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Clarity in financial reporting - May 2022 not-for-profit edition

Focus on financial reporting considerations for not-for-profit entities

Welcome to the May 2022 edition of our not-for-profit newsletter

Not-for-profit-specific events

May 2022 Not-for-Profit Client financial reporting update

Helpful publications and tools

Not-for-profit illustrative disclosures for Tier 2 financial statements (30 June 2022)

Accounting developments

  • AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases
  • AASB Not-for-Profit financial reporting framework project
  • AASB ED 320 Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities

Regulatory update

Key management personnel disclosuresNew rules covering meetings and documentsDirector registrations

May 2022 Not-for-Profit client financial reporting update

We are pleased to announce that we hosted our special edition Not-for-Profit (NFP) client financial reporting update virtually on 19 May 2022 at 1-2pm AEST.

Leading Deloitte NFP specialists in financial reporting from our assurance and advisory practice shared their thoughts and lessons learnt from the recent reporting season. Our Deloitte specialists were joined by Mel Yates (Director – Reporting, Red Tape Reduction & ACNC Corporate Services) of the Australian Charities and Not-for-Profits Commission (ACNC) to impart knowledge on current and emerging reporting issues in the NFP space. Topics included:

  • AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
  • AASB ED 318 Illustrative examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases
  • ACNC legislative review on revised financial reporting thresholds and new related party disclosures for ACNC-registered charities
  • Australian Accounting Standards Board (AASB) developments including the NFP reporting framework.

Action: Please look out for the recording of this presentation that will be made available on our website.

Not-for-Profit illustrative disclosures for Tier 2 financial statements (30 June 2022)

We have released new Tier 2 model financial statements for financial reporting periods ending on or after 30 June 2022.

These Tier 2 model financial statements contain illustrative general purpose financial statements prepared in accordance with Australian Accounting Standards.

For NFP entities preparing Tier 2 financial statements, NFP-specific illustrative disclosures and guidance are highlighted in the main body in teal. Illustrative disclosures and guidance relevant to public sector entities are highlighted in light green.
More information: June 2022 Tier 2 models.

AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases

In January 2022, the AASB issued AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases (ED 318) to address several implementation issues raised by NFP stakeholders. At the Board meeting held on 7 April, the Board decided to proceed with the following proposals:

To include an additional illustrative example 7A to AASB 15 Revenue from Contracts with Customers to address accounting for upfront fees received

To retain the accounting policy choice in AASB 16 Leases paragraphs Aus25.1–Aus25.2 on an ongoing basis (i.e. with no plan to reconsider the accounting policy choice) for NFP private sector lessees to elect to initially measure a class of concessionary right-of-use assets at cost or fair value. The Board have confirmed they will defer any decision regarding this policy election for NFP public sector lessees.

The Board also decided to not proceed with the proposal to make amendments to example 3 in AASB 1058 Income of Not-for-Profit Entities to further clarify the analysis regarding the recognition of a financial liability relating to obligations by a university to pay cash scholarships to students from endowments received from an alumnus. The majority of respondents preferred the Board to consider this example as part of the forthcoming post-implementation review of AASB 1058.

An amending standard, AASB 2022-3 Amendments to Australian Accounting Standards – Illustrative Examples for Not-for-Profit Entities accompanying AASB 15 was issued with an effective date of annual periods beginning on or after 1 July 2022.

More information:

The AASB has an ongoing project to develop a simple, proportionate, consistent and transparent financial reporting framework for Australian NFP private sector entities. In the development of this framework the Board are currently focussing on the drafting of a discussion paper (DP) for Tier 3 reporting requirements for NFP private sector entities. The primary objective of developing Tier 3 reporting requirements is to develop simplified financial reporting requirements.

Over a series of Board meetings, a number of issues have been discussed and debated around the principles that are going to be included in the DP. At the most recent meeting, on 7 April 2022 another set of proposals were considered that focussed on impairment and the initial measurement of donated/granted non-financial assets and inventory.

The timeline for this project remains unchanged, wither further proposals for the DP to be considered at the May 2022 meeting, outstanding issues to be considered in June 2022 alongside a second review of the working draft of the DP. It is expected that the DP will be exposed for public comment in September 2022 with outreach on the DP continuing through to February 2023.
More information: AASB Action Alert No.213 (April 7 2022).

The AASB has released ED 320 Fair value measurement of non-financial assets of not-for-profit entities public sector entities (ED 320) in response to concerns around divergence in the application of AASB 13 Fair Value Measurement (AASB 13), in particular with regard to assets that are held not primarily for their ability to generate net cash inflows.

The exposure draft proposes authoritative guidance and illustrative examples for the application of AASB 13 by NFP public sector entities. Specifically, the exposure draft proposes guidance on the following areas of AASB 13:

The use of market participants’ assumptions to use in valuing the asset’s fair valueThe asset’s highest and best useThe application of the cost approach if used to measure the asset’s fair value.The AASB is seeking feedback on the exposure draft, with comments to be submitted by 30 June 2022. Comments are sought on a wide range of issues, but of relevance to the NFP community is that the AASB is seeking feedback as to whether these proposals should also apply as authoritative guidance for NFP entities in the public sector.Entities that carry or recognise assets at fair value should familiarise themselves with the exposure draft and reach out to their relevant Deloitte contact to discuss the exposure draft and the potential impact on their organisation.

More information:

AASB ED 320 Fair Value Measurement of Non-Financial assets of Not-for-Profit Public Sector Entities

Key management personnel changesAs part of the ACNC regulatory review, clarifications were made to the requirements to report the remuneration of key management personnel (KMP) in the annual reports of large charities with more than one KMP. As reporting entities, charities are obliged to comply with the requirements of AASB 124 Related Party Disclosures (AASB 124). Clarifications have been made regarding the required disclosures charities need to make in relation to KMP.

The ACNC has provided updated guidance as to which charities need to report the remuneration of KMP. This guidance can be found at:

ACNC Key Management Personnel remuneration guidance

The requirements for charities to report KMP remuneration will differ depending on whether the charity:

  • Prepares general purpose financial statements or special purpose financial statements
  • Has more than one remunerated KMP; or
  • Has KMP provided by a separate management entity.

These changes become effective for the Annual Information Statement 2022 reporting period onwards (e.g. 30 June 2022 / 31 December 2022 year ends)

Action: Be aware of the guidance and ensure that the requirements have been complied with in their annual reports for this upcoming reporting season.

Temporary laws that were first introduced in response to the COVID-19 pandemic and allowed companies to execute and send documents electronically, as well as hold meetings virtually.

Amendments have now been made to the Corporations Amendment (Meetings and Documents) Act 2022 that make these changes permanent. These changes allow companies to execute and send documents electronically, as well as hold meetings virtually. The changes cover charities that are registered under the Corporations Act 2001.

The changes allow for:

  • The ability for people to execute documents (including deeds) by signing either a physical or electronic form of the document
  • A person will not be required to sign the same form or a page of a document as another person, or use the same method of signing as another person
  • The ability for agents to execute documents on behalf of companies without appointment by deed and without using a common seal
  • Documents can be sent in physical format or electronically, providing the flexibility for people to receive documents in their preferred format
  • Companies can hold meetings physically or as a ‘hybrid’ (using one or more physical venues and virtual meeting technology). Wholly virtual meetings are also permitted if expressly provided for in the company’s constitution.

Changes relating to signing and executing documents came into effect on 23 February 2022. Changes relating to meetings will come into effect on 1 April 2022.
It is important to note that while these amendments to the Corporations Act 2001 provide a minimum standard, charities’ governing documents may require more in relation to meetings and signing of documents.

Action: Be aware of these changes and ensure your organisation continues to comply with the governing documents of your charity.

Anyone who is a director of a charity that is a company or Aboriginal or Torres Straight Island corporation will need to apply for a director identification number (director ID).

A director ID is a unique 15 digit identifier that a director applies for once and keep forever. Director’s need to apply for their ID personally, as identification needs to be verified.

The timing of when a director needs to apply for a director ID depends on when the person became a director and under which Act the person was appointed. If the person was appointed under the Corporations Act 2001 registration is subject to the following timeline:

  • If the person became a director from 1 November 2021 to 4 April 2022, the deadline to apply is within 28 days of appointment
  • If the person was appointed on or after 5 April 2022, the person must have applied before being appointed
  • If the person became a director before or on 31 October 2021, the deadline to apply is 30 November 2022.

Directors of an Aboriginal or Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 will have longer to apply, depending on when the director was appointed:

  • If the person was appointed a director on or before 31 October 2022, you must apply by 30 November 2023
  • If the person is appointed director from 1 November 2022, you must apply before being appointed.

More information: Director ID registrations

Published : May 2022

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