Differential Reporting in Australia Essay Example | Topics and Well Written Essays - 5000 words

Differential Reporting in Australia - Essay Example There have been arguments and commentaries on the applicability of the proposed changes to the reporting requirements in Australia. The AASB is of the view that the differential accounting standards are required to ensure adequate financial reporting for not-for-profit and government entities. This paper analyses the cases for and against this statement in the light of the proposed changes to the reporting requirements as envisaged by the AASB. The Public Sector Accounting Standards Board of the Australian Accounting Research Foundation has issued the Statement of Accounting Concept (SAC) 1defining the 'reporting entity' concept. Accordingly the reporting entity concept covers the 'legal entity' enunciated by the legislation in the private sector and also a broader concept to cover the accountability of the elected representatives and appointed officials employed in the public sector. (Australian Accounting Research Foundation) The concept of the reporting entity is based on the information needs of the users of the financial statements and the nature and extent of the general purpose of the financial reports. "The concept requires that individual reporting entities be identified by reference to the existence of users who are dependent on general purpose financial reports for information for making and evaluating resource allocation decisions." (Australian Accounting Research Foundation) Hence the reporting entity is not d ependent on the sector classification whether private or public or the manner or legality on the basis of which the entity is created. The concept is purely based on the objective behind the general purpose reporting and the concept requires all the entities (with users dependent on the general purpose financial reports for information) to prepare the general purpose financial reports for the information of the users of such reports. The present situation is that almost all not - for - profit companies are having the option to choose the status of being 'non-reporting entities'. If such companies opt for not to be reporting entities they need to prepare only 'special purpose accounts'. (Chartered Secretaries Australia) The objective of the proposed change is to revise the differential reporting regime, so that the financial reporting by both the for-profit and not-for profit organizations are made more meaningful for the users. 2.1 Rationale behind Removal of Reporting Entity Concept: The Invitation to Comment on the proposed change in the reporting regime details the rationale behind attempting to the remove the reporting entity concept. Nowhere in the world except Australia, the concept 'reporting entity' is being used for the purpose of determination of the accounting standards and the disclosure requirements. Australia is the only country which uses the concept of reporting entity for the determination of the differential reporting purposes also. Since the concept is not being the one which has an international usage and recognition the AASB proposed to remove this concept from the application to determine the accounting st