Impact of Reporting Entity Removal on Australian Financial Reporting

This report examines the Australian Accounting Standards Board's (AASB) proposal to eliminate the 'reporting entity concept' from Australian Accounting Standards. The removal aims to align with the International Accounting Standards Board's (IASB) revised Conceptual Framework for general purpose financial reporting under IFRS. This change would necessitate that Australian companies prepare general-purpose financial statements and comply with all measurement and recognition criteria of the AASB standards. The current disclosure requirements will be replaced with new ones, referencing AASB 112, AASB 15, and AASB 124. This will affect entities reporting under IFRS, and specifically public companies. The report references Dunbar & Laing (2017) to highlight the implications of this change, focusing on entities required to prepare financial statements. It also mentions that entities currently preparing statements of financial affairs will continue to do so, but under the new framework.

Financial accounting theory

The accounting standard board of Australia has decided to remove the concept of reporting entity
and so they have asked to comment on this approach of removal. If this concept would be
removed then the ability to make financial statement will also be removed. The main objective
for this change is to introduce the conceptual framework which specifies the concepts and
objective for reporting the financial statement under the standard of IFRS. To follow the rules of
IFRS by the Australian entities, the Australian accounting board should implement revised
conceptual accounting reporting.
Under the new framework, the Australian companies will have to prepare the general financial
statement by complying with all the measurement and recognition criteria of accounting standard
of AASB. To eradicate the burden of increased reporting of financial statement the current
requirement of disclosure will be replaced by new disclosure requirements. The disclosures will
be according to the provisions of different accounting standards such as provisions mentioned in
AASB 112 or the conditions relating to recognition given in AASB 15 or the disclosure of
related parties illustrated in AASB 124. According to Dunbar & Laing (2017), this
implementation will help the AASB to specify all those entities or organization that are entitled
to do financial reporting and it also determines the threshold limit for the reporting entitlement.
This concept will apply only to entities that comply with the provisions of IFRS and also to
public companies. The entities who are already preparing statement of financial affairs will
continue to report financial transactions but as per new framework which will be for short term.

Reference
Dunbar, K., & Laing, G. K. (2017). Deconstructing the Accounting Standard AASB 13 Fair
Value: Exit vs Entry Price for Assets. The Journal of New Business Ideas & Trends, 15(2), 12-
19. P [Available at http://jnbit.org/upload/JNBIT_Dunbar_Laing_15(2)_2017.pdf] [Accessed on
20th March 2020]