Australian Accounting Standards

Australian Accounting Standards

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Australian Accounting Standards

The reduced disclosure requirement (RDR) is a form of initiative by the AASB that allows reporting entities to make less complex financial statements by making exemptions of certain requirements in the AASB standards. Examples of RDR entities include large proprietary companies and unlisted public companies. Primarily, the RDR involves the recognizing and measuring of full IFRS requirements with fewer disclosures. When compared to Tier 1, RDR allows significant reduction of disclosure burdens and expenses of auditing and preparing GPFSs (Picker 2009, p. 31).

Public accountability is a key determiner of applying RDR. The Australian accounting standards on Tier application defines public accountability as an entity where potential and existing providers of resources make economic decisions, but may not be in a position to enquire for reports that address their need for information. Some of the major differences between Tier 2 and Tier 1 revolve around financial instruments. RDR is supposed to be applied from 1 July 2013. Nevertheless, applying it earlier is acceptable and can be used in the preparation of financial statements. If an entity previously applied special purpose finance framework and never adopted RDR, AASB provides relevant guidance on how it can apply this initiative.

When applying the RDR framework, its users are then going to be subject to three distinct types of financial statements. These include special purpose financial statements, RDR purpose financial statements, and the general-purpose financial statements. Primarily, users of this framework should consider environment they operate in to determine the most appropriate framework. If an entity meets the Tier 2 criteria, then it should consider adopting RDR with a view of reducing the compliance burden and simplifying the process of making financial statements (Picker 2009, p. 64).

Accounting theories introduced in ACCT304 include frameworks, methodologies, and assumptions used in the application and study of financial principles. Accounting theories in ACCT304 involve reviewing the history of accounting practices, and the way through which these practices can be verified or added to a common framework governing financial reporting and statements. The discipline of accounting has been in existence since the fifteenth century. Both economies and businesses have evolved significantly since then. Hence, this makes accounting theories to evolve as well since it has to adapt to new methods of conducting business.

The role of accounting theories in ACCT304 such as the reporting entity theory involves identifying the correct time an entity should prepare GPFSs. The Australian accounting standards refers to this theory as the application cause (Finley 2010, p. 84). Under this theory, reporting entities are supposed to apply the requirements of Australian accounting standard. On the other hand, non-reporting entities apply only some of the requirements when preparing financial statements. Accounting theories in ACCT304 also affects auditors. This requires auditors to decline an audit engagement in case the reporting framework of the financial report is not acceptable.

Furthermore, the ACCT304 theories maintain that an entity must ensure it keep its books of account in a double entry format, for every credit entry there must be a corresponding debit entry. The Materiality theory stipulates an item can be a material either in terms of money or in terms of its nature. The various transactions of the business should be recorded to avoid any overvaluation or undervaluation. Neutrality theory seeks to ensure the accounts are free from bias and thus rid off pre-determined outcome. Finally, comparability theory seeks to ensure that the financial statements are similar to others and the international accounting standards.

Primarily, AASB adheres to Tier 2 reduced disclosure requirements because it is more suitable to preparing general-purpose financial statements for SMEs compared to IFRS. Primarily, rather than follow Tier 1 for SMEs, AASB thought it best to use RDR because it uses the fundamental IFRS for SMEs as a base for financial statement disclosure and supplements further disclosure requirements it considers necessary. The RDR however acknowledges complete IFRS measurement and recognition. The only aspect it observes involves considering further disclosure requirements not provided by the IFRS for SMEs.

References

Picker, Ruth 2009, Australian Accounting Standard. 1st ed. Australia: John Wiley & Sons. 1292.

Finley, Mark 2010, Finance And Accounts. 4th ed. Australia: Haybert Publishers. 2315.