Proposals to require smaller public unlisted companies such as not-for-profit organisations to prepare financial reports according to the proposed AASB standard for SMEs would send compliance costs soaring for no clear public benefit, says Chartered Secretaries Australia (CSA), the national body representing governance professionals.
CSA has argued that the Department of Treasury’s review of Financial Reporting by Public Unlisted Companies will fail to reduce the regulatory burden on smaller public unlisted companies, if they are subjected to the proposed AASB reporting regime, as many would become obliged to prepare full financial reports.
"At present, almost all not-for-profit companies can elect to not be a ‘reporting entity’ and as such, only need to prepare ‘special purpose accounts’ which are significantly less onerous than full financial statements," said Mr Tim Sheehy, CSA’s Chief Executive.
"There’s no dispute that financial reporting is essential for not-for-profit organisations. Their members and the community deserve transparency and rightly expect evidence of good governance. But introducing a requirement for full financial statements as required for the capital markets is definitely overkill.
"Members and community stakeholders need a useful level of disclosure but that simply cannot be compared to the stringent degree of detail and assurance that investors need to decide whether to part with their capital or to assess their true returns," he added.
Mr Sheehy noted that proprietary company subsidiaries of public companies would also be affected by the proposals. These companies, which currently have the option of producing ‘special purpose accounts’, would also be required to prepare full financial statements, resulting in a large rise in compliance costs for public companies which often have a number of such subsidiaries.
"The proposals need to get back on an even keel. In their present form, they hit proprietary, public unlisted and not-for-profit companies with heavy reporting obligations for no clear benefit to stakeholders and at great unnecessary expense. A ‘one-size-fits-all’ approach is not what’s needed here," added Mr Sheehy.
CSA supports the government’s proposal to introduce threshold tests to determine which public unlisted companies should be subject to full reporting requirements but believes this should be achieved on a basis other than the proposed AASB small and medium entity (SME) standard.
"Using the proposed AASB SME standard which is still up for public discussion puts the horse before the cart. It treats the standard as a forgone conclusion when it hasn’t even been finalised yet," said Mr Sheehy.
CSA instead recommends that threshold tests of $1 million in revenue and $1 million in assets be used to determine the applicability of financial reporting requirements, and strongly recommends that the ‘reporting entity’ concept be retained so that public unlisted companies that are currently entitled to produce special purpose accounts can continue doing so.
