On 1 August 2019, the Australian Accounting Standards Board (AASB) issued proposals to replace the current Reduced Disclosure Requirements (RDR) framework for Tier 2 entities preparing general purpose financial statements (GPFS) with a Simplified Disclosure framework.
Tier 2 entities are required to comply with all recognition and measurement requirements of Australian Accounting Standards, but are permitted to provide a reduced level of disclosures.
These proposals go hand in hand with another exposure draft, expected to be issued in August 2019 by the AASB (ED 297 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities), which will remove the ability for certain for-profit entities to prepare special purpose financial statements (SPFS) when they are required to comply with Australian Accounting Standards (e.g. required to lodged audited financial statements with ASIC and the ACNC).
ED 295 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities is the exposure draft that contains these proposals.
The new Simplified Disclosure Regime (SDR) is based on disclosures contained in the IASB’s IFRS for SMEs standard, and is intended to maximise the use of relevant IFRS-based materials.
Rather than being ‘greyed’ out of existing standards as is the case for RDR disclosures, all SDR disclosures will be included in a separate disclosure standard for Tier 2 entities. This would make it easier in practice to identify all the applicable disclosure requirements for Tier 2 entities, but it would remove the ability to compare easily with the disclosure requirements for Tier 1 entities.
The rationale for reducing the RDR requirements is to find a balance between the benefits of financial information to users of ‘Tier 2’ entities and the costs to preparers to provide that information, as well as ensuring users are not overburdened with unnecessary information that clutters the financial statements.
The question that springs to mind when reading ED 295 is whether the proposals actually result in a significant decrease in the overall number of disclosures required for SDR compared to RDR.
The AASB’s Staff Analysis – Comparison of RDR disclosures with proposed AASB 10XX Simplified Disclosures for Tier 2 Entities (page 1) provides a high level summary of where disclosure reductions, compared to RDR, have been made when drafting SDR disclosures from the IFRS for SMEs standard. However, when analysing the detailed differences, in practice, often these will not result in a major reduction in disclosure because the differences sometimes relate to more obscure scenarios that may not be frequently encountered by Tier 2 entities.
Change in level of disclosures | Reasons | BDO Comments |
Significant reduction compared to RDR | AASB 7 Financial Instrument: Disclosures | Reduced disclosures relate to less common scenarios such as:
|
AASB 12 Disclosure of Interests in Other Entities | Reduced disclosures relate to less common scenarios such as:
| |
AASB 16 Leases | Reduced disclosures relate to:
| |
Reduced to some extent | AASB 3 Business Combinations | Reduced disclosures relate to:
|
AASB 12 Disclosure of Interests in Other Entities (parts covering interests in associates & joint ventures) | Reduced disclosures relate to:
| |
AASB 13 Fair Value Measurement | Reduced disclosures relate to recurring & non-recurring fair value measurements for assets and liabilities | |
AASB 15 Revenue from Contracts with Customers | Reduced disclosures relate to:
| |
AASB 101 Presentation of Financial Statements | Reduced disclosures relate to:
| |
AASB 127 Separate Financial Statements | Reduced disclosures relate to where the parent entity is an investment entity (and therefore not preparing consolidated financial statements) | |
AASB 136 Impairment of Assets | Reduced disclosures relate to:
|
For the following standards, ED 295 proposes disclosures that are essentially the same as RDR:
It should be noted for the following standards that the number of SDR disclosures are somewhat more than the current RDR disclosure requirements:
ED 295 proposes that the new Simplified Disclosures will apply to ‘Tier 2’ entities for annual periods beginning on or after 1 July 2020, i.e. 30 June 2021 year-ends, and can be adopted early once approved as a new standard.
Entities currently preparing GPFS – RDR may need to present fewer disclosures in future.
In addition, removing the ability of certain for-profit entities to self-assess as ‘non-reporting entities’, and thus prepare SPFS, will improve comparability of financial statements filed on the public record.