Tier classification
The capacity of organisations to be relegated to Tier One or which have the capacity to adopt Tier Two is determined by AASB 1053. In essence, those organisations that have “public accountability” (ie private for-profit entities, Australian, State, Territory or Local Government) or that choose to apply the full A-IFRS must do so. Importantly, “public accountability” includes only for-profit private entities while public sector entities are able to adopt Tier Two provided they are not Whole of Government (ie, the highest reporting level for a jurisdiction). Not-for-profit entities are entirely exempt if they wish to be and the public accountability definition does not stretch to them.
Issues for public sector entities
Of course, many readers will immediately identify a number of issues relevant to such a regime in the context of the public sector. For instance, the application of Tier Two disclosures for public sector agencies (ie departments of state, offices, bureaus, even GTEs) is potentially an attractive option for many in the sector – leaving aside the limited value of the elements actually not required to be disclosed and discussed below. However, if the agencies have to be consolidated into Whole of Government accounts – which they invariably do – then the information being excised from individual agency financial reports will be required for consolidation purposes as it is intended that Whole of Government comply with full A-IFRS. There is either a need for extra work to consolidate or it might be decided within jurisdictions that the implementation of Tier One for all agencies is in fact a more efficient direction.
In terms of implementing the RDR, there are also some issues that immediately raise their head in the context of public sector reporting. Aside from the practical element that it is jurisdictions (usually Treasuries) that decide how agencies will report combined with the supremacy of financial management legislation in each jurisdiction, those elements identified by the RDR as being able to be ignored by Tier Two organisations may well be immaterial in a financial sense but material in a political or public sense. While the reduced disclosure regime may allow Tier Two organisations to avoid reporting such things as loan breaches (AASB 7) or disclosure of cash flows resulting from obtaining or losing control of subsidiaries or other businesses (AASB 107), there are clear reasons why such information should be reported in the context of the public sector.
Similarly, there is such an array of different types of public sector entity that the application of Tier Two requirements for many agencies would probably be sufficient in terms of reporting requirements.
However, as there are many different organisations doing many different things, it is likely that Tier One requirements or subsets of those requirements would be required to be applied for some agencies while not for others if transparency and accountability is to be retained. Thus, from a practical perspective, the development of financial reporting models by regulators within jurisdictions would become a far more difficult, time-consuming and expensive task.
More to do
Clearly there is much work to be done before we all feel comfortable in declaring the RDR a success or a failure. However, the regime requirements themselves and the allocation of public sector agencies into the appropriate tier may well see public sector regulators prefer to maintain the status quo and regard all agencies as Tier One organisations in order to avoid cost in time and money as well as a potential reduction in transparency and accountability to the broader body politic.
