quarter of their processes within the next five years. Accounting and financial reporting are common targets for this type of automation for several reasons. First, automation lowers costs for firms. Also, software reduces data entry or calculation errors, helping accountants meet Government Accounting Standards Board and Financial Accounting Standards Board requirements for reporting. 

Finally, since most payments are processed digitally, human intervention is not necessary for accurate bookkeeping. 

Here is a look at the benefits, requirements and potential issues when automating financial reporting processes. 

The benefits of automated financial reports

Automating financial reports brings several advantages to companies and accounting firms, including:

  • Reduced human error: Manual data entry has a one-percent error rate. If accountants or auditors rely on this incorrect data to make calculations, the reports they produce will not be accurate. Automated financial reports populate documents without human intervention, eliminating the impacts caused by human error. 
  • Increased productivity: Automated financial reporting software will not completely replace accountants. However, it will save them from the time-consuming manual task of building reports and free them to work on higher-level budgeting, analysis and advisory work. 
  • Lower overhead: After investing in the software, firms won’t have to spend money compiling reports. They may be able to reduce bookkeeping staff or pay contractors for fewer hours of work. 
  • Transparency and streamlined auditing: Automated reporting software stores data within the system. Not only does this feature allow you to trace the sources of the final figures in the report, it also streamlines the auditing process. 

Also, automated financial report software always meets reporting deadlines. Because the process is run by a computer, the report will not be delayed due to employee sick days, low productivity or other problems. 

How does automation differ from traditional methods of financial reporting?

Traditional methods for building financial reports rely on data from different sources, which the bookkeeper or accountant uses to make manual or computer-based calculations necessary to produce the figures for the report. 

Even if computer-based ledgers are involved in the process, traditional methods rely on human intervention to choose which data to collect and manually add it to the report or to software that performs the necessary financial calculations. 

Automated software is connected to the systems that handle all the transactions for the company, so the data gets recorded automatically and added to the report immediately. For example, the software connects to the invoicing and payment processing systems and automatically records data when a transaction occurs. 

In other words, the data collection and calculations happen instantly. 

Challenges to implementation

The advantages make automated financial reporting software an attractive option for many small and mid-sized businesses. Unfortunately, there are a few challenges that can make implementing such tools difficult. 

  • Lack of compatibility: Ideally, automated reporting software should be able to collect data from all the different software solutions that handle the company’s financial transactions. If a firm uses outdated systems, automating any accounting tasks could require multiple upgrades. 
  • Technical knowledge requirements: If the systems are not fully compatible or even if there is a slight disconnect, it may take someone with technical knowledge to make the necessary updates. 
  • Employee relations issues: Some employees may see automation as a challenge to their job. A company may need to get employees to buy in to the idea that the software is a way to improve efficiency and not a job-stealer. 

Finally, even if automated software can streamline the reporting process, it will require companies to use more traditional methods to make changes to the way they operate. Careful planning is necessary to ensure this new tool does not create redundancies in other areas. 

Best practices for automating financial reports

Here’s a look at the important steps that can make the adoption of automated financial reporting easier. 

  • Plan for the new workflow before implementation: Since good automated software is customizable and scalable, it is possible to decide if the company should completely revamp its accounting workflow or automate the system based on its current design. 
  • Iron out technical details: IT staff members and accounting employees or contractors should be consulted during the implementation process to ensure full compatibility and accuracy. 
  • Take a test run: Financial reports are essential for stakeholders and, depending on the size and location of the company, compliance. Therefore, a test run is important to verify everything is working perfectly before completely switching from the previous reporting method. 

The company should also consider accessibility. For example, cloud-based software allows people in different locations, including contractors and remote workers, to access the reports and upload necessary data. 

What financial reporting tasks can be automated?

Financial reporting software can handle various types of cash flow and income statements, balance sheets and company performance and equity statements for shareholders. 

Here are some of the tasks that a company can target for automation. 

  • Data entry: As long as the invoicing, banking, sales, payroll and payment processing systems are compatible with the software, the software can collect and enter data automatically. 
  • Basic calculations: Software typically uses algorithms to perform basic calculations for entries on the final report. These can happen automatically and update in real time.
  • Data analysis: Companies can use data analysis tools to glean insights about performance, compliance and other important subjects. Such software can also deliver business intelligence insights to help with process improvements and strategic planning. 

Any other reporting-related tasks that are prone to human error or require excessive amounts of tedious work are perfect candidates for automation. 

What does financial reporting automation look like?

Here are examples of how automation can streamline financial reporting. 

To create a cash flow statement, the accounting software would draw data from connected accounts payable and accounts receivable records, accounts covering other operating expenses, profits from any investment activities or shareholder dividend payments and other expenses or income. By simply adding and subtracting data, the software can create a complete report.

Meanwhile, an income statement compiled using automation would draw data revenue and expense data from business accounts, tax information, operating costs and materials spending. It would then perform basic calculations to arrive at gross and net income figures. 

Helpful tools and resources 

Here are tools that can help support financial reporting automation. 

  • Cloud-based software improves accessibility because users can access it from anywhere and they have the flexibility to connect different data sources without manually uploading or entering the information. 
  • Working papers show the different steps and data used in an audit. Recording this data automatically can help with documentation and evidence supporting the final report. 
  • Visualization applications help accountants create graphs and other elements that can help explain the figures compiled automatically by the reporting software. 

Companies, agencies and accounting firms are able to streamline their document and statement creation processes and limit errors with automated financial reporting software. 

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