Independent Review – Australian Accounting Standards Board
On 18 and 19 March 2020, the Australian Accounting Standards Board (AASB) announced the introduction of new Australian Accounting Standards (AAS) – AASB 1060 and AASB 2020-2 – that provide a simplified reporting framework for Tier 2 entities and require certain for-profit private sector entities to prepare general purpose financial statements (GPFS), rather than electing to prepare special purpose financial statements (SPFS).
Many entities currently self-assess that they are not “reporting entities” under the AAS and therefore elect to prepare SPFS. The ability to self-assess reporting entity status in this way can mean that two entities with similar economic circumstances are preparing very different financial statements, one preparing GPFS using a robust and consistent framework, and the other preparing SPFS with self-selected requirements. This reduces the comparability of financial reporting and undermines the fundamental principles of consistency, comparability, transparency and enforceability.
AASB 2020-2 removes the ability of certain for-profit entities – for example, large proprietary companies, unlisted public companies (other than companies limited by guarantee) and small foreign-controlled companies – to self-assess their financial reporting requirements and prepare SPFS when they are required by the Corporations Act 2001 to prepare financial statements that comply with AAS. Instead, such entities would be required to prepare and lodge GPFS. AASB 1060 establishes new, simplified disclosure requirements that would apply to all entities preparing Tier 2 GPFS, easing the transition from SPFS to GPFS for the affected entities.
Consistent with the Government’s Regulation Impact Statement (RIS) requirements, the AASB has certified the Basis for Conclusions document prepared for each of the new accounting standards as a RIS-like document. The Office of Best Practice Regulation (OBPR) does not assess the quality of independent reviews and RIS-like documents used in lieu of a RIS.
The AASB estimates the average annual additional regulatory costs at $15.5 million. The OBPR has agreed to the regulatory cost estimate.