Differential Reporting Framework (“RDR”) – what is it?

Currently, all approved providers, irrespective of the size of their operations are required to prepare general purpose financial statements (“GPFS”) as a condition of receiving CAP funding. This translates to an operator of a single (or stand alone) aged care facility having to comply with the same accounting, reporting and disclosure requirements of a company like BHP Billiton.

If the proposals outlined in exposure draft ED 192 ‘Revised Differential Reporting Framework’ (“ED 192”) are implemented in Australia, certain approved providers may be able to move away from having to prepare GPFS.

In brief, ED 192 proposes to remove the reporting entity concept as the determinant for the content of a financial report, and replacing it with a system of two Tiers of reporting as highlighted below to reduce the burden on most entities preparing GPFS.

• Tier 1 – having to apply full IFRS as adopted in Australia where an entity is required to apply the recognition, measurement and disclosure requirements of all Accounting Standards.
• Tier 2 – having to apply all of the recognition and measurement requirements outlined in Accounting Standards but with reduced disclosure.

Under the proposals, publicly accountable, for-profit private entities would continue to apply full IFRS (currently the case for all approved providers irrespective of size and legal structure), but non-publicly accountable, for-profit private entities and private, not-for-profit entities would be able to apply RDR, which should translate to reduced disclosures.

An entity has public accountability if:

• its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
• it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

Some of the other ED 192 proposals relevant to approved providers include:

• Publicly accountable for-profit private sector entities must apply Tier 1, and non-publicly accountable for-profit private sector entities have a choice of applying Tier 1 or Tier 2.
• Not-for-profit private sector entities having a choice of applying Tier 1 or Tier 2.
• Financial statements required to be prepared under a legal mandate in accordance with Australian Accounting Standards and lodged on a public register (i.e. ASIC) are GPFS.
• Transitional provisions for entities applying Tier 1 or Tier 2 for the first time and moving between Tiers.
• Entities applying RDR would state compliance with Tier 2 of Australian Accounting Standards and would not be able to state compliance with full IFRSs.
• Regulators will have the power to require the application of Tier 1 requirements by entities they regulate.

Impact on the industry could be profound for those non-publicly accountable approved providers, should the Department of Health and Ageing (“the Department”) not mandate the application of Tier 1 reporting requirements and may lead to the following benefits:

• Reduced reporting burden;
• Less time spent preparing financial statements; and
• Users having a better chance to understand what’s included in the financial statements.

It is important that the Industry Bodies continue to consult with its members and the Department to ensure that the Department’s needs for approved providers to disclose segment information plus the RDR requirements would be adequate for the Departmental purposes.

If ED 192 is adopted, the two tiers system would be applicable to annual reporting periods beginning on or after 1 January 2013 with early adoption of the reporting requirements permitted for the year ending 30 June 2010.