Reporting entity concept

Australia has a differential reporting regime which includes the 'reporting entity' concept as the basis for determining to what extent entities are required to comply with Australian Accounting Standards issued by the AASB.  Most of these standards only have mandatory application to 'reporting entities' and/or general purpose financial statements, meaning that entities which are considered 'non-reporting entities' have a great deal of flexibility in the extent of compliance with the presentation and disclosure requirements (and in some cases recognition and measurement requirements) of Australian Accounting Standards.

The nature of differential reporting in the Australian context has been subject to debate for a number of years.  The AASB began an in-depth project on differential reporting as part of its response to the IASB's IFRS for SMEs.  Prior exposure drafts proposed the removal of the 'reporting entity' concept in favour of a 'reduced disclosure requirements' (RDR) regime.  Constituent feedback was largely in favour of the RDR but against the elimination of the 'reporting entity' concept as a basis for differential reporting.

In responding to constituent feedback, the AASB introduced the RDR for general purpose financial reporting, permitting significant reductions in disclosure requirements for eligible entities (such entities are not able to make a statement of compliance with IFRSs even though they comply with the recognition and measurement requirements, and some presentation and disclosure requirements,  of IFRS).  The 'reporting entity' concept allowing the preparation of special purpose financial statements was retained whilst the AASB commissioned a research study into the use of this differential reporting concession.

A preliminary research report from the study has recently been made available to the AASB and the AASB's February meeting discussed the possibly policy implications of the report's findings (although the research is not yet finalised).  The report indicates there are questions about:

• the application of the reporting entity concept by entities in determining whether they should prepare general purpose financial statements (GPFS)
• the extent to which different types of entities are lodging general purpose financial statements compared with special purpose financial statements
• the quality of those respective financial statements in relation to the recognition and measurement requirements of Australian Accounting Standards

The Action Alert notes the following:

The Board noted that the research findings cast doubt on how well the reporting entity concept is being applied and observed that the findings to date lend support to the proposals in ED 192 Revised Differential Reporting Framework that the focus of the application of Australian Accounting Standards should change to GPFS and the meaning of GPFSs in the Australian context should be clarified.

Application of AASB 10 (IFRS 10) in the not-for-profit sector

The AASB is expected to issue an exposure draft in March that will contain proposed Australian implementation guidance for not-for-profit entities in relation to AASB 10 Consolidated Financial Statements.  The exposure draft will have a comment period of 90 days.

The AASB considered a number of sweep issues at its February meeting, including topics such as additional not-for-profit guidance on non-financial returns (benefits) and 'structured entities'.  The AASB also decided not to adopt IPSASB proposals that would amend IFRS 10 concepts (such as the 'temporary control' concept), and additionally decided on the relevant disclosures.

Other topics

Other topics discussed at the meeting include:

• Budgetary reporting by not-for-profit public sector entities
• Service concession arrangements: grantor's perspective
• IPSASB Consultation Paper: IPSASs and Government Finance Statistics
• IASB proposals for limited amendments to IFRS
• Revenue from contracts with customers
• Financial instruments
• IFRS Interpretations Committee
• Accounting Standards Advisory Forum (ASAF) - nominations are expected from the AASB and the Asian-Oceanian Standard-Setters Group (AOSSG)
• Emerging issues

Click for the AASB Action Alert (link to AASB website).