Reporting changes to cost SMEs

Medium sized companies could face significantly greater costs for the preparation of financial reports and audits under changes to accounting standards to be considered by the official standard setter.

Approximately 3000 private companies could be lumped with more onerous requirements if the Australian Accounting Standards Board decides to push ahead with a proposal to adopt international accounting standards.

Private companies that meet two of three threshold requirements – revenue of more than $25 million, $12.5 million in assets or 50 or more employees – will be affected by the change.

A shift would mean doing away with the “reporting entity” concept under which companies that meet the threshold requirements are able to self-determine if they meet criteria that requires them to provide comprehensive financial reports to statutory bodies such as the Australian Securities & Investments Commission.

Companies that decide they are not a reporting entity only have to lodge a lesser set of financial reports. These “special purpose financial reports” involve compliance with four basic accounting standards, compared to more than 40 standards that make up the more comprehensive “general purpose” financial reports.

Under the proposed change, however, all companies will have to lodge comprehensive financial reports. The AASB is also considering another proposal that would streamline general purpose financial reports, but that would still leave companies that previously lodged special purpose financial reports with a costlier compliance burden.

Australia’s largest professional accounting body, CPA Australia, says adopting the new reporting regime would not have significant benefits to Australian businesses.

“Throwing out the reporting entity concept would impose additional costs on entities, without corresponding benefits,” CPA Australia chief executive Geoff Rankin says.

Another CPA Australia spokesman says the introduction of the new standard would create costs for businesses at both ends of the accounting process, with work required in terms of disclosure of information and preparation of financial reports, and then later in the auditing of those reports.