- The IASB will soon issue its revised Conceptual Framework for Financial Reporting
- The AASB says the revised Framework has a different notion of ‘reporting entity’ to SAC 1.
- SAC 1’s guidance may be removed along with the option to draft special purpose financial statements.
Accountants love concepts – accruals, going concern, substance over form, materiality and, dare I say, prudence. We trust them, we believe in them and we fight hard to protect them.
In Australia, there is no better example of this than the reporting entity concept. Statement of Accounting Concepts 1 Definition of the Reporting Entity (SAC 1) allows entities to self-assess whether they are a reporting entity or not, on the basis of the information needs of users.
SAC 1 is the last bastion of the pre-IFRS era in Australia. Little wonder then that attempts to change it or remove it altogether have, until now, been met with resistance.
Well, brace yourselves folks, because it’s all about to kick off again!
The International Accounting Standards Board (IASB) is expected to issue its revised Conceptual Framework for Financial Reporting at the end of March, complete with a new chapter on the reporting entity concept.
Has special purpose lost its shine?
The AASB tells us that the IASB’s revised Framework has a different notion of ‘reporting entity’ to SAC 1. This means that the existing SAC 1 guidance will be removed and with it, the ability of entities to prepare special purpose financial statements for lodgement with ASIC and other regulators.
In the past, financial statements were prepared with only shareholders in mind. But there are many actual and potential users of financial reports. Just because you’re not publicly accountable, doesn’t mean there isn’t a public interest in your financial statements.
However, if most entities are allowed to publicly lodge special purpose financial statements, are they really that ‘special’?
Chartered Accountants ANZ has long advocated for reporting requirements that better match user needs and preparer costs. Any discussion around what should be reported in financial statements should be accompanied by consideration of who should have to report.
We need Treasury, ASIC and other regulators such as the ACNC to come together with the standard-setter to work on a solution that delivers desired outcomes for all sectors.
So many questions. Let’s hope we can agree on some answers.
Special purpose blog
Ceri-Ann Ross has more to say on special purpose statementsRead the full story on Ceri-Ann’s LinkedIn page