David H.

The Australian Accounting Standards Board (AASB) is reviewing financial reporting requirements for the public sector.1, 2 

It is asking whether the requirements adequately hold the public sector accountable for the use of taxpayers’ monies.

Related questions are what disclosures can be removed or reduced, and what should be changed or increased?

I have undertaken some broad research on the AASB’s proposals as to which reporting tier public sector entities should use.

Currently, the AASB permits two tiers for general purpose financial statements:

  • Tier 1 for entities with public accountability
  • Tier 2 (also referred to as the Reduced Disclosure Regime (RDR)) for other entities.

At the time of the AASB research, only Queensland, South Australia, and the Commonwealth allowed the use of RDR for entities below whole‑of‑government level.

For Queensland, Queensland Treasury requires Tier 1 reporting for all departments and statutory bodies consolidated into the whole‑of‑government financial statements. Queensland Treasury considers statutory bodies to be material and consolidated into the whole‑of‑government report if they have a net operating result in excess of $5 million, or net assets in excess of $75 million.

Queensland whole‑of‑government reporting

In Queensland, departments control approximately half of the total assets the government holds (measured by General Government Sector—GGS). The other assets are held by statutory bodies, or as administered items.

Asset holdings for the Queensland Government

(2017 $bil.)
 Departments (21)
 Administered—Land under roads
 Administered—Reserved land
 – Investments in public sector entities
 – Investments with public financial corporations
 Hospitals—Hospital and health services (HHSs) (16)
 Other GGS bodies
 Total GGS (General Government Sector)


Determining thresholds

The AASB put forward five proposals for determining reporting requirements. Some of the proposed AASB criteria as to which entity should report under Tier 1, or RDR, are based on the entity’s:

  • size/economic significance (for example, measured against expenses and/or assets)
  • nature of activities (for example, public interest, such as greater reporting for health, education, transport, housing, defence).

The AASB also suggested some example thresholds, one being departments with assets above $2.5 billion. 

With the size of the Australian Government, I think $2.5 billion would be too small. However, that threshold would be too large for the Northern Territory. I think the current approach of individual jurisdictions setting below whole-of-government reporting thresholds should continue.

Extract of sizes of some Australian governments

(2017 $bil.)
(2017 $bil.)
 Commonwealth GGS
 Queensland GGS
 Northern Territory GGS
 Brisbane City Council


RDR—Implications of other AASB proposals

Since its introduction in 2010, I have found the RDR regime a very useful starting point for entities to reduce unnecessary clutter. However, my biggest concern is that it can go too far—if an item is material had Tier 1 been applied, but is not mandated under RDR, there is no direct mechanism to require the inclusion of such material information. Although as auditors we would argue that the disclosure is necessary to fully inform the users of the financial report.

In the last few years, there have been numerous initiatives to improve the effectiveness of financial reporting—they go by various names, such as focused financial reporting, streamlined financial reporting, and effective financial reporting. For example, refer to the recent QAO blog article Focused financial reporting that says, ‘Simplifying financial reporting is an ongoing process of change’.3 There is also the International Accounting Standards Board’s Disclosure Initiative project. 

Tier 3

The AASB Discussion Paper1 referred to the possibility of additional reporting tiers (for example, Tier 3 or T3), for entities that are not significant. I think a Tier 3 would be useful for the public sector, and I discussed my proposals in my blog article last year Developing a simpler, and better, reporting framework.4


The AASB review provides examples of governments using the RDR reporting approach to reduce the reporting burden. These examples will be useful for those states and territories not currently using it. I think the current approach of letting each jurisdiction decide which reporting tier their public sector entities should use is appropriate and does not need AASB intervention.

For Queensland, we have been applying focused financial reporting and working on cutting the clutter for a few years. Do you think that we need an RDR tier if entities have removed immaterial information? Keep an eye out for proposals from the AASB to revise the RDR disclosures. You should consider providing feedback to the AASB.

I continue to urge the AASB to develop a Tier 3 reporting framework, along the lines of what I have suggested, to benefit both the public and private sectors. If we removed or simplified RDR, then we would be broadly left with just two reporting tiers.