- 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.
- The Tax Laws Amendment (Combatting Multinational Tax Avoidance) Act 2015 has raised a question over whether "grandfathered" large proprietary companies should continue to receive relief from making their financial reports publicly available.
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
Our submissions on the AASB’s ITC 39 consultation
The ITC 39 proposals seek to reform Australia’s differential reporting regime, using standard setting alone.Read Phase 1 and 2 submissions here
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 6: Financing 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
- AASB Research Report 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.
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 is progressing the proposals exposed in ITC 39 that will remove the ability of many entities to lodge special purpose financial statements with regulators using SAC 1 Definition of the Reporting Entity. Instead lodging non reporting entities will need to prepare a new general purpose financial statement. This will need to adopt the recognition and measurement requirements of all accounting standards (including consolidation) but with a reduced disclosure burden. An ED of the proposed disclosures is due in June, and the ED to remove SAC 1 is due in October.Read more
Not for profit private sector
While ITC 39 also contains proposals affecting the not-for-profit sector, at its September meeting the AASB decided to limit the current scope of ITC 39 to for-profit entities. However its not for profit reform work is still ongoing with ED’s on the definition of a not for profit, and on a revised version of the Reduce Disclosure Regime, that will be offered to NFPs, to be released by June. The AASB is also continuing to liaise with relevant regulators in order to develop a new NFP sector specific reform consultation paper.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