Is the RDR the future in differential reporting for for-profit entities?
By Scott Sharp
In March 2012, the External Reporting Board (XRB) proposed a number of changes to the New Zealand Accounting Framework, which enabled them to come to a decision in terms of differential reporting for for-profit entities. The XRB have chosen to align New Zealand with Australia and implement NZ IFRS Reduced Disclosure Regime (RDR). Is this the right decision moving forward in differential reporting?
There is to be a four-tier structure with different reporting standards applying to each tier, however the bottom two tier are only transitional which will be removed according to legislative changes enforced. This allows us to focus on tier 2 for differential reporting which in order to qualify for the new RDR approach entities must be not publicly accountable or non-large public sector entities which elect to be in tier 2. Entities that are publicly accountable either trade in the capital markets and/or holds assets for a broad group of outsiders as one of its primary businesses. For a for-profit public sector entity to be considered “large” and thus placed in tier 1, it must have expenses exceeding $30 million. Under the current approach to differential reporting that was issued in 1994, entities must; not be publicly accountable, have all of its owners as member of the governing body at the end of the reporting period, and be not large. The criteria for “large” is a little different being that entity must meet two of the following; total assets exceeds $10 million, total turnover exceeds $20 million, and have 50 or more employees. The other option was to align ourselves with the international approach with IFRS for SMEs. To qualify, entities must again not be publicly accountable and publish general purpose financial statements for external users.
The most important aspect for