In recent years, the Australian Accounting Standards Board (AASB) has issued new standards affecting the financial reporting of the not-for-profit (NFP) sector. Specifically, these are:
- AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirement
- AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
- AASB 2021-1 Amendments to Australian Accounting Standards –Transition To Tier 2: Simplified Disclosures For Not-For-Profit Entities
Understanding the above standards and applying them may not be a straightforward exercise for NFP entities. Before implementing a new standard, we suggest following a simple two-step process. The process outlined below will ensure the appropriate reporting requirements are complied with.
Step 1 – Review financial reporting obligations
A NFP organisation may be subject to certain reporting obligations to different regulators. The main regulators are the Australian Securities and Investments Commission (ASIC), the Australian Charities and Not-for-profits Commission (ACNC), the Office of the Registrar of Indigenous Corporations (ORIC) or the Office of Fair Trading (or its equivalent in each State or Territory).
Depending on the type and size of the entity, the relevant regulator will require specific financial information to be lodged. In preparing this financial information the entity needs to consider the appropriate accounting standards to apply. In addition, reporting obligations may change especially following the newly issued accounting standards mentioned above. To ensure the entity is across all relevant changes, you should review the relevant regulator’s website to understand the latest reporting requirements.
As an example, the ACNC’s website states that:
- Charities registered with the ACNC will be able to continue preparing special purpose financial statements SPFS (if appropriate).
- Charities currently preparing general purpose financial statements (GPFS) under the Reduced Disclosure Regime (RDR) will need to apply the new Tier 2 Simplified Disclosures (SD) framework.
- Most charities that are incorporated associations are no longer required to submit their financial report directly with their state or territory regulator and can submit once to the ACNC.
- If charities are still required to submit to their state or territory regulator, charities can also submit the same financial report to the ACNC from the 2014 to 2024 reporting periods.
Step 2 – Review stakeholders’ needs
NFP organisations may choose to prepare GPFS as it is ‘a nice to have’ which could be a surplus requirement compared to its constitution, needs, or current size. Others may need to change from SPFS to GPFS due to growing needs of its stakeholders.
These stakeholders may include members, funders, the board of directors or members of the community being serviced. It is important to review these needs on a sufficiently regular basis, documenting in minutes of meetings of those charged with governance of the changes and the reasons for these changes.
View our table for NFP entities. It may assist with navigating reporting requirements and future changes. Note that the list is not exhaustive and does not cover every situation that might arise.
NFP entities can continue to prepare SPFS, if appropriate to do so. We would suggest that, after working through the steps described above, management consult with their board of directors, auditors, and lawyers (if required) well in advance before preparation of the 30 June 2022 or 31 December 2022 financial statements commences.
This simple planning exercise may avoid resource-constrained NFP entities doing unnecessary work, or preparing financial statements in accordance with the wrong framework.
This article was first published in For Impact, Issue 25. HLB Mann Judd’s newsletter for the NFP community.