Since issuing a Discussion Paper (DP) late in 2022, the Australian Accounting Standards Board (AASB) has quietly continued working on simplified accounting requirements for smaller NFP entities. The AASB has taken several decisions to date on various aspects of the proposed NFP Tier 3 reporting framework as it develops an Exposure Draft for public comment.

Late in 2022, the AASB released a DP titled Development of Simplified Accounting Requirements (Tier 3 Not-for-profit Private Sector Entities). As explained in our article at the time, this DP set out the AASB’s initial discussions and views regarding a simplified Tier 3 reporting tier for smaller NFP private sector entities, marking the first major step in overhauling the NFP financial reporting framework.

While sustainability reporting has been the AASB’s priority for the last few months, the AASB has quietly continued to work on the NFP Tier 3 project in the background after receiving strong support from stakeholders on its proposals set out in the DP.

The AASB is working towards issuing an Exposure Draft for public comment, the timing of which is still unclear at this stage. The key decisions the AASB has taken to date regarding its proposals or approaches for simplified accounting requirements for smaller private sector NFP entities are summarised below under the respective headings.


  • An approach to determine the wording used to express the simplified recognition and measurement requirements in Tier 3.
  • Where a transaction, other event or condition is not addressed in Tier 3, entities will be allowed to apply Tier 1 or Tier 2 recognition and measurement requirements in accounting for that transaction, other event or condition.
  • In respect of those transactions, other events or conditions not addressed in Tier 3, judgement will be needed to develop an accounting policy by applying the following hierarchy:
    • the Tier 3 principles and requirements dealing with similar and related issues; and
    • the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework, to the extent they do not conflict with Tier 3 requirements.

In making this judgement, the requirements and guidance in Tier 2 Simplified Disclosures may be considered.

  • Tier 3 would include requirements for business combinations and goodwill, other intangible assets, consolidation, investments in associates and joint ventures and investment property.
  • Entities would be required to apply Tier 2 requirements for:
    • biological assets
    • accounting by an operator of a service concession arrangement
    • complex financial instruments
    • insurance contracts
    • exploration for and evaluation of mineral resources
    • obligations arising under a defined benefit plan
    • share-based payment arrangements
    • assets held for sale
  • A single Conceptual Framework for NFP entities reporting under any tier of Australian Accounting Standards.

Investments in subsidiaries, associates and joint ventures, and consolidation

  • An accounting policy choice to present separate financial statements with disclosure of the notable relationships with other entities (including their primary purpose and an indication of the nature of their operations) as an alternative to preparing consolidated financial statements.

Notable relationships will be assessed based on the same factors used to assess significant influence in AASB 128 Investments in Associates and Joint Ventures, and will include controlled and jointly controlled entities.

  • An accounting policy choice for an entity preparing separate financial statements, whether in addition to consolidated financial statements or as its only financial statements, to measure its investments in subsidiaries and its notable relationship entities at cost, at fair value or by applying the equity method.
  • A parent entity preparing consolidated financial statements would be required to measure its investments in associates and joint ventures in those financial statements by applying the equity method under AASB 128.
  • An accounting policy choice to measure investments in associates and joint ventures at cost, at fair value or by applying the equity method, for:
    • a parent entity preparing separate financial statements in addition to consolidated financial statements; and
    • an investor without subsidiaries presenting individual, equity-accounted or separate financial statements as its only financial statements.
  • Requirement to use the same accounting policy for all investments in a single class but permit different policies for different classes.
  • Tier 3 would not include the consolidation exemption available to investment entities in AASB 10 Consolidated Financial Statements.

Related parties

  • Requirement to make related party disclosures consistent with those required by Tier 2, except for donations from a related party unless there is evidence the donations could influence the entity’s activities or use of resources.

Financial instruments

  • The addition of listed corporate bonds and certain non-convertible preference shares to the list of ‘basic’ or ‘commonly held’ financial instruments.
  • Tier 2 requirements must be applied to more complex financial instruments and those not commonly held by Tier 3 entities.
  • Hedge accounting would not be permitted for use by Tier 3 entities.
  • Transaction costs related to financial assets and liabilities would be expensed when incurred.
  • Financial assets held for capital return and income in the scope of the Tier 3 requirements would be measured subsequently at fair value through profit or loss, subject to an irrevocable election available on initial recognition to recognise changes in fair value through other comprehensive income for a class of instruments.

Employee benefits

  • No requirement to recognise provisions for non-vesting accumulating employee benefits, unless the amounts are due and payable.
  • No requirement to consider future pay increases when determining a provision for employee benefits measured at the undiscounted future outflow expected to be required to settle the present obligation.

Prior period errors

  • Prior period errors would be corrected using a modified retrospective approach. That is, comparatives would not be restated and any adjustments to opening retained surplus would be recognised on the first day of the financial year in which the error occurred.

This article was first published in issue 18 of The Bottom Line.