The introduction of Australian Equivalents to International Financial Reporting Standards (AIFRS) in January 2005 has made the past two years a challenging period for financial reporters.
When AIFRS was adopted by Australia, it was decided that all companies preparing general-purpose financial reports would be required to adopt AIFRS in its entirety. This included a number of highly complex accounting standards that are intended primarily for a capital market structure and are less relevant in the private sector. Furthermore, private companies preparing general purpose financial reports often lack the skills and resources to apply the requirements of AIFRS.
This anomaly has been recognised and it has been submitted that the International Accounting Standards Board (IASB) should develop specific standards for non-listed entities. The aim of this project is to design one accounting standard that small and medium enterprises (SMEs) can apply, that will be consistent with IFRS and will reduce reporting requirements.
The IASB has released an accounting standard, currently referred to as the 'SME' Standard, which is still in draft format. The scope of the current draft states that it will apply to entities that 'do not have public accountability' (non-disclosing entities, as defined in the Corporations Act) and do 'publish general purpose financial statements'.
At present, the draft therefore excludes non-reporting entities from its requirements, however should this proposed standard be adopted, it is likely that the definition of a 'reporting entity' (as included in Exposure Draft 148) will be amended to include all entities that lodge their accounts with a regulatory body such as ASIC.
Aspects of the SME draft that differ to AIFRS include:
- Goodwill treatment – Proponents argue that goodwill should be able to be amortised as opposed to tested for impairment;
- Recognition of intangible assets – It is suggested that upon acquisition most intangible assets should be included within goodwill rather than requiring separate identification;
- Income tax – Many of the exceptions and special rules included in AASB 112 would be omitted from the standard.
It is likely that the introduction of the SME Standard will both increase and decrease reporting requirements. For instance, for:
- current non-disclosing companies that prepare general purpose financial reports, the adoption of the Standard will reduce reporting requirements;
- large non-reporting entities that may be captured by the new Standard, will find themselves reporting under a significantly more rigorous reporting framework.
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