As such, this article discusses some of the finer points of disclosure that are affected by RDR and also makes some observations regarding possible directions jurisdictions might consider taking. There is still a lot of work to do to arrive at a definitive position regarding RDR and the public sector and so this article is intended to provoke thought rather than be prescriptive.
Concern for reduced usability
In considering the RDR and the various reductions available, it would seem logical to commence the review by considering AASB101 Presentation of Financial Statements as this is very much a cornerstone disclosure standard. Aside from dropping the requirement to include administrative information such as contact details, more serious reductions in disclosure include the fact that organisations would no longer be required to disclose an auditor’s remuneration or even their own objectives. Such disclosure reductions are unlikely to result in efficiencies from the preparers’ or auditors’ perspective but will likely reduce the utility in terms of the statements from a reader’s perspective.
The cost of an audit is a significant issue in the public sector and improvements in financial management should be resulting in lower assurance costs over time. Additionally, from a reader’s perspective, the disclosure of the objectives of an agency places the financial reports in context. It is, after all, the purpose of the entity and Parliament’s expectations in that regard against which cost is considered.
Efficiency at the expense of information
Additionally, the nature and amount of each individual class of capital commitment are not required to be discloses under the RDR and this is similarly worrisome given the public nature of the financial reports and, generally, the forward-looking nature of the budget process within our system of government. This reduction probably does provide some relief for preparers and very likely efficiencies for auditors. However, the information would still be required to be prepared for internal reporting purposes and for consolidation (if material) and so such efficiency savings may be somewhat less than initially thought.
Where some considerable efficiencies may be achieved is in the area of new accounting policies and the reporting of future possible impact as a result of such changes. The RDR removes the need for adopting entities to report the future impact of accounting standards changes and policy changes as required by AASB108 Accounting Policies, Changes in Accounting Estimates and Errors. This reduction in disclosure is likely to result in efficiencies as the work involved in estimating and reporting can be substantial and the assurance over those estimates and presentation can also result in significant costs. However, this is a saving achieved as a result of an intermittent disclosure requirement and so is dependent on changes being made internally and externally.
A win for preparers and users
From a cash management perspective, AASB107 Statement of Cash Flows has also been included in the RDR regime by removal of the need for implementing entities to include a reconciliation of net cost of services to cash flows arising from operating activities. This also represents a likely efficiency gain for preparers and auditors. It is probably of value to readers as well as it reduces the complexity of the reports and simplifies them. Of course, there would need to be other controls internally replacing this reporting process and auditors would need to consider their process in this regard. However, overall there is likely to be a saving here.
Reporting on joint ventures
Interestingly, interests in joint ventures (AASB131 – now superseded by AASB 11 Joint Arrangements) are also subject to the RDR regime and two major reductions in disclosure are evident. The first is that RDR adopting entities do not need to disclose their share of any profits arising from a joint venture. This would seem to represent a real reduction in utility in public sector reporting as joint ventures, particularly with commercial entities, often attract considerable political interest and the disclosure of outcomes related to such models would be of interest to the parliament and public.
Additionally, there is no need for RDR adopting entities to provide disclosure information pertaining to their share of joint venture assets and liabilities. Again, this is likely to represent a reduction in the utility of financial reports from a reader’s perspective.
Disaggregated disclosures
A final major opportunity for efficiency would seem to lie in the reduced application of AASB1052 Disaggregated Disclosures.
Under the RDR, local government and government departments would no longer be required to disclose disaggregate information by providing a schedule of income and expenditure and/or assets and liabilities by service. This is likely a very real opportunity for efficiency gains as preparers and auditors would not need to consider developing (and subsequently assuring) subsidiary documents that are unlikely to add to the utility of the reports themselves in any case.
In summary
Overall, there are many reductions in disclosures represented by the RDR and there are still questions over a number of them. The key difficulty for public sector regulators will be the need to maintain as close to homogenous reporting models as possible whilst respecting the fact that public sector entities have nuanced differences even within a jurisdiction.
Potentially a major challenge for regulators is the prospect for leveraging the RDR by adopting further, and perhaps more focused and appropriate, changes for their jurisdictions. In other words, the RDR might be a catalyst for more effective changes in the reporting regime of the Australian public sector.
