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State regulations that require reports when financial circumstances change must now meet tighter accounting standards.
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Qld small builders face steep rise in compliance costs
06 September 2022
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Queensland builders face increased compliance costs because their accountants will have to meet more complex reporting standards following rule changes that begin this financial year.
Minimum financial requirements reports, which are mandated by the Queensland Building and Construction Commission (QBCC) when a builder’s turnover or net tangible assets change, must now comply with AASB 2020 and 1060.
Grant Thornton partner Cameron Crichton said the change was likely to impact thousands of small builders, including sole traders, as their circumstances fluctuated in the challenging economic conditions and they were obliged to file a minimum financial requirements (MFR) report.
“That compliance cost of preparing an MFR report for smaller builders is going be a whole lot higher and more burdensome and probably more time consuming than it has been in the past,” he said.
“Smaller businesses, when they provided those MFR reports in the past, could previously prepare those numbers on a Special Purpose basis. They didn’t have to provide financial notes to the accounts.
“It’s a higher bar.”
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Under the new AASB standards (first flagged in March 2020), an MFR has to be signed off by an independent accountant and include profit and loss, balance sheet, cash flow, and a creditors report complete with notes and accounting policies.
These standards would be unfamiliar because most small operators previously fell below the threshold for the general purpose financial reports (GPFS), Mr Crichton said.
He said many accountants with small construction industry clients would lack the audit experience needed to meet the requirements.
“If you are lucky enough that you’ve got an accountant who maybe spent their career in an audit team of a large accounting firm, and they’ve received all the training, they understand all the standards, then their experience is going to be a whole lot different to someone who has never worked in an audit capacity and does not understand the complexity of many of the financial standards,” Mr Crichton said.
Other accountants would either have to learn the standards, “which are inherently complex and could be tens of hours of training”, or pass on the work and attempt to find an auditor when they are in short supply.
“Then you can expect that the compliance costs are going to be significant,” Mr Crichton said.
“A business that’s only turning over few million how much do you think they can afford to pay for an accountant to prepare an MFR? It’s not going to be much.
“The kinds of firms that have the immediate ability to satisfy that requirement won’t want to do it — it’s going to be outside their ideal client range.”
If the accountant chose to swallow that under a fixed pricing regime and not pass that through, then the builder might not have an adverse experience “but certainly the accountants could suffer the loss and inconvenience,” he said.
“I think the anxiety is there already for some accountants. And certainly as we move through the year there’ll be an increasing number of accountants, for one reason or another, forced to actually deal with this transition,” Mr Crichton said.
“I think there’s probably a role for some lobbying by the accounting bodies because it’s really their members that will be distracted by this change.”
The need for an MFR report was triggered by either a 10 per cent variation in turnover or a net tangible asset decrease of 20–30 per cent, depending on the size of the business. This might happen due to a change of ownership, new licence registration, or dispute with a major customer.
Announcing the requirements, the QBCC said changes to the Australian Accounting Standards were responsible rather than any alteration in its reporting rules.
“As the QBCC specifically requires financial information to be prepared in accordance with the prescribed accounting standards, and because prescribed accounting standards means ‘Australian Accounting Standards’, then licensee must provide QBCC with General Purpose Financial Statements,” it said.
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