Document ID: chunk:federal_register_of_legislation:F2023C00381:reg:25:p23
Version: federal_register_of_legislation:F2023C00381
Segment Type: reg
Provision Reference: reg 25 (pt 23/47)
Character Range: 87027–90124

usefulness and credibility of financial reporting in Australia.

     BC16            It is incumbent on the AASB to resolve the SPFS problem as, legislatively, the AASB must ensure there are appropriate accounting standards for each type of entity that must comply with accounting standards (Australian Securities and Investments Commission Act 2001 s229(2)(c)) and facilitate comparability (s224). The ability to make the self-assessment that gives rise to the SPFS problem sits within AAS. Prior to issuing this Standard, the only AAS that explicitly apply to SPFS of for-profit private sector entities focussed on presentation and disclosure (and not R&M). As such, it was the directors' choice of accounting policies that provides the financial reporting framework. As a consequence, other regulators have attempted to fill the gap by providing additional guidance in relation to R&M. Despite this, discussions with users, including lenders and insolvency practitioners, indicated their needs for information about liquidity, solvency, cash flows, commitments and contingencies and related party disclosures were not being met in most SPFS and they were not all aware of the extent of the R&M issues. This indicated a need for minimum R&M requirements to be specified in AAS.

     BC17            Therefore, as noted in paragraph BC6, the Board decided to play its role in improving the consistency, comparability, transparency and enforceability of financial statements to meet user needs, whilst mitigating, where appropriate, the increased reporting burden for entities that would no longer be able to prepare SPFS and would instead be required to prepare GPFS in accordance with AAS.

Results of research into the reporting practices of specified for-profit entities lodging financial statements with ASIC

     BC18            The Board initiated academic research that resulted in the publication of AASB Research Report No. 1 Application of the Reporting Entity Concept and Lodgement of Special Purpose Financial Statements (June 2014). Research Report No. 1 analysed the application of the reporting entity concept and the adoption of special purpose financial reporting, particularly by entities lodging financial statements with ASIC and with state-based regulators of Australia's three most populous states, namely, Consumer Affairs Victoria, NSW Fair Trading and Queensland Office of Fair Trading. Research Report No. 1 showed that, based on lodgements as at 30 July 2011, approximately 66% of specified for-profit entities[10] lodged SPFS with ASIC. The findings of Research Report No. 1 indicated to the Board that:

          (a)                    in light of the high incidence of SPFS being lodged with ASIC, there is doubt as to whether the reporting entity concept is being applied as intended by SAC 1;

          (b)                   the reporting entity concept appears too subjective for regulators to enforce effectively and accordingly does not create a level playing field; and

          (c)                    63% of SPFS lodged with ASIC stated compliance with