MAA310 Accounting & Society: Reporting Entity Analysis Report

This report provides an analysis of the concept of a reporting entity as defined by SAC1 and the Revised Conceptual Framework (RCF) issued by the IASB, highlighting the differences between these definitions and their implications. It includes a case study of KiMy Ltd, a public company, to illustrate the practical application of these concepts. The report also considers Tier 1 and Tier 2 accounting standards to explore the disclosure requirements for General Purpose Financial Statements (GPFS). Furthermore, it discusses the applicability of Tier 1 accounting standards to KiMy Ltd, examining the relationship between agency theory and GPFS Tier 1 standards. The report also touches upon the challenges in adopting IFRS in this context and suggests potential solutions. The role of GPFS Tier 1 accounting standards for the Victorian Government is also explored with respect to stakeholder theory. This assignment is available on Desklib, a platform providing various study tools for students, including past papers and solved assignments.

Running head: ACCOUNTING AND SOCIETY
Accounting and Society
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING AND SOCIETY
Executive Summary:
This paper aims at analysing the concept of reporting entity as per SAC1 and RCF issued by
IASB. The differences in the reporting entity concept as per these two definitions and their
implications are discussed in details with a case study of KiMy Ltd, a public company. For better
understanding of the concept the tier1 and tier2 accenting standards are also taken into
consideration for exploring the disclosure requirements of General Purpose Financial Statement.
Lastly, the paper concludes with some challenges in adoption of IFRS in such a scenario and
their possible way outs to face those challenges.

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Table of Contents
Introduction:....................................................................................................................................3
Concept of Reporting Entity:...........................................................................................................3
Concept as per SAC 1:.................................................................................................................3
Concept as per RCF:....................................................................................................................3
Difference between SAC1 reporting entity definition and the RCF definition:..............................4
Distinctions in the requirements of GPFS Tier 1 and GPFS Tier 2:...............................................4
GPFS Reduced Disclosure Regime (RDR) and GPFS Specified Disclosure Requirements (SDR):
.........................................................................................................................................................5
Applicability of tier 1 accounting standards on KiMy Ltd:.............................................................6
Agency theory and GPFS tier 1 Accounting standards for KiMy Ltd:...........................................6
GPFS Tier 1 accounting standards for Victorian Government:.......................................................8
Challenges in adoption of GPFS tier 1 accounting standards by KiMy Ltd:..................................9
Conclusion:......................................................................................................................................9
References:....................................................................................................................................11

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Introduction:
Accounting is the means of measuring financial performance and position of any entity.
Annual report is the output of the accounting system, which is used by various stakeholders of
the entity, and at that point the accounting and society gets interrelated (Walker 2016). In
Australia, business entities are required to file their financial reports with the ASIC. As per
AASB the concept of reporting entity, required to lodge General Purpose Financial Statements
was mentioned in the SAC 1 (Stuchbery 2017). Now with the revised conceptual framework in
RCF issued by the IASB, the concept of reporting entity has changed. In this report, the impact
of RCF on unlisted public companies is analysed with the case study of KiMy Ltd for better
understanding of the concept.
Concept of Reporting Entity:
Concept as per SAC 1:
As per SAC 1, organisations who are having some stakeholders who make their decisions
related to that organisation based on the financial report published by the organisation, are
considered to the reporting entity. Reporting entities are required to publish General Purpose
Financial Statement with the ASIC
Concept as per RCF:
Revised conceptual framework issued by IASB mentions reporting entity, as an entity
that is required or voluntarily chooses to prepare and file financial statement with ASIC. It does
not require the entity to be a legal entity or an entity as a whole, it may be a portion of a
particular entity or it can comprise more than one entity.

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Difference between SAC1 reporting entity definition and the RCF definition:
Subject
AASB SAC1 definition of Reporting
entity
IASB RCF definition of Reporting
entity
Definition Entities who are having some
stakeholders who depend on the
financial statement of the organisation
for their decision-making.
It defines a reporting entity as an entity
required mandatorily or chooses
voluntarily to prepare and file financial
statement with ASIC.
Legal status of the
Entity
AASB SAC1 requires legal entities to
report their financial statements with
ASIC.
RCF does not require the entity to be
legal entity, there may be a legal status
of the entity or may not be.
What comprises the
reporting entity
As per SAC1, reporting entity
comprises any legal entity, fiduciary
management or organisational
structures.
As per RCF, it comprises an individual
entity, a particular portion of the entity
or it can be a group of more than one
entity.
Nature of Financial
Statement
It requires the reporting entity to file
General Purpose Financial Statements
(GPFS).
It does not necessarily specify the
financial statement as the General
Purpose Financial Statement (GPFS).
Emphasis on
economic Activity
The SAC1 does not emphasise on the
economic activities requiring reporting
in the GPFS.
As per RCF definition of reporting
entity, it sets a boundary of economic
activities, which need to be included in
the GPFS.
Distinctions in the requirements of GPFS Tier 1 and GPFS Tier 2:
GPFS Tier 1 incorporates IFRSs for entities and specifies certain accounting, reporting
and disclosure requirements for Australian entities. Whereas, the GPFS Tier 2 requires the same

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measurement and accounting principles to be followed by certain class of entities with reduced
disclosure requirements. There is a key difference in tier 1 and tier 2 requirements, which is
based on the public accountability concept (deloitte.com 2019). Certain specified government
authorities and profit-making privet entities having public accountability are required to follow
GPFS tier 1 and all other entities can follow the GPFS tier 2. Not-for-profit entities may chose
any of these voluntarily. From the above contrast it can be concluded that, GPFS tier 1 mostly
emphasise on the public accountability and on the other hand tier 2 does not emphasise on public
accountability.
GPFS Reduced Disclosure Regime (RDR) and GPFS Specified Disclosure Requirements
(SDR):
AASB issued various accounting standards, which requires different disclosure
requirements for GPFS of any reporting entity. There are mainly two accounting standards for
disclosure requirements of GPFS, tier 1 and tier 2 accounting standards. Tier 1 Accounting
standards requires some wide disclosure requirements, whereas, tier 2 is with some reduced
disclosure requirements having all other aspects of measurement and accounting are same as tier
1. Tier 1 disclosures will help the shareholders to assess the company’s financial performance
and position more efficiently from the complete set of financial information, which will help
them in better investment decision. On the other hand, tier 2 disclosures will give comparatively
less financial information to the shareholders to make their investment decisions. In conclusion it
can be said that, tier 1 accounting standards focuses on public accountability of the financial
information of the entity which helps all the stakeholders in better decision making.

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Applicability of tier 1 accounting standards on KiMy Ltd:
KiMY Ltd is a large Australian profit-making public company. They are providing
software services to the Victorian Government. They are developing and maintaining such
software, which is related to the public interest, and at that context, the public accountability
comes into question. Tier 1 Accounting standards emphasise on public accountability of the
reporting entity. It ensures such amount of financial disclosures, which will help the general
stakeholders in their decision making and protecting their interests. As it can be observed easily
form the given case study, that the KiMy Ltd is also having some public accountability, they
need to follow tier 1 accounting standards for their GPFS. RCF does not require it to be a legal
entity, as they are a profit making entity and having some public accountability, they need to
follow Tier 1 accounting standard and prepare GPFS accordingly.
Agency theory and GPFS tier 1 Accounting standards for KiMy Ltd:
Agency theory in corporate governance describes the principal and agent relationship and
their respective behaviours to them each other. In business entity, management of the entity
performs their duties as an agent on behalf of the owners or the stakeholders of the entity. They
need to work efficiently with transparency to achieve the objectives of the stakeholders.
Stakeholders mainly the common stockholders are the principal in this context and the board of
directors or the management of the business is working as an agent of them. All the resources of
an entity is vested with the management to be utilized efficiently and they must be aiming
towards achieving the organisational goals. Their deliveries of responsibilities and performances
are reflected in the financial statement of the entity. If they are working efficiently, it will led
them to achieve the organisational goal as a whole. They also need to disclose all the material
financial and non-financial information to the stakeholders.

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Shareholders are mostly dependent on the financial information of the entity for making
certain important investment decision. More the accurate and transparent financial information
the more the accuracy of investment decision, which is made based on such financial
information. Tire 1 accounting standards ensure greater transparency and accuracy of the
financial information. It emphasises mostly the public interest in the financial information of an
entity. Tire 1 accounting standard ensures disclosure of all those material financial information
of an entity, which is necessary for the shareholders in their decision-making. It achieves its
objective in the form of GPFS with adequate measurement principle and disclosure
requirements. On the other hand, GPFS tier 2 accounting standards, reduces certain disclosures
of information in the GPFS keeping all other measurement and accounting principles unchanged.
Tier 2 accounting standards require disclosure of some specific financial information and its
applicability and usability is limited to a certain extent.
KiMy Ltd is a family owned company having ten major shareholders and five of them are
board member of the company. As they are directly linked with the company through their
representation in the board of the company there may be certain chances of manipulation in the
financial statement of the company, which may led the shareholders to suffer a huge loss
(Handley, Wright and Evans 2018). To protect such risks tier 1 accounting standard needs to be
followed for better transparency and better disclosure of the financial information of KiMy ltd.
To conclude it can be outlined that, tier 1 accounting standard helps in better disclosure
of financial information, which are helpful for the shareholders for their investment decisions in
any entity.

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GPFS Tier 1 accounting standards for Victorian Government:
Stakeholders’ theory takes into consideration all the internal and external parties of an
entity who are directly and indirectly related with that entity (Kaya and Koch 2015). It aims at
safeguarding and protecting the interest of all those stakeholders in the entity. Stakeholders can
be classified into two broad heads, internal and external stakeholders. Internal stakeholders
include employees and management of the company, on the other hand external stakeholders
include Investors, Lenders, Creditors and Customers. All of them are having their respective
information needs for their decision making to achieve their respective interests in the entity
(Aleksanyan and Danbolt 2015).
Victorian Government is a government body of Australia, serving the needs and
requirements of citizens of Australia. They are taking various financial and non-financial
services from various public and private companies. Their performance and activities must be
accountable to the public or the citizen of Australia. As per the requirement of tier 1 accounting
standards, Government authorities are required to follow the disclosure principles of tier 1 GPFS
accounting standards (Handley, Wright and Evans 2018). As they are highly accountable to the
public and their financial and operational performance affects the interest of citizens of the
country directly, they must be disclosing all the material financial and non-financial information
in their General Purpose Financial Statements in accordance with the requirements of tier 1
accounting standards (Nelson and Pritchard 2016).
In the given case study, it can be observed that the Victorian Government were having a
huge amount of transaction with KiMy Ltd for taking software services from them. Performance
of KiMy Ltd also affects the interest of citizens as they are engaged in developing and
maintaining the billing system of public transport system. Keeping all these aspects in

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consideration, the government must follow tier 1 accounting standards to ensure various
stakeholders’ interests.
Challenges in adoption of GPFS tier 1 accounting standards by KiMy Ltd:
After it has been understood the requirement and applicability of GPFS tier 1 accounting
standards, certain challenges that would be faced by the KiMy Ltd can be outlined briefly. GPFS
tier1accounting standards require the company to prepare General Purpose Financial Statements
disclosing all the materials financial information (Biancone, Secinaro and Brescia 2016). The
revised conceptual framework defines the reporting entity and the requirement of disclosures in
some another way. The concept of reporting entity, requiring GPFS to be filed to the ASIC as per
RCF and the traditional accounting standards are significantly different. Therefore, there is a
challenge in complying with the requirements of both the standards initially (Seay 2014). First of
all, there would be a confusion in determining the reporting entity status of the KiMy Ltd and
later on its adoption and implementation might be much more challenging for them. The
company is a public company, but the RCF sets the boundary of the reporting entity by certain
economic activities (Baboukardos and Rimmel 2014). The management should identify the key
economic activities of the company and based on that they should determine the reporting entity
status of the company. If they found to be a reporting entity then they should prepare their
financial statement as per the tier1 accounting standards as there is a public interest related with
the company.
Conclusion:
From the above discussions and analysis of case study, it can be concluded that, the
concept of reporting entity is very important for any organisation whether it is profit making or

10ACCOUNTING AND SOCIETY
not-for profit organisations having public accountability, it is also important for the government
bodies and organisations. Tier1 and tier2 accounting standards were two such traditional
accounting standards which are governing the disclosure requirements of reporting entities in
Australia. With the issuance of the revised conceptual framework by IASB, it may be
challenging for the companies to determine reporting entity status and in IFRS adoption.

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References and bibliography:
Aleksanyan, M. and Danbolt, J., 2015. Segment reporting: Is IFRS 8 really better?. Accounting
in Europe, 12(1), pp.37-60.
Baboukardos, D. and Rimmel, G., 2014, March. Goodwill under IFRS: Relevance and
disclosures in an unfavorable environment. In Accounting Forum (Vol. 38, No. 1, pp. 1-17).
Elsevier.
Biancone, P., Secinaro, S. and Brescia, V., 2016. Popular report and Consolidated Financial
Statements in public utilities. Different tools to inform the citizens, a long journey of the
transparency. International Journal of Business and Social Science, 7(1), pp.111-124.
Bohušová H. The Possible ways to IFRS (International Financial Reporting Standards) for SME
(small and medium sized entities) Development. Acta universitatis agriculturae et silviculturae
Mendelianae brunensis. 2014 Nov 19;55(6):17-26.
Bohušová, H., 2014. General aaproach to the IFRS and US GAAP convergence. Acta
Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(4), pp.27-36.
Brinkerhoff, D.W. and Wetterberg, A., 2016. Gauging the effects of social accountability on
services, governance, and citizen empowerment. Public Administration Review, 76(2), pp.274-
286.
Deloitte.com. 2019. [online] Available at:
https://www2.deloitte.com/content/dam/Deloitte/au/Documents/audit/deloitte-au-audit-gpfs-first-
step-model-fs-june-2015-section-d-120515.pdf [Accessed 25 Mar. 2019].

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Ferretti, V., 2016. From stakeholders analysis to cognitive mapping and Multi-Attribute Value
Theory: An integrated approach for policy support. European Journal of Operational
Research, 253(2), pp.524-541.
Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of
IFRS. Abacus, 50(1), pp.107-116.
Gerber, M.C., Gerber, A.J. and van der Merwe, A., 2015. The conceptual framework for
financial reporting as a domain ontology. In Twenty-first Americas Conference on Information
Systems, Puerto Rico (pp. 1-18).
Handley, K., Wright, S. and Evans, E., 2018. SME Reporting in Australia: Where to Now for
Decision‐usefulness?. Australian Accounting Review, 28(2), pp.251-265.
Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research, 45(1), pp.93-120.
Mitnick, B.M., 2015. Agency theory. Wiley encyclopedia of management, pp.1-6.
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disclosure of risk factors. Journal of Empirical Legal Studies, 13(2), pp.266-297.
Seay, S.S., 2014. The economic impact of IFRS-a financial analysis perspective. Academy of
Accounting and Financial Studies Journal, 18(2), p.119.
Shi, W., Connelly, B.L. and Hoskisson, R.E., 2017. External corporate governance and financial
fraud: Cognitive evaluation theory insights on agency theory prescriptions. Strategic
Management Journal, 38(6), pp.1268-1286.

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Stuchbery, T.V., 2017. The Reporting Entity Concept in Australia: An Exploration of the Impact
and Comparison to International Standards (Bachelor's thesis, Università Ca'Foscari Venezia).
Walker, S.P., 2016. Revisiting the roles of accounting in society. Accounting, Organizations and
Society, 49, pp.41-50.