Following proposed amendments to Australian Accounting Standards all companies required to lodge financial statements with ASIC, whether privately owned or publicly listed, will have to prepare those financial statements in full compliance with the measurement and disclosure requirements of all Australian Accounting Standards.

Accordingly these proposals will force private companies and family businesses which have no outside investors to comply with the full requirements of A-IFRS and they will be subject to all the accounting standards as if they were listed companies.

Currently only companies that are “reporting entities” are required to prepare financial statements in full compliance with A-IFRS, and most private and family owned companies are not reporting entities.   This proposed change will impact those companies that are not reporting entities but are required to lodge financial statements with ASIC because they are defined as “large” under the Corporations Act.  Large companies are those which satisfy 2 of the following:

• turnover greater than $10m
• gross assets greater than $5m
• more than 50 employees.

The proposed amendments in this exposure draft would require private and family business to disclose information that they would normally prefer to remain private, such as directors' and key officers remuneration. Businesses will need to disclose information that is of importance when analysing a public company but is of little value to users of private company financial statements.

Deloitte partner Howard Badger says, “This appears to be an unintended consequence of applying international definitions and requirements of disclosure to relatively small companies that are required to lodge their financial statements under Australian Corporations Law. This will impose a significant impost and cost on private Australian businesses for little benefit.”

Deloitte believes the proposed amendments should not proceed in their current form because:

• many of the disclosure requirements of A-IFRS are designed for public companies where management is separate from ownership.  The requirements should not be applied to relatively small private companies which are operated by the owners
• there would be a significant increase in compliance cost as the financial statements would be 30-50 pages in length increasing bureaucracy and preparation time by effected companies
• many companies of this size do no have the internal resources necessary to comply so will be forced to use external consultants
• creditors and banks do not require this level of detail from companies of this size.

Howard added “It will be very important for the small to medium business to voice their concern and opposition to these proposals.  Australian business should be all about reducing red tape and the costs of doing business, not the opposite”. 

Submissions to the Australian Accounting Standards Board on ED 148 “Proposed Amendments to AASB 101 Presentation of Financial Statements: A Revised Presentation” (350 KB) closes on 15 June 2006.