Reforms in financial reporting for small business still a long way off

It's time to update on just where the International Accounting Standards Board (IASB) is at with attempt to reform accounting for small business. Likelihood is reform is still 2 years or more away for Australians.

Where the IASB ends up with this project will impact Australia directly because International Financial Reporting Standards (IFRS) issued by the IASB are automatically re-badged as Australian Accounting Standards for application by Reporting Entities.

To date the impact of IFRS on small business has been cushioned by the reporting entity framework that has applied in Australia for some 15 years. Listed companies have been required to follow IFRS as well as other deemed Reporting Entities. However many smaller entities:

• are not companies so the IFRS reporting requirements of the Corporations Act do not have to be applied
• are small proprietary companies that are exempted form the Corporations Act reporting requirements
• are Large Proprietary Companies that are not producing detailed financial statements in reporting entity format

The Australian Accounting Standards Board has wanted to reform the reporting requirements for large proprietary companies and had made the ‘tentative’ decision that any company filing financial statements with a Regulator such as ASIC,  would be forced to adopt the IASB’s forthcoming IFRS for Private Entities Accounting Standard. This ‘tentative’ decision had not been welcomed by those that made submissions on the issue to the AASB back in 2007. Some 90% of the submissions argued for a retention of the reporting entity status quo.

The IASB’s latest update following its 13-17 October 2008 meeting noted that final decisions had been made on some issues, but others would be discussed at the November and December 2008 meetings, with staff also to ask the Board to revisit some of their earlier tentative decisions. This suggests that the final Standard will still be up for debate at the Boards January 2009 or later meetings.

The AASB has stated that it will not make a final decisions on what to do with the IASB’s IFRS for Private Entities Standard until it is issued. this will be followed by the need for further Australian debate, and then at least 1 year notification period before the Australian Standard becomes effective. So it would seem unlikely that any Australian changes would be effective until at least June 2011.

A further delay can also be expected when the Australian Government releases its proposals for a size exemption test for non listed public companies such as not-for-profits that are public companies limited by guarantee,. Whilst the final Government recommendations are not yet known, and will be open for public consultation, there does seem strong support for exempting the small not-for-profits with the Corporations Act reporting requirements.

Author, Keith Reilly, November 08

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