Large Australian companies that have previously complied with all disclosure requirements in accounting standards are now claiming that they do not have public accountability and are doing less disclosure.
The auditors of these companies are going along with this treatment. The reduced disclosures under AASCB 1053 include the removal of information about remuneration for key management, financial risk management, and audit firm remuneration.
The new Australian Accounting Standards for ‘Reduced Disclosure Requirements’, or AASB 1053, remove the requirement to publish much of the detail about a company, if they have no ‘public accountability’. It does not officially begin until July 1, 2013, however some companies have already implemented the new standards.
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I do not understand how a public company complying with all accounting standards overnight becomes an entity with no public accountability, thereby reducing its disclosures. It’s not a good look when the management of a public company is responsible for reduced disclosures of management remuneration or an audit firm agrees that the disclosure of audit firm remuneration should be removed from the accounts.
Under AASCB 1053 a company must have no ‘public accountability’ to take advantage of the new reduced disclosure requirements. Public accountability is defined to mean “accountability to existing and potential resource providers and others external to the entity who make economic decisions but are not in a position to demand reports tailored to meet their information needs.”
A large Australian company that is economically significant, employing hundreds of employees or with hundreds of creditors, has public accountability because those stakeholders and resource providers cannot command specific financial information from the company. Employees and creditors of such a company are entitled to information about how the company is managing financial risks, especially given the current economic environment.
I will issue a challenge to the big audit firms to show leadership when interpreting the meaning of “public accountability” for the purpose of accounting standards disclosures.
The accounting profession must act in the public interest and it fails in this regard when it reads down definitions in accounting standards and meekly concedes to fee-paying clients. If the big audit firms are weak when interpreting the meaning of ‘public accountability’, then they make the case for less professional judgment and more hard and fast rules like audit firm rotation.
Jeffrey Knapp is a lecturer in financial accounting at the Australian School of Business.