Evidence‐informed Approach to Setting Standards: A Discussion on the Research Strategies of AASB and AUASB

This paper provides a commentary on the approach used by the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) in setting standards which are consistent with their vision and mission to contribute to stakeholder confidence in the Australian economy, including its capital markets, and in external reporting. The objective of the paper is to inform a wide range of stakeholders including academics, assurance practitioners, investors, preparers of financial reports and regulators on how the two standardsetters use a robust and transparent evidence‐informed approach to setting standards and guidance in Australia. The evidence is also applied to influence international standardsetters and to enhance key international relationships by demonstrating thought leadership. The AASB's and the AUASB's standard‐setting process involves robust consultation with stakeholders and is guided by the evidence‐informed standard‐setting frameworks of the two boards. The paper also provides insight into how evidence is gathered and implemented by the standardsetters and discusses the process for building and maintaining strong relationships with the research community. The collaborative effort not only supports researchers in contributing to the academic literature but also for them to have a regulatory impact by informing the financial reporting and assurance standard‐setting process. This paper investigates the application of the reporting entity concept by Australian charities through a broad scale empirical analysis of a random sample of 10% of large Australian charities. The paper finds that charity financial reporting is inconsistent and, in many cases does not meet the necessary reporting and audit requirements. The paper concludes that the application of the reporting entity concept, as embodied in SAC 1, does not provide for the quality of financial reporting it was designed to promote.