Accounting experts have warned that small- and medium-sized businesses could face increased costs and a much higher administrative burden under new accounting rules proposed by the Australian Accounting Standards Board.
In a discussion paper released late Friday, that AASB has proposed a new system that would see Australia turn its back on the globally developed international financial reporting standards (IFRS) for SMEs and instead introduce a home-grown “reduced disclosure regime”.
Under this model, companies will be subject to “the full IFRS recognition and measurement requirements” but with “substantially reduced disclosures corresponding to those requirements”.
Wayne Basford, an audit technical expert from accounting firm BDO, says the new rules would have the greatest impact on companies currently classed as large property entities (they must satisfy two of these three conditions: $25 million in revenue, $12.5 million of assets or more than 50 staff).
Currently, most of these companies are able to produce what is called special purpose accounts that include the basics (profit and loss, balance sheet) but can be very limited in other disclosures.
“A massive number of companies do that – it’s easy, it’s simple, it’s kept us going well,” Basford says.
But he argues that under the new rules, these companies would have to be across the full IFRS, placing a huge burden on the companies and their advisers.
“The IFRS is about 2,200 pages long. I spend my life working on IFRS. I understand and live with the 2,200 pages, but I am in a very particular minority,” he says.
“We are one of the few countries in the world that have imposed those 2,200 pages on its SMEs. It is written and designed for listed companies.”
Basford says the AASB’s decision to move away from the global push towards IFRS for SMEs means it is still unclear what companies who fall below the large proprietary company test will need to do.
Some of these smaller companies may end up facing the new “burden of disclosures and measurements” under the AASB’s proposals.
He describes the release of the new rules and the fact that the comment period closes in February – just after the Christmas period – as “sneaky”.
“It’s designed to go under the radar and it really will hurt the SMEs sector.”
Grant Thornton director Andrew Archer has also expressed disappointment with the AASB proposal.
“My preliminary view would be that it does seem a little bit disappointing that we’ve adopted IFRS for the top end of the market but with those operating at the next tier down we’re not going down the global path.”
He says the lack of consistency with the global reporting regime could disadvantage businesses that operate on the world stage.
He also has concerns about whether the threshold for companies forced to report under full IFRS is too low and includes too many small companies.
“Are we still capturing companies that are tightly held that don’t need to report to that level?”
Parent entity and dividend rules to change
In better news for SMEs, the Federal Government has proposed to change financial reporting laws to cut some red tape in the area of company reporting.
One of the big areas of change concerns financial reporting by parent entities. Currently, every company with a parent company is required to prepare separate accounts for its parent, despite the fact this holding company only has dividend income received from its subsidiaries.
But under changes suggested by Treasury and by Financial Services Minister Chris Bowen, these parent entities accounts will no longer need to be prepared.
“It literally cluttered every page of the financial accounts,” Basford says. “Nobody read it, but everybody had to spend a great deal of effort getting it right.”
In addition, the Government is proposing to change dividend rules so that dividends no longer need to be paid through a parent entity. This will mean very liquid groups with profits technically held in subsidiaries will be able to pay dividends.
“They’ve ticked off two historic problems that have been driving us mad for years, in the parent entity reporting and payment of dividends of rule,” Basford says.
The Government also proposes to make it easier for companies to change their end-of-year reporting date to ease the burden on auditors and other advisors.
Finally, the Government will also seek to streamline reporting for companies limited by guarantee, which are typically not-for-profit entities.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
