Last year, the Australian Accounting Standards Board (AASB) introduced proposals to require entities lodging special purpose financial statements (SPFS) with the Australian Securities and Investments Commission (ASIC) and not-for-profit (NFP) entities lodging SPFS with the Australian Charities and Not-for-profits Commission (ACNC) to make certain disclosures regarding the extent of their compliance with the recognition and measurement (R&M) of Australian Accounting Standards (AAS).
The proposals have since been mandated via 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 Requirements. The AASB, however, decided that the new disclosures would not apply to for-profit private sector entities considering the current proposals to eliminate SPFS for certain of these entities from 30 June 2021 onwards.
Why did the AASB make these changes?
Research undertaken by the AASB indicates that for 44% of medium and large charities lodging SPFS with the ACNC, it was unclear whether or not they complied with the R&M requirements in AAS. The new disclosures will provide more transparency for SPFS available on public record.
Furthermore, considering the AASB’s current broader NFP private sector financial reporting framework project, understanding the extent of alignment between existing accounting policies and the R&M requirements in AAS will help NFP entities assess the impact of any future transition from SPFS to any potential new reporting requirements.
Who is affected?
Medium and large charities registered with the ACNC that prepare SPFS, as well as NFP entities lodging SPFS with ASIC under the Corporations Act (such as companies limited by guarantee), will be captured by the changes and be required to make the new disclosures outlined below in their financial statements.
Who is not affected?
The following entities will not be affected by the new disclosures:
- Small charities registered with the ACNC;
- Medium and large charities registered with the ACNC that are not required to comply with ACNC reporting requirements due to ACNC transitional reporting arrangements;
- NFP entities required by Federal or State/Territory legislation to prepare financial statements in accordance with AAS or accounting standards (e.g. Incorporated associations, co-operatives and charitable fundraising organisations), that are preparing SPFS and not specifically required to comply with AASB 1054;
- Not-for-profit public sector entities;
- For-profit private and for-profit public sector entities.
What needs to be disclosed?
The new disclosures have been added to AASB 1054 Australian Additional Disclosures via the amending standard and are as follows:
- The basis on which the decision to prepare SPFS was made.
- Compliance with the R&M requirements in AAS (except for consolidation and equity accounting):
- For each material accounting policy applied and disclosed in the SPFS that does not comply with the R&M requirements in AAS (except for consolidation and equity accounting), disclose an indication of where it does not comply, or disclose that an assessment of compliance has not been made; and
- Whether or not the SPFS comply overall with the R&M requirements in AAS (except for consolidation and equity accounting), or state that such an assessment has not been made.
- Application of the consolidation and equity accounting requirements:
- If the NFP entity has determined that its interests in other entities give rise to interests in subsidiaries, associates or joint ventures it shall disclose whether or not it has consolidated or equity accounted those interests in a manner consistent with the requirements in AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures. If it has not, it shall disclose that fact and the reasons why; or
- If the NFP entity has not made this assessment and was not required by legislation to do so, it shall instead disclose that no assessment has been made.
Implementation guidance and examples have been included in the amending standard to assist NFPs in making the appropriate disclosures.
Does this mean NFPs have to change their accounting policies?
No, it does not. For material accounting policies disclosed in the financial statements, where the NFP does not comply with a specific R&M requirement of AAS, it must provide an indication of how it does not comply. Where an assessment of compliance with AAS has not been made, the NFP simply discloses that fact. In other words, NFPs do not have to undertake a detailed assessment of their R&M compliance if this information is not known – they must just state this in their financial statements by including appropriate narrative.
When will the new disclosures apply?
The new disclosures apply to annual reporting periods ending on or after 30 June 2020.