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- Reduced Disclosure Regime
Reduced Disclosure Regime
- By Rob Mackay
- Published 27/01/2010
- January 2010
- Unrated
In the December 2009 edition of XYZ Financial Reporter, we discussed the release of the AASB’s consultation paper on the proposed Differential Financial Reporting framework and the Reduced Disclosure Regime that would be available to the many entities categorised as a ‘tier 2’ reporter (i.e. non-publicly accountable). The AASB have now released a draft Exposure Draft (‘ED’) of what this Reduced Disclosure Regime (‘RDR’) might look like for those entities.
The draft ED titled ‘Revised Differential Reporting Framework’ has been accompanied by 34 working documents (to date) for each accounting standard where AASB staff have proposed reduced disclosures. Once these disclosures have been commented upon and finalised, they will form an Appendix to a final ED accounting standard which has a target issue date of February 2010.
The AASB is still envisaging a final standard to be available for early adoption for 30 June 2010 year end reporters. This may be attractive to non-publicly accountable entities currently preparing general purpose financial statements that wish to maintain their full IFRS compliance status but with reduced disclosures.
For non-publicly accountable entities currently preparing special purpose financial statements with selective disclosures (and possibly on-IFRS recognition and measurement policies), it is likely to be worthwhile waiting until the RDR standard is mandatorily applicable from 1 July 2010 given the increased compliance obligations that will result from its adoption.
Publicly Accountable Entities
Full IFRS (Tier 1) compliance will be required by entities that have been determined to be publicly accountable. The draft ED has provided some additional guidance for the Australian environment as to what entities will be considered publicly accountable. For clarity and completeness, we reproduce the full definition as it is proposed in the draft ED.
An entity has public accountability if:
Transition requirements
The following requirements have been prescribed for entities transitioning into the RDR:
Required Disclosures
As mentioned in the December 2009 edition of XYZ Financial Reporter, the AASB has benchmarked against the disclosures of the IFRS for SMEs standard. In this regard, where the recognition and measurement accounting policy options are the same in both the IFRS for SMEs standard and the RDR ED, disclosures from the IFRS for SMEs standard have been utilised by the AASB.
Where recognition and measurement accounting policies of the RDR (i.e. full IFRS recognition and measurement requirements) are not aligned with those in IFRS for SMEs, the AASB had to derive its own simplification to disclosures. In this regard, it has considered ‘user needs’ and ‘cost-benefit’ principles. The AASB has continued to utilise disclosures from the IFRS for SMEs standard only where considered appropriate.
Moore Stephens and Thomson Reuters presently intend to release a separate publication later in the year which will allow non-publicly accountable entities to ascertain the impacts that the RDR will have on them and also provide guidance for potential early adoption by Tier 2 entities for years ending 30 June 2010.
Increased reporting burden
For private entities required to lodge their financial statements with ASIC and which did not adopt full IFRS, the RDR standard will likely increase the disclosures contained in the financial report.
As an example, a large proprietary company is going to have to disclose related party transactions and relationships in its June 2011 financial statements which includes comparative information for the year ended 30 June 2010 (presuming that the RDR regime is implemented). That means that entities are going to have to start collecting financial information from 1 July 2009 that the entity has not previously captured!!
The draft ED titled ‘Revised Differential Reporting Framework’ has been accompanied by 34 working documents (to date) for each accounting standard where AASB staff have proposed reduced disclosures. Once these disclosures have been commented upon and finalised, they will form an Appendix to a final ED accounting standard which has a target issue date of February 2010.
The AASB is still envisaging a final standard to be available for early adoption for 30 June 2010 year end reporters. This may be attractive to non-publicly accountable entities currently preparing general purpose financial statements that wish to maintain their full IFRS compliance status but with reduced disclosures.
For non-publicly accountable entities currently preparing special purpose financial statements with selective disclosures (and possibly on-IFRS recognition and measurement policies), it is likely to be worthwhile waiting until the RDR standard is mandatorily applicable from 1 July 2010 given the increased compliance obligations that will result from its adoption.
Publicly Accountable Entities
Full IFRS (Tier 1) compliance will be required by entities that have been determined to be publicly accountable. The draft ED has provided some additional guidance for the Australian environment as to what entities will be considered publicly accountable. For clarity and completeness, we reproduce the full definition as it is proposed in the draft ED.
An entity has public accountability if:
- its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
- it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds/registered managed investment schemes, investment banks, entities whose equity can be bought and sold through the entity (such as some cooperatives), and disclosing entities other than those falling under (1) above.
Transition requirements
The following requirements have been prescribed for entities transitioning into the RDR:
- from a special purpose financial report to a Tier 2 general purpose financial report - AASB 1 requirements to be applied
- from full IFRS (i.e. Tier 1) to Tier 2 – prior year disclosures need not be restated
- from Tier 2 to Tier 1 – prior year disclosures must be restated to be IFRS compliant.
Required Disclosures
As mentioned in the December 2009 edition of XYZ Financial Reporter, the AASB has benchmarked against the disclosures of the IFRS for SMEs standard. In this regard, where the recognition and measurement accounting policy options are the same in both the IFRS for SMEs standard and the RDR ED, disclosures from the IFRS for SMEs standard have been utilised by the AASB.
Where recognition and measurement accounting policies of the RDR (i.e. full IFRS recognition and measurement requirements) are not aligned with those in IFRS for SMEs, the AASB had to derive its own simplification to disclosures. In this regard, it has considered ‘user needs’ and ‘cost-benefit’ principles. The AASB has continued to utilise disclosures from the IFRS for SMEs standard only where considered appropriate.
Moore Stephens and Thomson Reuters presently intend to release a separate publication later in the year which will allow non-publicly accountable entities to ascertain the impacts that the RDR will have on them and also provide guidance for potential early adoption by Tier 2 entities for years ending 30 June 2010.
Increased reporting burden
For private entities required to lodge their financial statements with ASIC and which did not adopt full IFRS, the RDR standard will likely increase the disclosures contained in the financial report.
As an example, a large proprietary company is going to have to disclose related party transactions and relationships in its June 2011 financial statements which includes comparative information for the year ended 30 June 2010 (presuming that the RDR regime is implemented). That means that entities are going to have to start collecting financial information from 1 July 2009 that the entity has not previously captured!!
Article Series
This article is part 1 of a 4 part series. Other articles in this series are shown below:
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Reduced Disclosure Regime