AASB to update financial reporting framework.
The Australian Accounting Standards Board (AASB) is working on a new initiative to update the Australian Conceptual Framework for Financial Reporting (RCF). The research phase of this project was completed in April 2018, with the AASB joining forces with government policymakers and regulators in an effort to make the existing framework simpler and more transparent.
Exposure Draft issued by the AASB
The conceptual framework implemented by the AASB is used to develop and evaluate accounting standards to entities in the private and public sectors.
A consultation paper was introduced in May 2018, with an Exposure Draft issued in February 2019 and affected constituents able to contribute to research through a number of AASB surveys. A two-phased approach was originally proposed by the AASB to deal with existing problems and inefficiencies related to financial reporting.
Issues addressed by the new AASB framework
The original Consultation Paper by the AASB addressed two significant issues related to financial reporting in Australia. The first issue is related to a reporting entity concept clash between current Australian requirements and the existing RCF. The second issue surrounds the well-known confusion related to special purpose financial statements (SPFS), with Australian entities being able to self-assess as either reporting entities or non-reporting entities.
Changes under the new framework
Divergent reporting practices have led to a lack of clarity and created additional risk for Directors, report preparers, and auditors. After years of questions and speculation by the AASB and regulators, the new Exposure Draft attempts to create a simpler and more transparent framework for the benefit of all.
The AASB is developing new criteria regarding who will need to lodge financial statements, what information these statements will contain, and how much assurance will be required. The framework is all-encompassing and designed to affect the non-profit private, for-profit private, and public sectors.
In one of the biggest changes, for-profit private sector entities who currently self-assess through SPFS will instead be required to prepare general purpose financial statements (GPFS). Reduced Disclosure Requirements (RDR) and Specified Disclosure Requirements (SDR) were both rejected at the February 2019 meeting, with the Exposure Draft instead proposing a single Tier 2 GPFS framework.