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Reporting entity concept: a case study of the failure of principles‐based regulation

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  • R. G. Walker

Abstract

Since 1990 a key element of Australia's regulatory arrangements has been reliance on a ‘principles‐based’ rule to the effect that all ‘reporting entities’ should prepare general purpose financial reports (GPFRs) that comply with accounting standards. The concept of reporting entity was defined in terms of whether it was ‘reasonable to expect the existence of users’ who were dependent on GPFRs for information which will be useful to them when making and evaluating decisions about resource allocation. Australia's differential reporting arrangements are reviewed so as to highlight the extent to which reliance is placed on practitioners to apply the ‘reporting entity’ rule for entities other than publicly listed corporations or borrowing corporations. Illustrations are provided of how this ‘principles‐based’ rule has been ignored. This experience suggests that there is little reason to expect full observance of a principles‐based rule, if reliance is placed upon practitioners to ensure compliance.

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  • R. G. Walker, 2007. "Reporting entity concept: a case study of the failure of principles‐based regulation," Abacus, Accounting Foundation, University of Sydney, vol. 43(1), pages 49-75, March.
    • Handle: RePEc:bla:abacus:v:43:y:2007:i:1:p:49-75
    DOI: 10.1111/j.1467-6281.2007.00217.x
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    References listed on IDEAS

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    1. David Alexander & Eva Jermakowicz, 2006. "A true and fair view of the principles/rules debate," Abacus, Accounting Foundation, University of Sydney, vol. 42(2), pages 132-164, June.
    2. George J. Benston & Michael Bromwich & Alfred Wagenhofer, 2006. "Principles‐ versus rules‐based accounting standards: the FASB's standard setting strategy," Abacus, Accounting Foundation, University of Sydney, vol. 42(2), pages 165-188, June.
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    Cited by:

    1. Diane M. Mayorga & Baljit K. Sidhu, 2012. "Corporate Disclosures of the Major Sources of Estimation Uncertainties," Australian Accounting Review, CPA Australia, vol. 22(1), pages 25-39, March.
    2. Peter Carey & Brad Potter & George Tanewski, 2014. "Application of the Reporting Entity Concept in Australia," Abacus, Accounting Foundation, University of Sydney, vol. 50(4), pages 460-489, December.
    3. Jens Wüstemann & Sonja Wüstemann, 2010. "Why Consistency of Accounting Standards Matters: A Contribution to the Rules‐Versus‐Principles Debate in Financial Reporting," Abacus, Accounting Foundation, University of Sydney, vol. 46(1), pages 1-27, March.
    4. Sylvain Durocher & Anne Fortin, 2014. "New Canadian Accounting Standards for Private Enterprises and the Adoption Timing Decision," Australian Accounting Review, CPA Australia, vol. 24(3), pages 218-236, September.
    5. Karen Handley & Sue Wright & Elaine Evans, 2018. "SME Reporting in Australia: Where to Now for Decision†usefulness?," Australian Accounting Review, CPA Australia, vol. 28(2), pages 251-265, June.
    6. Phil Saj & Chee Cheong, 2020. "The Application of the Reporting Entity Concept by Australian Charities," Australian Accounting Review, CPA Australia, vol. 30(4), pages 283-299, December.
    7. Lorne Cummings & Maria Dyball & Jessica (Jin Hua) Chen, 2010. "Voluntary Disclosures as a Mechanism for Defining Entity Status in Australian Not-for-Profit Organisations," Australian Accounting Review, CPA Australia, vol. 20(2), pages 154-164, June.

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