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Australia overlooks IFRS for SMEs in favour of 'Reduced Disclosure Requirements'

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02 Jul 2010

The Australian Accounting Standards Board (AASB) has issued amendments to Australian Accounting Standards to implement a 'Tier 2' reporting framework based on 'Reduced Disclosure Requirements' (RDR) instead of implementing the IFRS for SMEs.

The RDR permits for-profit entities without 'public accountability' to elect to comply with the recognition and measurement requirements of Australian Accounting Standards (which are equivalent to IFRS for for-profit entities), but to avoid many of the disclosures required by those standards in general purpose financial statements.

Not-for-profit and certain public sector entities are also eligible to apply the RDR. Entities applying the RDR will not be able to make an explicit and unreserved statement of compliance with IFRSs, however this will still apply to for-profit entities applying standards in full ('Tier 1').

The Tier 2/RDR will apply to annual reporting periods beginning on or after 1 July 2013, but may be early adopted for annual financial reporting periods beginning on or after 1 July 2009.

A second stage of the AASB's project will consider whether the 'Tier 2' requirements should be extended to the 'non-reporting entities' under Australia's existing differential reporting regime (these entities produce limited financial statements and do not claim compliance with IFRS). Deloitte (Australia) has produced a series of Accounting Alerts tracking the progress of the AASB's project.

Extracts from the Basis for Conclusions on the AASB amendments:

The Board concluded that the IFRS for SMEs is not presently a suitable set of requirements for Tier 2 in Australia. However, the Board decided it will continue to monitor and contribute to further changes in the IFRS for SMEs and that it is open to the possibility of adopting the IFRS for SMEs in future should the changes in that Standard make it practicable in an integrated for-profit/NFP sector reporting environment.

The Board decided that Tier 2 requirements should be maintained on a continuous basis, rather than waiting for the IASB to update its IFRS for SMEs, which the IASB plans to undertake only every few years, by which time there would be an accumulation of possible changes. The AASB intends that each future Exposure Draft or Invitation to Comment involving changes to Tier 1 that includes disclosure proposals would seek comment about which disclosures should be included in Tier 2, and may include the AASB's proposed reduced disclosures.

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