Document ID: chunk:federal_register_of_legislation:F2023C00381:reg:25:p22
Version: federal_register_of_legislation:F2023C00381
Segment Type: reg
Provision Reference: reg 25 (pt 22/47)
Character Range: 84163–87297

Basis for Conclusions to AASB 1053):

          (a)                    on the one hand, the reporting entity concept involves a high degree of subjectivity, is not universally understood and hence does not provide the intended result, nor does it provide a robust criterion for differential reporting purposes; and

          (b)                   on the other hand, the reporting entity concept works well, and there appeared to be no evidence to the contrary, particularly from users.

     BC12            Consequently, in 2010, the Board decided to issue AASB 1053 and introduce a second tier of GPFS reporting, being Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements (RDR), but delay the phase of the project addressing the reporting entity concept and the removal of SPFS until further research had been undertaken. That research would consider in more detail the impact of removing the ability of certain entities to self-assess and prepare SPFS when required to comply with AAS. The RDR requirements were designed to substantially reduce the disclosure burden when compared to the full disclosure requirements of AAS.

     BC13            Prompted by the views noted in paragraphs BC10-BC11, the Board initiated research projects, the findings of which are discussed in paragraphs BC18-BC25.

The issues with SPFS

     BC14            Australia is the only jurisdiction with a reporting entity concept that effectively permits entities to self-assess what type of financial reporting they do, when they are required by legislation or otherwise (such as by a constituting document) to prepare financial statements in accordance with AAS.[8] Therefore, unlike other jurisdictions, in Australia two similar entities might prepare very different sets of financial statements, one preparing GPFS using a robust and consistent framework, and the other preparing SPFS with self-selected requirements. This reduces comparability for entities of similar economic circumstances and undermines the fundamental principles of trust and transparency.

     BC15            An analysis of the reporting practices of specified for-profit entities lodging financial statements with ASIC estimated that 71% of those entities prepared and publicly lodged SPFS in 2018. [9] This same research estimated that 24% of these entities lodging SPFS either did not comply with the R&M requirements in AAS or did not make clear whether they did (refer to paragraphs BC20-BC22). Therefore, only 76% of the SPFS voluntarily complied with ASIC Regulatory Guide 85 Reporting requirements for non-reporting entities (RG 85) recommended guidance to apply all the R&M requirements in AAS (refer BC28-BC29). This suggested a strong need to improve the consistency, comparability, transparency and enforceability of financial reporting, which would also increase the 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