Document ID: chunk:federal_register_of_legislation:F2023C00381:reg:25:p27
Version: federal_register_of_legislation:F2023C00381
Segment Type: reg
Provision Reference: reg 25 (pt 27/47)
Character Range: 98150–101201

1054 Australian Additional Disclosures. However, as noted in paragraph BC21, research into the extent of compliance with the R&M requirements in AAS by specified for-profit entities lodging SPFS with ASIC shows that at least 10% and potentially up to 24% of them do not appear to have followed the guidance outlined in RG 85. ASIC has also indicated it finds the judgements required regarding the application of the reporting entity concept in SAC 1 to be unenforceable.

     BC30            The appropriateness of SPFS have also been called into question in a number of other regulatory matters. For example, as part of the Senate Economics References Committee Report on Tax Avoidance, the Board's Chair was asked to explain to the Committee the reporting entity concept and its role in facilitating the preparation of SPFS. The Board noted the subsequent Report, Corporate tax avoidance Part III, Much heat, little light so far (May 2018), outlined strong concern that multinationals operating within Australia are avoiding public scrutiny through the preparation of SPFS, which are not required to disclose corporate tax and related party transactions, and also noted the Board's role in facilitating the public lodgement of SPFS through its reporting entity concept. The Report recommended the Government require all companies, trusts and other financial entities with income above a certain amount to lodge GPFS with ASIC. These comments, albeit with a focus on tax, reinforce the view that a problem exists in relation to the way in which the reporting entity concept is applied, as well as the information provided through the public lodgement of SPFS.

     BC31            The Board also reflected on the recommendations in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (February 2019), particularly the recommendation to remove special rules and exceptions that can create regulatory complexities. The Final Report indicated that exceptions departing from underlying principles have consequences often resulting in exploitation and that exceptions act as barriers to the simplification of regulation. The Board further considered the theme of enforceability within the Final Report, noting in particular that the subjectivity inherent in the current Australian reporting entity concept may not provide regulators with an objective basis on which to enforce financial reporting obligations.

     BC32            In addition, other regulatory developments indicated an increased need for entities to prepare GPFS instead of SPFS where they are required to prepare financial statements that comply with AAS, for example:

          (a)                    the requirement for SGEs[17] to lodge GPFS with the ATO, which would subsequently be provided to ASIC[18] (December 2015);

          (b)                   questions to the Board's Chair and the Financial Reporting Council's (FRC) Chair on the AASB's and FRC's approaches to resolving the shortcomings of SPFS by