With the International Accounting Standards Board (IASB) recently amending the Conceptual Framework for Financial Reporting, the AASB is proposing changes to maintain harmonisation with IFRS.
The proposed changes include effectively removing the option to prepare special purpose financial statements, if entities are required by legislation, and provide an alternative Tier 2 general purpose financial statement framework ‘Specified Disclosure Requirements’ that requires only four incremental disclosures to those currently required under current ASIC regulatory guidance for entities preparing special purpose financial statements.
Speaking to Accountants Daily, AASB chair Kris Peach said recent concerns over the cost-benefit of implementing these changes were misplaced, considering the small fraction of entities likely to be impacted.
“Our research indicates that these proposals are really going to apply to [a] very small number of entities and we understand there are about 2.5 million companies that are registered with ASIC, of those, only 840,000 are actually trading enterprises, and of that, only 24,000 are large propriety companies, companies limited by guarantee, small foreign-owned companies and unlisted public companies that need to actually lodge financial statements. So we're actually talking about 3 per cent of trading enterprises,” said Ms Peach.
“Of that 24,000, 60 per cent are doing special purpose financial reports, that's only about 14,000, of those, 60 per cent are already doing RG85 which leaves 40 per cent — 20 per cent who are saying they are not complying with recognition and measurement requirements, and 20 per cent where frankly we just don't know.
“So that's 6,000 entities that we think will be really significantly impacted by these changes. From our perspective, the vast majority of companies are already complying with RG85 and doing the right thing and it seems very unfair to us that a small minority of people are not complying with the same requirement and really having a competitive advantage because they've chosen not to comply with ASIC's regulatory guidance.”
Further, Ms Peach also believes it is inappropriate to frame an argument against general purpose financial statements by saying there are no users of these statements.
She noted that under the Statement of Accounting Concepts 1, apart from users, entities with economic or political significance should also be preparing general purpose financial statements.
“Particularly if you think about for-profit entities, if you are large, the explanatory memorandum to the legislation that introduced the small large test basically said the choice was made of the thresholds on economic significance and really what that is saying is that these are the entities that government feels needs to have public accountability because they are the ones that are most going to benefit from having limitation of liability so there's the trade-off and it is not right to say there are no users of these financial statements and I'd have to say the ATO is absolutely an avid user of large proprietary financial statements.”
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
With a focus on breaking news and exclusive analysis, Jotham keeps Accountants Daily readers up to date with company moves, tax updates and essential business and client strategy.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.