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September 14, 2007

CPA Australia rejects differential reporting proposals

CPA Australia rejects differential reporting proposals

CPA Australia has announced it opposes the Australian Accounting Standards Board’s (AASB) proposed removal of the reporting entity concept.

The AASB proposes to differentiate between those entities that have to apply all accounting standards and those that do not, based on a number of factors, including public accountability and whether the entities are preparing general-purpose financial reports (GPFR). AASB technical director Angus Thomson said under the proposals there would be two types of GPFR – one that involves applying all the standards and another that involves applying a form of SME standard.

The proposal was based on the manner in which the IASB characterised GPFR, however, CPA Australia said subsequent IASB decisions have “superseded the thrust of the AASB’s proposals”. The institute’s chief executive, Geoff Rankin, said the reporting entity concept plays an important role in Australia and should be retained.

“Throwing out the reporting entity concept would impose additional costs on entities, without corresponding benefits,” he said.

Rankin also recommended the AASB improve the reporting entity concept, in order to make it “more robust”. “The reporting entity concept needs to be tightened to guard against errors of judgement or deliberate misclassification,” he said.

CPA Australia suggested the AASB consider improvements to the reporting entity concept such as a statement by the directors specifying their reasons for classifying the entity as a non-reporting entity and/or requiring a non-reporting entity statement by shareholders.

Thomson said the AASB welcomes the input of the professional accounting bodies and added that all input would be taken into consideration. He said the institute’s recommendations are a useful contribution to the debate, “particularly since some of the existing concerns with the reporting entity concept relate to its workability”.

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