- A simpler, clearer framework would benefit business and the accounting profession
- Legislation needs to be updated to suit modern business
- Chartered Accountants ANZ supports government collaborative reform efforts
Why do we need framework reform?
A simpler financial reporting framework in Australia would better match each type of entity to its reporting obligations, addressing issues such as:
- Whether an entity should prepare general purpose or special purpose financial reports, a decision that requires a significant amount of judgement, as does deciding which accounting standards are most appropriate.
- Inconsistent application of accounting principles has led to concerns about the quality of publicly available financial information and the cost vs benefit of complying with Australian accounting standards.
- Smaller proprietary companies and those limited by guarantee (many of which are not-for-profits) face excessive compliance costs. CA ANZ welcomes the increase in Corporations Act 2001 thresholds for large pty companies from 1 July 2019, but notes that reform of other legislative thresholds (for charities and companies limited by guarantee) is still needed.
Clarity on terminology
Terms have potential to be used inconsistently in reporting requirements in Australia's state, territory and federal legislation. For example, there are more than 136 unique terms to describe the information subject to audit, and 101 unique descriptions of the auditor and his or her qualification. This may result in confusion and leads to additional business costs.
We are helping to drive collaborative framework reform by working with:
- Financial Reporting Council
- Australian Accounting Standards Board
- Auditing and Assurance Standards Board
Australian Financial Reporting Framework Project
The Australian Financial Reporting Framework Project aims to make the framework clearer and simpler. The project is an initiative of the Australian Accounting Standards Board (AASB). Along with government policymakers and regulators, the board is developing objective criteria to judge:
- which entities need to lodge financial statements
- what those financial statements should contain
- how much assurance should be required.
The project covers:
- for-profit private sector
- not-for-profit private sector
- public sector.
Chartered Accountants ANZ supports the Australian Financial Reporting Framework Project and believes it deserves a high priority.
The AASB has released key research reports that provide important information to discuss the future of financial reporting in both the private and public sectors. These research reports are:
- AASB Research Report No. 13: Parent, Subsidiary and Group Financial Reporting – reviews the adequacy of the current financial reporting requirements for parent/ subsidiary structures
- AASB Research Report No. 12: Financial Reporting Practices of For-Profit Entities Lodging Special Purpose Financial Statements – examines the use of special purpose reports by for profit entities lodging with ASIC in 2018
- AASB Research Report No. 11: Review of Special Purpose Financial Statements: Large and Medium-Sized Australian Charities - examines the use of special purpose reports by not for profit entities lodging with the ACNC in 2016
- AASB Research Report No. 10: Legislative and regulatory financial reporting requirements – identifies all entities with financial reporting obligations under Federal and State/Territory legislation that may be impacted by the AASB’s proposals to remove their ability to lodge special purpose financial statements with regulators.
- AASB Research Report No. 6: Financial Reporting Requirements Applicable to Australian Public Sector Entities - benchmarks Australian public sector financial reporting with seven comparable jurisdictions internationally
- AASB Research Report No. 7: Financial Reporting Requirements Applicable to For-Profit Private Sector Companies - examines financial reporting requirements applicable to for-profit private sector companies in Australia and internationally. The findings outline the thresholds to determine when a company is required to publicly lodge financial statements and the level of reporting requirements applicable to those financial statements.
Supporting these reports is AASB Staff Paper: Comparisons of Standards for Smaller Entities which explores options for modified accrual and cash bases of accounting as additional tiers of financial reporting requirements.
For- profit private sector
The AASB has released amending standard AASB 2020-2 removing the ability of certain for-profit entities to lodge special purpose financial statements with regulators using SAC 1 Definition of the Reporting Entity. Instead these entities will now need to prepare a new Tier 2 general purpose financial statement. This report will need to adopt the recognition and measurement requirements of all accounting standards (including consolidation and equity accounting as appropriate). However disclosure relief is provided via a new simplified disclosure standard that replaces the AASB’s Reduced Disclosure Regime. This standard is AASB 1060 and both are applicable for financial years beginning on or after 1 July 2021 with early adoption encouraged.
These reforms provide an outcome that is in line with feedback received in our member survey on framework reform last year, that supported our submissions to ED 295 and ED 297.Read more
Not-for-profit private sector
The AASB is also progressing framework reform in the not-for-profit (NFP) sector. NFPs preparing general purpose financial statements will need to transition to using the new Tier 2 disclosure regime introduced by AASB 1060 in these reports. The AASB is now working on a revised definition of the term “not for profit” that will support a new sector specific NFP reporting framework. Details of that framework are expected to be released for public consultation at the end of 2020.Read more
For the public sector, Research Report 6 has been followed by a discussion paper 'Improving Financial Reporting for Australian Public Sector Entities' setting out possible options for a way forward, which it intends to use to encourage discussion amongst key stakeholders.Read more
- Financial reporting framework reform for-profit fact sheet (June 2021)
- Financial reporting framework reform NFP fact sheet (June 2021)
- Continuing special purpose fact sheet (June 2021)
- QBCC financial reporting flowchart (January 2022)
- Writing effective legislation for annual reporting
- AASB Research Report No. 6 – Public Sector
- AASB Research Report No. 7 – For-profit Private Sector
- AASB Research Report No. 10 – Legislative and regulatory financial reporting requirements
- AASB Research Report No. 11 – Review of Special Purpose Financial Statements: Large and Medium-Sized Australian Charities
- AASB Research Report No. 12 – Financial Reporting Practices of For-Profit Entities Lodging Special Purpose Financial Statements
- AASB Research Report No. 13 – Parent, Subsidiary and Group Financial Reporting
- Comparison of standards for smaller entities
- ACNC Legislative Review Report and Recommendations