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New disclosure requirements for NFPs preparing special purpose financial statements (SPFS) take effect for financial years ending on or after 30 June 2020. Here's what you need to know.
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What you need to know about new disclosure requirements for NFPs
31 January 2020
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New disclosure requirements for not-for-profit entities for 30 June 2020
If you are a:
- charity registered with the ACNC with annual revenue equal to or more than $250,000 preparing special purpose financial statements (SPFS); or
- a not-for-profit (NFP) entity lodging SPFS with ASIC under the Corporations Act 2001 (e.g. companies limited by guarantee)
you will need to make new disclosures about your compliance with recognition and measurement (R&M) requirements in Australian Accounting Standards (AAS) for 30 June 2020.
The new disclosures are not expected to be onerous, as you are only expected to disclose information about your accounting policies based on what you already know. You are not expected to undertake a detailed assessment of your accounting policies — instead, you disclose what you already know about whether or not your accounting policies comply with AAS, or if you don’t know, disclose this fact instead. The AASB has provided a decision tree and illustrative examples of common examples of non-compliance to assist.
The AASB is currently undertaking work in consultation with other regulators to reform the financial reporting framework for NFP entities so the requirements are more proportionate and tailored to the needs of the sector. Until this project is finalised, NFP entities can continue to prepare SPFS; however, they must include these new disclosures as an interim measure to provide much-needed transparency and comparability for users of the SPFS (refer to AASB 2019-4 for details of the disclosures).
What are the disclosure requirements?
- The basis on which the decision to prepare SPFS was made.
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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 overall comply 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 for those interests in a manner consistent with the requirements in AASB 10 and AASB 128. 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.
Why are these new disclosures required?
- There is lack of clarity in SPFS about whether or not an entity’s accounting policies comply with R&M requirements. For example, research found that 44 per cent of the SPFS lodged with the ACNC by medium and large charities were unclear about whether or not they complied with R&M requirements[1]. This has led to inconsistency in financial reporting within the sector.
- At the same time, for the users of financial statements, comparability, transparency and consistency of the financial statements is important and they need clarity in order to understand what additional financial information they may need.
NFP entities preparing SPFS, other than those listed above, are not required to make the new disclosures; however, any entity preparing SPFS is encouraged to make them as better practice to improve the transparency of their financial reporting.
What should you do now?
The new disclosures are required for annual reporting periods ending on or after 30 June 2020, so if you are affected you should familiarise yourself with the new requirements so you can consider how to make the disclosures in light of your current accounting policies and treatment of interests in other entities.
If applicable, you should also discuss the new disclosures with your auditors in advance of year-end to understand what analysis and supporting documentation they may need. Auditors are required to assess whether the financial report is prepared, in all material respects, in accordance with the applicable financial reporting framework, and which now includes the new disclosures.
What’s next?
The AASB’s aim of achieving a simple, comparable, proportionate and transparent financial reporting framework for NFP entities remains unchanged, and the AASB is continuing with the broader NFP financial reporting framework project as well as considering a new definition for NFP entities.
[1] AASB Research Report No. 11 Review of Special Purpose Financial Statements: Large and Medium-Sized Australian Charities
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