Differential Reporting System In Australia And Its Impacts On Fundamental Qualitative

Explain the Differential Reporting System in Australia and Critically evaluate the impacts of the Reduced Disclosure Requirements on the two Fundamental qualitative

In accounting standard of Australia a form of differential reporting has been included since the year 1990. The theory of reporting firms forms the centre of the differential reporting regime (Aasb.gov.au 2017). Differential reporting has been in Australia based on the concept of reporting unit. Presently this is about to transform after the drive by the Australian Accounting Standards Board to substitute the concept of Reporting Entity with the help of model that is more regulatory of the approach.

The Australian accounting standard board has determined that an amended financial reporting regime with all the monetary financial which is equipped and lodged with ASIC under the Corporations Act 2001 will be considered as the general purpose financial reports based on the availability of access by the public register users. It is noteworthy to denote that the board has identified the differential reporting framework which is present preceding the AASB 1053 (Khokan, Rahman and Taher 2014). This comprises of the costs involved in the preparation of general purpose monetary statement for a number of firms were superior to benefits for the users of persons monetary report due to the structure that have led to the requirement for general purpose financial statements which were highly troublesome for several entities.

As evident the users were not satisfied for other companies because the framework was being implemented in a manner that some firms were continuously reported as the non-reporting entities and preparing only definite purpose monetary statement (Tsalavoutas and Dionysiou 2014). For that reason, the board has determined in amending the differential reporting structure that was suitable for the board to also take into the considerations for revision. This is because the board consider the needs for general purpose monetary statement that vary from the Australia Accounting Standard.

The AASB in recent times issued two principles which will include the disclosure requirement for specific organizations preparing the general purpose monetary statements (B Glaum et al. 2013). The general objective is to shift all the companies in the direction of preparation of general purpose monetary reports with the objective of increasing the consistency and transparency at the same time by preserving the significance of these statements by eliminating the needless disclosures. Organizations capabilities derive the benefit of lowered disclosure needs that depends on the tier belonging inside the standards.

As per AASB 1057 Application of Australian Accounting Standards recognizes the implementation of standard to companies and monetary statements. According to the AASB 1053 Application of Tiers of Australian Accounting Standards it lays down the differential reporting framework comprising of the two tiers of reporting obligations for preparing the general purpose financial statement (Beerbaum and Piechocki 2016). The requirements of Tier 1 integrate International Financial Reporting Standards that comprises of the interpretations that is issued by the IASB with the incorporation of subsection on the implementation of the each standard in the Australian environment.

The entities that are publicly responsible for the profit, private sector are under obligation to take up the Tier 1 needs and hence they are under obligations to meet the terms of the IFRS. In addition to this other for-profit private companies meeting the terms of Tier 1 needs will at the same time obey with the IFRS. Some of the organizations agreeing with the Tier 1 requirements will concurrently act in accordance with the IFRS.

Tier 2 on the hand, consists of the identification and measurement requirements of the Tier 1 however considerably concentrated disclosure requirements in respect of Tier 1. The AAS also comprises of the requirements which is exact for the Australian Entities. These requirements might be located in the AAS that integrates the not-for-profit or public sectors along with the disclosures that addresses the domestic regulatory or other issues (Chaudhry et al. 2015). Such kinds of requirements do not prohibit the publicly accountable profit making entities from complying with the IFRS.

The AASB has reassessed their standards by specifying relevant information to be incorporated in the monetary reports of the organizations that are entitled to make use of the concentrated disclosure regime. The proposal that is stated in the Exposure Draft 277 of Reduced Disclosure Requirements for Tier 2 Entities proposes to deal with the concerns regarding the extent and significance of the reports that is generated under the present RDR. According to Flower (2016), AASB is keenly conscious of the requirement to eliminate the unnecessary or overly detailed disclosure and to enhance the disclosure requirements. These proposals helps in creating a balanced approached amid the preparer effort and the user requirement.

In practice there are some of the companies that have the option of adopting the RDR instead of using the special purpose reports (Tsalavoutas and Dionysiou 2014). With large number of growing concern from the supervisors, shareholders and the broader community regarding the anticipation that these tenders will help in encouraging more companies to undertake the GPFR by using the reduced disclosure requirements regime.

Particularly, the AASB is proposing to lower the reduce disclosure requirements that is required around the financial instruments and interest in other companies depending upon the feedback from the elements where these disclosure requirements were too detailed and contained little interest to the reports of the users (Macve 2015). It is noteworthy to denote that all the preparers of the GPFR can make the selection of adopting the Reduced Disclosure requirements under the second tier provided that they are not publicly responsible and are not required by the relevant regulator to be under the Tier 1 (Beerbaum and Piechocki 2016). It should be borne in mind that the Government and universities cannot make application for the Reduced Disclosure Requirements.

The Australian Accounting Standard Board has made its intention of removing the reporting entity theory that would eliminate the capability of the organization in preparing the special purpose financial reports. Nevertheless, the AASB has undertaken the decision that the primary step of implementing the RDR the reporting unit impression can be continuously used. This will be reconsidered once more by the AASB in upcoming course. The special purpose financial reports will not able to take the advantage of Reduced Disclosure Requirements relief for accounting standards to which they comply (Glaum et al. 2013). This represents that some of the disclosure requirements are not any more required in the RDR of GPFR that would yet be required in the special purpose financial reports.

Directors and the committee members can make the choice of moving from the special purpose financial reports to the Reduced Disclosure Requirements GPFR from the early implementation of AASB 1053 and AASB 2010-2. Given that an organization makes the decision of early adoption, the notes to the monetary reports should comprise of an open statement of conformity within the AAS reduced disclosure requirements (Macve 2015). The organization needs to be industrious in assuring that all the Required Disclosure Requirements are met. Considerations should be made to the disclosure requirements that might not be required.

Conclusion:

On arriving at the conclusion it is noteworthy to denote that the directors and members of Committee have the accountability of making sure that their monetary reporting is in compliance with the requirements of the users. Such kinds of changes provide the chance to take into the considerations the information requirements of the users along with the level of compliance with the AAS. The changes also state an opportunity to educating the board in regard to the fiscal reporting obligations. Perhaps several entities will consider the changes as the opportunity of moving from special purpose financial reporting to general purpose financial reporting

Reference List:        

Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 2005–2010. Australian Accounting Review, 23(3), pp.216-231.

Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia.

Aasb.gov.au. (2017). Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au [Accessed 31 Aug. 2017].

Khokan Bepari, M., F. Rahman, S. and Taher Mollik, A., 2014. Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics. Journal of Accounting & Organizational Change, 10(1), pp.116-149.

Tsalavoutas, I. and Dionysiou, D., 2014. Value relevance of IFRS mandatory disclosure requirements. Journal of Applied Accounting Research, 15(1), pp.22-42.

Glaum, M., Schmidt, P., Street, D.L. and Vogel, S., 2013. Compliance with IFRS 3-and IAS 36-required disclosures across 17 European countries: company-and country-level determinants. Accounting and business research, 43(3), pp.163-204.

Beerbaum, D. and Piechocki, M., 2016. IFRS 9 and IFRS 7 Disclosure Requirements–An Analysis of the IASB Taxonomy.

Chaudhry, A., Coetsee, D., Bakker, E., Varughese, S., McIlwaine, S., Fuller, C., Rands, E., de Vos, N., Longmore, S. and Balasubramanian, T.V., 2015. Presentation of Financial Statements. 2015 Interpretation and Application of International Financial Reporting Standards, pp.39-57.

Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.