Crowd-Sourced Funding Reporting Requirements Have Changed. Here’s What It All Means.

Since legislation came into effect in 2017, crowdsourced funding to raise equity has been an increasingly popular funding method among start-ups and small businesses , with more than 200 companies raising over a combined $146 million.

Having partnered with many businesses through the crowdsourced funding process, from identifying a funding need to preparing businesses for a campaign, right through to receipt of funds, we know what crowdsourced funding is all about , and we’ve had front row seats to the upcoming changes facing these businesses.

Until now, small proprietary businesses have been largely protected from the heavy lifting that usually comes with having more than 50 shareholders, including the annual requirements of engaging an external auditor, and preparing General Purpose Financial Statements in accordance with the Australian Accounting Standards (AAS).

Know the Changes to Crowdsourced Funding Reporting Requirements

However, crowdsourced funding specific sections of the Corporations Act 2001 have been lurking in the background, and these are now in full force and under the ASIC microscope. Put simply, these requirements mean that all crowdsourced funding businesses must lodge General Purpose Financial Reports (GPFR) with ASIC for the 2022 financial year. And to add a sprinkle of urgency to this change, these reports must be prepared and lodged with ASIC before 31 October 2022!

To help recently funded crowdsourced funding businesses who find themselves saddled with the responsibility of preparing these complex financial statements for the first time, let’s break down exactly what General Purpose Financial Reports are, what it means for crowdsourced funding businesses and the steps needed to take action before the October deadline.

Understand General Purpose Financial Reports for Crowdsourced Funded Businesses

Previously, there were two types of financial statements that a crowdsourced funded business could prepare on an annual basis, depending on the size, type and structure of the entity:

• ‘Special Purpose Financial Reports’ are exactly that – prepared for the special and specific purpose of providing directors and shareholders with the tailored information that they need to know about the business.

• ‘General Purpose Financial Reports’ on the other hand, are standardised financial reports governed by the Australian Accounting Standards – meaning that any person could pick up a set of these reports and be able to read and understand them (provided they know their way around a financial report, of course).

Now, crowdsourced funding entities only have the option to prepare General Purpose Financial Reports to comply with ASIC requirements.

Get to Know the Australian Accounting Standards

Put simply, Australian Accounting Standards are policies which outline how financial statements are structured. Designed to standardise financial statements, these standards are written so that every business reflects similar financial items in the same way. Because of this, businesses across different industries and even different countries can be compared using similar financial metrics.

Some of the accounting standard examples include:

1. The way that Property, Plant and Equipment is valued
2. How to recognise Intangible Assets
3. How to account for Equity Raising Costs
4. Where to report Future Tax Benefits or Liabilities.

All publicly listed companies on the ASX, along with large proprietary companies have always been governed by these accounting standards, and have been required by ASIC to prepare their financial reports in line with these. And now, all crowdsourced funded businesses fall into this category as well.

What’s the Difference Between General Purpose and Special Purpose Financial Reports?

The financial statements usually prepared by small proprietary companies (Special Purpose Financial Reports) are specifically formatted and customised depending on the individual business. These usually comprise at a bare minimum, the Balance Sheet and Profit and Loss statement and are easily read and digested by key decision makers and stakeholders of a business. General Purpose Financial Reports on the other hand, are a different beast.

Despite ASIC introducing what is known as ‘Simplified Disclosure’ statements, a typical set of Simplified Disclosure General Purpose Financial Reports require the following statements:

1. Statement of Financial Position
2. Statement of Profit and Loss
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Comprehensive Notes to Financial Statements
6. Director’s Report and Declaration

With more complexity in both the length and presentation of these reports, the already time-consuming and costly process of preparing these reports can get out of hand if the standards are not applied in the correct way.

Manage the New Crowdsourced Funding Reporting Requirements

General Purpose Financial Reports are a complex beast and mistakes can be made if the Australian Accounting Standards are not fully understood and applied. Given the impending deadline of 31 October 2022 to have accounts completed (and to remain compliant with ASIC), we recommend getting in touch with an advisor now to discuss how to apply the standards to your business.

Talk to BlueRock’s Expert Business Advisors

If you’re struggling to navigate the General Purpose Financial Statement process before the deadline, BlueRock’s start-up business consultants can help. Book a consultation using the form below to talk through your crowdsourced funding opportunities and let us help ensure your business stays ASIC compliant.