From 1 July 2021, the existing Reduced Disclosure Requirements (RDR) framework will be withdrawn and no longer maintained. Changing from Tier 2 RDR to Tier 2 Simplified Disclosures will mean a change in disclosures only as the recognition and measurement requirements are the same for both frameworks.
Put another way, disclosures in the financial statements supporting the reported numbers will be different but the numbers themselves (and how they are derived) will be the same.
Entities that currently prepare Tier 2 RDR financial statements have a choice: adopt the new Tier 2 Simplified Disclosures when it becomes mandatorily
effective (so for annual reporting periods beginning on or after 1 July 2021), or they can adopt it early.
Adopting early means applying the requirements of Tier 2 Simplified Disclosures to financial statements for years ended 30 June 2021 (or 31 December 2021 for December reporters).
For-profit entities that early adopt have access to significant transitional relief when it comes to the presentation and restatement of comparative information. As highlighted in issue 8 of The Bottom Line, NFP entities, however, were not granted any transitional relief, although the Australian Accounting Standards Board (AASB) were proposing at the time to offer some relief to NFP entities that currently prepare RDR financial statements and that adopted Simplified Disclosures early.
This has now been finalised through the issue of AASB 2021-1 Amendments to Australian Accounting Standards – Transition to Tier 2: Simplified Disclosures for Not-for-Profit Entities. The amending standard permits NFP entities moving from RDR to Simplified Disclosures earlier than required to, to choose not to disclose comparative information in any new notes required by Simplified Disclosures. Considering this really only applies in two instances – imputation credits (which is not relevant for NFPs) and audit fees – this optional relief is not likely to be of any real consequence.
To be clear, the relief offered under AASB 2021-1 only applies to NFP entities currently preparing RDR accounts. It does not apply to NFP entities that currently prepare special purpose financial statements. Furthermore, while for-profit entities have other optional transitional relief available to them
when preparing general purpose financial statements (Simplified Disclosures) for the first time, NFP entities do not. The transitional relief in question relates to the relief from:
- restating comparatives in the year of transition (only available to for-profit entities that adopt the changes early); and
- distinguishing between prior period errors and changes in accounting policies in the year of transition (available to for-profit entities whether they adopt the changes early or not).
This update was first published in The Bottom Line Issue 10.