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27 July 18 - "Intheblack" Special purpose financial reporting: its days may be numbered

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27 July 18 - "Intheblack" Special purpose financial reporting: its days may be numbered

Post by JWheldon » Mon Aug 06, 2018 9:46 am

The AASB wants to get rid of the Special Purpose Financial Report for small entities. We have seen how successful the reporting requirements under the General Purpose Financial Reports are, with the failings of the financial reports provided by CPA Australia. Now CPA Australia supports the IFRS and changing Statement of Accounting Concepts (SAC1).

Public practitioners are being let down by the AASB and those appointed by CPA Australia, ICANNZ and IPA to represent them.

The General Purpose Financial Reports are not a great success and do not provide comparability among similar entities of similar economic circumstances. If you look at the financial accounts of ICANNZ and then CPA Australia, you do not get a fair disclosure, but a consolidated set of accounts with little effective information, which only aims to meet minimum standards and the notes to accounts that do not disclosure important information as intended under the accounting standards. Many members, like Brett Stevenson, have highlighted the problems, and both professional organisations have highlighted that they meet the minimum accounting standards, which they had to comply with. Yet, now CPA Australia changed disclosure requirements in one area, and didn't fully disclosure information, because it did not have too. You can not compare the financial activity of CPA Australia with that of ICAANZ, because the financial reports do not provide enough details to compare, nor do they have too.

The General Purpose Financial Reports are summarised, compressed set of accounting information, which basically aims to meet the necessary requirements, but disclosure as minimum as possible. Is this the way of the future, for good corporate governance, and better disclosure, or a means to water down accounting standards, reduce information follow and reduce accountability?

The accounting boards, now want to force small entities to comply with the requirements of General Purpose Financial Reporting requirements and increase compliance costs to those small entities, for no real gain.

What do other members think? ... ugust-2018

27 July 2018 CPA Australia "Intheblack" magazine

Special purpose financial reporting: its days may be numbered

By Ram Subramanian

The AASB has proposed to call time on special purpose financial reporting in Australia, which will have sweeping implications.

In March this year, the International Accounting Standards Board (IASB) issued a revised conceptual framework (RCF) that underpins its International Financial Reporting Standards (IFRS).

As Australian Accounting Standards (AAS) are based on IFRS, the Australian Accounting Standards Board (AASB) considered the implications of the RCF for Australian financial reporting in a consultation paper published in mid-May.

In its consultation, the AASB proposes to end special purpose financial reporting (SPFR) in Australia. This would be a seismic change to financial reporting with far-reaching implications.

Reasoning behind the proposal

The AASB gives two main reasons why it considers that SPFR has a limited shelf life; the first point being Australia’s homegrown “reporting entity” concept described in Statement of Accounting Concept 1 (SAC 1) is at odds with the definition of the term “reporting entity” in the RCF.

In very broad and simple terms, the AASB’s view is that there is a conflict between the use of the term in SAC 1 – which is in the context of who should prepare general purpose or special purpose financial reports – while the RCF defines the boundary for a reporting entity.

Secondly, the SAC 1 reporting entity concept is not applied as intended, resulting in a lack of comparability among similar entities of similar economic circumstances, which undermines the fundamentals of trust and transparency.

The preferred path: a two-phase approach

Consultation includes five options for change, and the AASB’s preferred option is a two-phase approach that will ultimately remove the option for entities to prepare SPFR. The first phase, proposed to come into effect from 1 January 2020, will continue in the short-term to allow SPFR for entities that do not have public accountability.

This will mean any entities that do not meet the definition of having public accountability, but consider themselves non-reporting entities, will need to prepare general purpose financial reports (GPFR). A question remains over how many entities will be affected by this proposed change under phase one.

During phase two, the AASB proposes to discontinue SAC 1 and associated references to the reporting entity concept currently applied to GPFR/SPFR in Australia.

Under the proposals, compliance with all recognition and measurement requirements (and consolidation and equity accounting if applicable) under AAS will be required, with some reduction in disclosures proposed for entities with no public accountability.

The IFRS for small and medium-sized entities is not in the mix, as the AASB does not consider this a fit-for-purpose financial reporting solution. Further consultation and outreach is planned over the next two years, with an outcome expected in 2020.

The proposed changes will affect entities that state compliance with AAS when preparing their annual financial statements, either through a statutory requirement (e.g. Corporations Act 2001) or for other reasons. For example, there are several federal and state/territory laws that include a statutory threshold-based requirement for AAS compliant financial reports.

Notably, there is no government proposal to review the Corporations Act financial reporting thresholds at this stage. Legislation applicable to charities registered with the Australian Charities and Not-for-profits Commission (ACNC) is currently being reviewed, and changes to reporting thresholds, if any, will become known later this year.

The AASB has stated that the proposals will not affect the ability of entities to prepare SPFR if they do not have to state compliance with AAS. Amongst others, this will include close to 2.5 million small proprietary companies registered with the Australian Securities and Investments Commission (ASIC) that are not required to prepare and lodge financial reports, and around 600,000 self-managed superannuation funds (SMSFs).
Many such entities do prepare annual financial reports, and questions remain over what alternative financial reporting framework would be available to them.

CPA Australia's position

CPA Australia is of the view that the benefits of IFRS compliance are clearer for listed entities and others the IFRS framework is intended for. But the AASB and affected stakeholders will need to consider whether the benefits of applying the same framework to a range of other entities will outweigh the costs.

CPA Australia is engaged in the review on behalf of members and has already hosted an AASB forum on the RCF. It also intends to make a submission in due course. Comments on phase one were due by 9 August 2018 and on phase two by 9 November 2018.

Stay in touch

The CPA Australia policy team welcomes your feedback and comments. Visit the policy page at for more details about our submissions, plus information about open consultations and the latest policy bulletins and newsletters.

Read next: Special purpose financial reporting set to go under proposed AASB changes
Last edited by JWheldon on Mon Aug 06, 2018 10:10 pm, edited 1 time in total.

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Brett Stevenson
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Re: 27 July 18 - "Intheblack" Special purpose financial reporting: its days may be numbered

Post by Brett Stevenson » Mon Aug 06, 2018 1:14 pm

Thanks JWheldon for posting the article.
Its a good article by Ram.
I think your comment on the adequacy of GPFS to adequately enable comparability is a good one.
It's a fascinating area, and I wish I had the time to investigate it a little more closely because
1. on the macro level questions are being asked of the adequacy and relevance of accounting financial reports for the users of those reports (Think of Lev and Gu from the USA with their book The End of Accounting - which perhaps overdramatises the issue). That is a major accounting profession issue, and certainly is raises significant questions of the very organisations that develop the standards (IFAC and here the AASB etc) which normatively has seen the professional accounting organisations very influential (like CAANZ and CPA Australia for example). There are big questions being raised by governments and regulators (worldwide) as to whether we as a profession are able to self regulate and set adequate standards etc. I should think this is the sort of issue that many academics possibly can shed more light on but my passing comment is that if the example of CPA Australia over the last decade is any indicator with its representatives on these international bodies then I think we need a major overhaul.
2. on the micro level I think just looking at the example of how CPA Australia as a reporting organisation itself (forgetting its standard setting role) was able to 'comply' with the reporting standards yet at the same time mislead and misreport and basically 'hide' big issues while pontificating about how well the organisation was going, is a lesson in itself. What does that say of our reporting standards?

Unfortunately I am pretty busy doing the book on CPA at the moment so cannot spend a lot of time investigating but crikey JWheldon any research you do on this area would be helpful. I have become a wee bit too cynical of my own organisation (CPA Australia - although Ram Subramaniam's articles are always very helpful professionally, each time I get the IN The Black I yearn for some meaty stuff but generally get an offering more suited for reading while waiting at the doctors surgery - 90% of it just superficial rubbish) and have a perhaps too unhealthy skepticism of the academic world flowing from their past acquiescence on the issues at CPA Australia (with some very rare and exceptionally good exceptions).

But I certainly shall be doing a chapter in the book on the way CPA Australia 'gamed' the standards, and hopefully some helpful insights will flow from that.

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Re: 27 July 18 - "Intheblack" Special purpose financial reporting: its days may be numbered

Post by JWheldon » Mon Aug 06, 2018 10:03 pm

Hot Topics
Applying the IASB’s Revised Conceptual Framework and Solving the Reporting Entity and Special Purpose Financial Statement
The AASB is exploring how to introduce the IASB’s revised Conceptual Framework for Financial Reporting (RCF)into Australia
and improve the consistency, comparability and transparency of financial reports prepared in accordance with Australian Accounting Standards (AAS).

To start this conversation, the AASB released a Consultation Paper in May 2018 which proposes a two-phased approach to apply the RCF
in Australia and to address two key issues, the:
1. reporting entity concept clash between what is in current Australian requirements versus what is in the IASB’s RCF
2. special purpose financial statements (SPFS) problem, caused by Australia’s unique accounting requirements that allow entities to self-asses as
‘Reporting entities’ or not; and prepare free-form SPFS for entities who have self-assessed as ‘Non reporting entities’.

The SPFS issues have resulted in vastly divergent reporting practices, additional risk for Directors, preparers and auditors and have been questioned
for many years now by the AASB, regulators, the media and other key stakeholders.

AASB Research Reports have highlighted the inconsistent application of Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity
and the lack of trust and transparency caused by SPFS in all sectors of the Australian economy. Internationally, Australia’s unique self-assessment
option and ability to prepare SPFS was rejected by the IASB who stated it does not have the authority to determine who must, should, or could prepare such statements. Accordingly, anyone required to prepare financial statements in accordance with IFRS is preparing general purpose financial statements (GPFS).

The AASB’s two-phased approach, would result in the end of the ability to prepare SPFS for entities required by legislation or otherwise to prepare financial statements in accordance with AAS. It will result in two robust tiers of GPFS:
1. Tier 1 GPFS for all publicly accountable entities and those that voluntarily prepare Tier 1 GPFS. The Tier 1 framework is IFRS compliant.
2. Tier 2 GPFS for all other entities, which will consist of either the existing Tier 2 GPFS Reduced Disclosure Requirements OR a new Tier 2 GPFS Specified Disclosure Requirements depending on the outcome of the Consultation Paper. Both of these Tier 2 frameworks are based on IFRS, modified where appropriate by the AASB for not-for-profit private and public sector amendments. Additional tiers of reporting The AASB would be very supportive if objective criteria and thresholds are determined from findings and recommendations of the ACNC’s legislative review, developing another tier of reporting (eg modified accruals or cash accounting for small charities in the not-for-profit sector). This alternative has not been included in the Consultation Paper as ACNC’s legislative review has not been finalised.
2 Have your say
We invite you to comment on the two proposed approaches outlined in the paper:
1.Phase 1: Short-term approach by Thursday 9 August 2018
2.Phase 2: Medium-term approach by Friday 9 November 2018. Comments can be submitted via:
 AASB Invitation to Comment ITC 39 Applying the IASB’s Revised Conceptual Framework and Solving the Reporting Entity and Special Purpose Financial Statement Problems
 email to
 twitter @AASBaustralia
by telephone 03 9617 7600. Additional materials Below are links to additional materials that will assist in understanding the broader issues
currently being addressed by the AASB in the Consultation Paper. AASB Staff will continue to update these materials throughout the consultation journey.
Invitation to Comment ITC 39 Applying the IASB’s Revised Conceptual Framework and Solving the Reporting Entity and Special Purpose Financial Statement Problems
Consultation Paper [May 2018]
7 Key Facts : Applying the revised Conceptual Framework in Australia [May 2018]
AASB Briefing: Replacing the reporting entity concept and removing the option for special purpose financial statements [May 2018]
Summary document: outline of feedback received during the May briefing sessions
AASB Staff FAQ [June 2018]
AASB Webinar: view the webinar and download the presentation AASB Research Reports
AASB Research Report No 1Application of the Reporting Entity Concept and Lodgment of Special Purpose Financial Statements [June 2014]
AASB Research Report No 5 Financial Reporting Requirements Applicable to Charities [October 2017]
AASB Research Report No 6 Financial Reporting Requirements Applicable to Public Sector Entities [May 2018]
AASB Research Report No 7 Financial Reporting Requirements Applicable to For - Profit Private Sector Companies [May 2018] AASB Discussion Papers
AASB Discussion Paper Improving Financial Reporting for Australian Charities oAppendices to Charity Discussion Paper [November 2017]
oAASB Submission to ACNC Legislative Review [February 2018]3 AASB Staff Papers
AASB Staff Paper Comparison of Standards for Smaller Entities [April 2018] Podcast In this 28-minute podcast AASB Chair Kris Peach speaks with
Accountants Daily on issues around applying the IASB’s Revised Conceptual Framework and solving the reporting entity and special purpose financial statement problems. Also discussed are the upcoming accounting standards on financial instruments, revenue and leases. Media and Opinion Pieces
in support of the proposals AASB Staff are aware of the following articles available in mainstream media that support the AASB’s proposals. This is not an exhaustive list, and the AASB is aware that this does not necessarily depict the full story. The AASB strongly encourages stakeholders to form their
views on this topic based on the full range of research and empirical evidence available.
 When every one’s special, no one is Ceri-Ann Ross, Reporting Leader –Chartered Accountants Australia and New Zealand, LinkedIn,March 2018
 The End is Nigh –No more special purpose financial statements (SPFS) for many entities Carmen Ridley, AASB Member, CaseWare, May 2018
Mid-tier flags ‘monumental’ financial reporting changes Jotham Lian, Accountants Daily, May 2018
Big Four: guardians of the guards infiltrate the infiltrators Michael West, Michael West , May 2018
If you have an article or a report addressing this topic that you would like to share, please email Justine Keenan, AASB Senior Project Manager via
June_16-Reform of the Australian Financial Reporting Framework.pdf
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