Question

What are the 4 reporting types of entities affected by Chapter 2M?

Please describe them briefly?

Briefly, what are their reporting requirements?

Answer 1

Answer :

The reporting entity concept The reporting entity concept was adopted by the Australian accounting profession in June 1992 in an attempt to reduce the reporting requirements imposed on certain entities by the application of accounting standards. Under this concept, ‘reporting entities’ are required to prepare a financial report in compliance with all Accounting Standards and Interpretations, referred to as general purpose financial statements (GPFSs).

In June 2010, the AASB revised the differential reporting framework and introduced two Tiers of reporting requirements for GPFS. Tier 1: ‘Australian Accounting Standards’ – incorporates IFRSs issued by the IASB and includes requirements that are specific to Australian entities; and Tier 2: ‘Australian Accounting Standards – Reduced Disclosure Requirements’ – comprises of recognition and measurement requirements of Tier 1 but substantially reduced disclosure requirements. At the same time the concept of ‘public accountability’ was introduced. For-profit private sector entities that have ‘public accountability’ and Australian Government and State, Territory and Local governments should comply with Tier 1 requirements. Other ‘reporting entities’ will need to comply with Tier 2 reporting requirements.

‘Non-reporting entities’, however, have the option to prepare special purpose financial statements (SPFSs) in compliance with those Accounting Standards and Interpretations considered necessary to enable the financial reports to meet the special purpose needs of the users.

‘General purpose financial statements’ are defined in AASB 101 ‘Presentation of Financial Statements’ as ‘those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs’. ‘Special purpose financial statements’ are ‘financial statements other than general purpose financial statements’.

The application of ‘Tier 1’ and ‘Tier 2’ reporting, by entity sector, is set out in the following table:

Entity sector	Tier 1 (Australian Accounting Standards)	Tier 2 (Australian Accounting Standards – Reduced Disclosure Requirements)
For-profit private sector entities	Publicly accountable entities (including specific ‘examples’)	Non-publicly accountable entities
Not-for-profit private sector entities	Choice of applying Tier 1 or Tier 2 requirements	Choice of applying Tier 1 or Tier 2 requirements
Public sector entities	Australian Government, State, Territory and Local Governments, and GGSs of Australian Government, State and Territory Governments (subject to AASB 1049)	All other public sector entities

Identification of reporting entities A ‘reporting entity’ is defined in AASB 101 as ‘an entity in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the allocation of scarce resources. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries’.

The ‘public accountability’ concept In relation to for-profit private sector entities, the key determinant of which reporting tier is to be applied depends on the ‘public accountability’ concept. Other than a minor scope amendment to restrict its application to for-profit entities, the AASB has taken the definition of ‘public accountability’ from the IASB’s ‘IFRS for SMEs’. ‘Public accountability’ is defined as ‘accountability to those existing and potential resource providers and others external to the entity who make economic decisions but are not in a position to demand reports tailored to meet their particular information needs’.

The definition deems a for-profit private sector entity to have ‘public accountability’ in the following circumstances.

Definition inclusion	Examples
The entity’s debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market*	Entities listed (debt or equity) on the Australian Securities Exchange (ASX), National Stock Exchange of Australia (NSX) or Bendigo Stock Exchange (BSX) or any global stock exchange Entities with American Depository Receipts (ADRs) on issue Entities listed on the Alternative Investment Market (AIM) of the London Stock Exchange
The entity holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses	Banks, credit unions, building societies, insurance companies, securities brokers/dealers, mutual funds and investment banks

* a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets

In addition to the definition, the AASB has proposed a number of ‘example’ entities deemed to have ‘public accountability’:

• Disclosing entities, even if their debt or equity instruments are not traded in a public market or are not in the process of being issued for trading in a public market;
• Co-operatives issuing debentures;
• Registered managed investment schemes;
• Superannuation plans regulated by the Australian Prudential Regulation Authority (APRA) other than Small APRA Funds as defined by APRA Superannuation Circular No. III.E.1 Regulation of Small APRA Funds, December 2000; and
• Authorised deposit-taking institutions (ADIs).