Document ID: chunk:federal_register_of_legislation:F2023C00381:reg:25:p32
Version: federal_register_of_legislation:F2023C00381
Segment Type: reg
Provision Reference: reg 25 (pt 32/47)
Character Range: 112330–115536

and some AAS.[26]

     BC43            Making the IASB's RCF applicable in Australia, modified where necessary for public sector and  NFP specific issues, is consistent with the FRC's strategic direction to the Board and the Board's strategic objectives. In accordance with those strategies, the Board should:

          (a)                    maintain compliance with IFRS Standards for publicly accountable entities; and

          (b)                   use IFRS Standards as a base for determining the reporting requirements for all other entities, modified as appropriate, in accordance with The AASB's For-Profit Entity Standard-Setting Framework and The AASB's Not-for-Profit Entity Standard-Setting Framework.

     BC44            However, if the AASB's current reporting entity concept were maintained at the same time the RCF is applied, the inconsistency of the Australian reporting entity concept with the RCF could result in confusion, misinterpretation and the incorrect application of AAS and non-compliance with IFRS Standards. The likelihood of inconsistencies would also increase as and when IFRS Standards are amended or revised and more references to the term 'reporting entity' as defined in the RCF are included in IFRS Standards.

     BC45            Implementation of the RCF in Australia is challenging due to the reporting entity concept clash, that is, the reporting entity concept in the RCF determines the boundary of what needs to be reported when an entity is required to report, eg consolidation, and it does not determine who should prepare GPFS, as it is assumed that legislation requiring the preparation of financial statements in accordance with accounting standards is requiring GPFS. In contrast, the current Australian reporting entity concept allows entities to self-assess whether they should prepare:

          (a)                    GPFS, which requires compliance with all AAS, including recognition, measurement, presentation and disclosure requirements; or

          (b)                   SPFS, which only requires compliance with a small number of AAS that are more focussed on the presentation of and disclosure in financial statements and don't specify R&M requirements.

     The ability of entities to self-assess their reporting requirements under the Australian reporting entity concept has led to the more fundamental 'SPFS problem'.

     BC46            Further, the SAC 1 reporting entity concept has led to confusion and diversity in practice regarding whether consolidation and equity accounting should be applied in SPFS publicly lodged with ASIC. RG 85 notes that some "companies have failed to prepare consolidated financial statements on the grounds that the parent entity was not a reporting entity"[27] and that the "sole determining factor as to whether consolidated financial statements are required is whether the group is a reporting entity" (emphasis added).[28] The RCF and AASB 10 however, require consolidation if an entity is a parent, with limited exceptions.[29]

     BC47            This reporting entity clash was addressed in ITC 39, and ITC 39 sought comment on the clash between the reporting entity concepts in the RCF