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The joint accounting bodies have called for “crucial amendments” to define which smaller not-for-profits can apply a new, simpler accounting standard being proposed by the AASB.
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Legislative change ‘crucial’ to simplifying reporting for smaller NFPs
28 February 2025
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9 minute read
CA ANZ and CPA Australia are pushing for amendments to not-for-profit (NFP) legislation to ensure that NFPs eligible to benefit from the new accounting standards are outlined clearly.
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Ram Subramania, financial reporting lead at CPA Australia, said clarity and change were needed to establish an appropriate size threshold for smaller NFPs that could apply the new accounting standard, as it was unclear.
The bodies said the Australian Accounting Standards Board (AASB) had identified its financial reporting regime had not worked as intended and resulted in the inappropriate preparation of special purpose financial reports (SPFR).
Based on this, the AASB committed to addressing these concerns by establishing a new accounting standard that would enable smaller NFPs to prepare financial reports that met compliance requirements simply.
CA ANZ and CPA said the accounting standard was still a work in progress, but once completed and issued, the AASB intended to remove the reporting entity concept.
This would mean most NFPs preparing financial reports that purported to comply with the AASB standards would no longer be able to prepare SPFRs.
Despite the bodies having agreed with the purpose of the new accounting standard, in a letter to Andrew Leigh, the body pushed for significant legislative amendments before it was rolled out, which included a change to the NFP threshold size.
The letter read: “The AASB has indicated that it is unable to specify the exact population of smaller NFPs who can benefit from using this accounting standard.”
“Publication of a final standard without clearly identified boundaries or thresholds that specify the population of smaller NFPs that can apply this new standard is likely to undermine the expected benefits and potentially cause further confusion as to which NFPs can use it.”
Subramanian said the threshold needed amending, yet understood the AASB’s findings indicated a potential lack of appropriate transparency that could in turn undermine trust and confidence in the sector.
“Thankfully, the AASB is proposing streamlined requirements for smaller not-for-profits to help them comply with their annual reporting obligations without breaking the bank, or the accounting rules. However, there’s no recognition in law currently as to which small NFPs can apply this standard, so we don’t know which ones can apply and benefit from streamlined and simple reporting rules” he said.
“Changes to federal laws are essential to help target the accounting standard at the smaller NFPs it’s meant to benefit, allowing them to spend donor dollars more effectively on service to the community.”
To tackle the uncertainty, CA ANZ recommended that NFPs with annual revenue between $500,000 and $5 million should be eligible to apply the new accounting standard.
The body said it proposed the revised revenue threshold between $500,000 and $3 million should be pushed out to $5 million, as it provided a more suitable upper boundary for medium-sized NFPs.
For this threshold change to be applied, several legislation changes would need to be made.
Legislative changes would need to be made to the Australian Charities and Not-for-profits Commission Act 2012, the Corporations Act 2001 and associated regulations, and the Corporations (Aboriginal and Torres Strait Islander) Act 2006 and associated regulations.
Subramanian said this change would pave the way for a fit-for-purpose solution to allow smaller NFPs to comply with their financial reporting obligations while minimising costs.
“While these changes will bring benefits to the sector, the need for legislative change is not limited to the federal laws. State and territory legislation also needs to be amended to recognise the new accounting standard,” he said.
“Broader alignment in not-for-profit laws will go a long way to fostering an effective sector that can serve Australian society better.”
CA ANZ and CPA concluded their letter by reinforcing the legislation threshold requests to significantly improve the NFP reporting framework.
The bodies noted the necessary changes would still not complete the NFP reporting framework reform task, which would remain an essential action and required the broader alignment of Commonwealth, state and territory reporting legislation for the NFP sector.
“Making these changes key changes to commonwealth legislation will facilitate the introduction of the AASB’s new accounting standard,” the letter read.
“In turn this will be a major step forward in establishing a fully fit-for-purpose financial reporting framework for NFPs that will pave the way for consistent reporting requirements that are proportionate based on size, achieving the ideal balance between compliance costs and much-needed transparency and accountability.”
Chartered Accountants ANZ’s reporting and assurance leader Amir Ghandar stressed that fit for purpose financial reporting was crucial to enhancing trust and accountability in the not-for-profit sector at a reasonable cost.
“The Australian Accounting Standards Board’s new Tier 3 reporting framework for smaller entities will be a game changer but only if it can be effectively implemented sector wide – this requires legislative reform to cement its place in our reporting framework and we’re calling on the Assistant Minister to bring about these important changes to thresholds and scope," said Ghandar.
"It’s a game-changer towards simplifying reporting for smaller charities and not-for-profits while meeting the needs of stakeholders.”
Getting the right balance between cost and accountability is critical, especially for smaller not for profits, he said.
“Complex reporting regulation with a lack of consistency across State and Federal legislation has been a significant drag on the resources of the sector and not-for-profits’ ability to communicate effectively with all their stakeholders," said Ghandar.
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