While these organisations have sought to resolve the matter of reduced disclosure by issuing separate models, the AASB continues to try to remain true to its policy of implementing IFRS in as pure a form as possible. As such, the RDR regime, although separate, is built on the work of the IASB and an examination of the AASB’s “Tier 2 Disclosure Principles” will highlight the journey. The result of this dichotomy and the work being undertaken by both boards has considerable implications for public-sector reporting in Australia.
Guiding principles
As such, a number of underpinning pieces of work undertaken by the IASB are relevant to any discussion of RDR in the context of the public sector in Australia.
There is little doubt that there is a lot of work to do, but it is important for all of those interested in public-sector reporting to understand the IASB’s foundation principles which were developed to guide the creation and enhancement of IFRS for SMEs.
These foundation elements have also been considered by the AASB. The AASB’s “Tier 2 Disclosure Principles” document identifies that IFRS for SMEs should be used as the basis for identifying disclosure requirements under RDR. Where the IFRS for SMEs recognition and measurement requirements found in the Australian equivalents to International Financial Reporting Standards (A-IFRS) are not the same as IFRS for SMEs, the AASB will apply the “user need” and “cost-benefit” principles in determining what should be included in the RDR disclosure requirements.
Applying concepts to the public sector
The concepts of “user need” and “cost-benefit” can be tricky in the context of public sector and the application of these ideas is one that public-sector policy-makers and regulators need to consider closely. For instance, it is difficult to identify who the user is in the context of public-sector reporting and the parliamentary budget process. If we cannot readily and uniformly agree as to who the users are, then it becomes very hard to decide what is required to meet their information needs. This is especially true in the context of the parliamentary budget process which is, undoubtedly, a most significant financial management and governance process and one which is usually undertaken a considerable time before any financial reports are available for review. Arguably, the informational requirements of many users are addressed during the budget process itself.
Commercial concepts fall short
Equally, traditional commercial concepts relating to cost-benefit analysis are likely to fall short in the case of public-sector reporting. It is not difficult to identify areas where the concept of materiality as used in commercial accounting and reporting might suggest that a particular disclosure may not be required under RDR. However, in the case of the public sector, adequate transparency in the disclosure of information is essential. This may be qualitatively material but costly to provide – yet how does one measure this cost? Therefore, the general statement by the AASB in paragraph 10 of their Disclosure Principles document – essentially that as A-IFRS is applied to all entities in Australia then it is reasonable to rely on judgements made in the development of IFRS for SMEs notwithstanding this model was developed for commercial application – is something that should cause those interested in the public sector to closely analyse the prospective RDR arrangements as they develop.
Disclosure dilemmas
Such consideration might be applied in reviewing the current exposure drafts issued by the AASB and applicable to the public sector. These include ED 212 which discusses disclosure requirements of not-for-profit entities within the General Government Sector (GGS) and ED 214 which specifically looks at related party disclosures in the public sector. ED 212 is a case in point in relation to the idea of cost-effective disclosure. This document, among other things, suggests that the provision of disaggregated information should not be disclosed by an entity implementing the RDR on the basis that the activities may not align with the disaggregated disclosures being made at a Whole of Government or GGS level.
This is an important point. However, those interested in the spending in specific departments are not necessarily interested in the Whole of Government and there are likely to be user groups extant that want to know what has occurred in their area of interest rather than at a higher level. Cost is not the issue here but the lack of knowledge regarding user requirements and what constitutes acceptable levels of public-sector disclosure.
Opportunity for public-sector comment
In relation to ED 214, the AASB has taken on board representations from the public sector by developing an ED examining the implications of applying related party disclosure requirements to the public sector. This is an important area for public-sector disclosure but, as the ED shows, is not as simple in its application to this sector as it is in the private sector. Cross-ministerial responsibilities combined with parliamentary impacts make this a difficult area. However, the AASB has taken heed of the sector’s concerns and public-sector policy-makers and regulators can make comment regarding this ED until 31 January 2012.
Other areas yet to be considered and relevant to the public sector include disclosure of borrowing costs, the concept of control in the public sector and there are, of course, a number of planned activities that are ostensibly to apply to the private sector but which will have implications for the public sector.
