Changes proposed for Reduced Disclosure reporting
As a result of its post-implementation review of Tier 2 requirements for general purpose financial statements (reduced disclosure requirements), the Australian Accounting Standards Board (AASB) recently issued Exposure Draft 277 Reduced Disclosure Requirements for Tier 2 Entities to address concerns about the length and relevance of financial statements prepared using the reduced disclosure requirements (RDR).
Level of adoption of RDR too low
Results of the review indicated that:
- Take up of RDR by companies limited by guarantee (not-for-profit entities) and subsidiaries of Tier 1 entities is reasonably widespread (approximately 80 per cent of a non-randomised sample of charities lodging financial statements with the Australian Securities and Investments Commission)
- Take up by other eligible entities such as large proprietary companies is very low, with less than 10 per cent of a sample of large proprietary companies lodging all types of financial statements with ASIC producing GPFS applying the tier 2 (RDR) requirements. Of those lodging GPFS, only 20 per cent apply RDR
- RDR is still seen by large proprietary companies as burdensome compared to special purpose financial statements
Policy for determining RDR for Tier 2 entities
The Exposure Draft includes a draft policy for the AASB’s approach to determining which disclosures are required for the RDR which includes a revised decision-making framework to provide a consistent basis for determining the minimum disclosure requirements for Tier 2 entities.
The Exposure Draft proposes to change this approach and instead include all the RDR disclosures in an appendix at the back of each standard.
Currently, Reduced Disclosure Requirements (RDR), i.e. disclosures not required, are shaded in grey in the applicable Australian Accounting Standards.
When will the proposals become effective?
It is proposed that the proposals will be effective for annual periods beginning on or after 1 January 2019.
Early application would be permitted for annual periods beginning on or after 1 January 2018 but:
- AASB 101 Presentation of Financial Statements, AASB 107 Statement of Cash Flows and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors revised through this ED are applied at the same time as an entity first applies a standard revised by this ED, and
- Early adoption of RDR amendments in AASB 140 Investment Property can only be early adopted if AASB 16 Leases is also adopted for the same period.
No changes are proposed to the types of entities able to apply RDR (i.e. Tier 2 entities).
Comments are due by 26 May 2017.