The need for a new disclosure Standard fThe need for a new disclosure Standard for Tier 2 entities

The need for a new disclosure Standard for Tier 2 entities

1. This Standard has been developed in conjunction with AASB 2020-2 Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities to:

2. provide Tier 2 reporting requirements for those for-profit entities that will be prohibited from preparing special purpose financial statements (SPFS) when AASB 2020-2 becomes operative, that appropriately balance the needs of users with the costs of moving from SPFS to Tier 2;

3. reduce the reporting burden of for-profit and not-for-profit (NFP) entities using the current Tier 2 reporting requirements for preparing General Purpose Financial Statements (GPFS) as a result of the AASB’s post-implementation review of the current Reduced Disclosure Requirements (RDR) framework; and

4. maximise the use of relevant International Financial Reporting Standards (IFRS) based materials by more closely reflecting the IFRS for SMEs disclosures in this Standard and support the International Accounting Standards Board (IASB) with its project to develop a reduced disclosure IFRS standard that combines full IFRS recognition and measurement (R&M) requirements with IFRS for SMEs disclosures[46].

5. Entities that are required to prepare financial statements in accordance with Australian Accounting Standards (AAS) have a choice of two disclosure frameworks[47]:

   1. Tier 1 reporting requirements which apply to the GPFS of for-profit private sector entities that have public accountability and are required by legislation to prepare financial statements that comply with either Australian Accounting Standards or accounting standards and the Australian Government and State, Territory and Local Governments; and
   2. Tier 2 reporting requirements which apply to the GPFS of for-profit private sector entities that do not have public accountability, not-for-profit private sector entities and public sector entities, whether for-profit or not-for-profit, other than the Australian Government and State, Territory and Local Governments.

6. Before the adoption of AASB 2020-2 entities that had self-assessed to be a non-reporting entity, could also elect to prepare SPFS. However, in March 2020 the Board decided to remove this ability based on the feedback received on the March 2018 Consultation Paper ITC 39 Applying the IASB’s Revised Conceptual Framework and Solving the Reporting Entity and Special Purpose Financial Statement Problems and the subsequent ED 297 Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities.