Are Accounting Standards Mandatory?
The short, complicated answer
Well… that depends – classic accountant’s response.
Generally speaking, accounting standards are mandatory for Australian Businesses. However, the degree and extent with which these standards are adopted, varies.
A clearer answer
In Australian accounting there are three levels of financial reporting:
“In Australian accounting there are three levels of financial reporting”
1. General Purpose Financial Reporting:
This applies to large public entities that have public accountability.
Entities such as companies listed on the stock exchange fall within these standards. The of the implementation and enforcement of these standards are extremely important. Especially, given the significant separation between a public company’s and its shareholders. These rules reinforce a level of transparency and consequently, accountability for these entities. Discouraging them from any criminal and fraudulent behaviour.
As new accounting policies are passed, it can be exhausting and expensive for any business to keep up. Thankfully, companies are granted a grace period to phase in these new changes.
2. Reduced Disclosure Requirements:
More commonly known as Tier 2 requirements.
These apply to non-publicly-listed companies that still fall within the General Purpose standards. As they are not trading publicly, they do not require the same level of accountability. In many ways, this Tier provides regulatory relief for large private corporations. Alleviating any unnecessary compliance burdens and costs to a diverse range of businesses.
A simple example of this would involved a large, private reporting entity that has no debt or equity instruments on a public exchange.
3. Special Purpose Financial Reporting:
While the previous examples dealt with businesses of a specific size and accountability. SPFRs are predominantly for small businesses where General Purpose Reporting is not required.
Businesses that do not answer to shareholders are only expected to prepare reports for internal use or tax preparation.
Having expressed that, SPFRs still embody the regulatory zeal of Australian Accounting Standards. Though this time without the same rigour one would expect from a publicly listed company.
Where to go from here?
Navigating tax law can be confusing if you do not know where to start. In these circumstances, it is encouraged that you seek the help of the appropriate expert.
“Navigating tax law can be confusing if you do not know where to start.”
At Accodex we have a team of partners that specialize in the area of tax, covering a range of industries. Whatever your accounting needs, we have a Partner that will help your business get back on track.
Keep in mind that this is general information and should ever only serve as a guide. As such it should not be taken as specific advice.
Always remember that legislation around tax is always changing. Chances are that the laws may have been updated since the publishing of the article.
This is why it is always best to consult with your local professional. Better yet, why not contact an expert from Accodex Partners.
Written By: Chris Hooper
Chief Executive Officer