November 2021 not-for-profit client financial reporting update – podcast available
Our not-for-profit (NFP) client financial reporting update was released via a short podcast in November 2021.
Leading Deloitte NFP specialists in financial reporting from our audit and assurance practice shared their thoughts and lessons learnt from the recent reporting season. The podcast also covers current and emerging reporting issues in the NFP space. Topics include:
Not-for-profit illustrative disclosures for Tier 1 financial statements (31 December 2021)
We have released new Tier 1 model financial statements for financial reporting periods ending on or after 31 December 2021.
These Tier 1 model financial statements contain illustrative general purpose financial statements prepared in accordance with Australian Accounting Standards.
For NFP entities preparing Tier 1 financial statements, Appendix 2 includes the NFP-specific illustrative disclosures to be used in conjunction with the model financial statements, to assist the majority of NFP entities in meeting their general-purpose financial reporting requirements.
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 Australian Accounting Standards Board (AASB) issued AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases to address several implementation issues raised by NFP stakeholders in the short-term, narrow scope project on AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-for-Profit Entities. The Exposure Draft (ED) proposes the following amendments which would apply to annual periods beginning on or after 1 July 2022:
Amendments to Example 3 in AASB 1058 to further clarify the analysis regarding the recognition of a financial liability
Additional illustrative example 7A to AASB 15 to address accounting for upfront fees received.
The Basis for Conclusions for this ED also documents the AASB’s proposed intention 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.
Comments on the ED are due by 11 March 2022.
More information: AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases.
Income of not-for-profit entities – Narrow-scope amendments
At its November 2021 meeting, the AASB further considered the remaining implementation issues raised by NFP stakeholders to be addressed in the short term, narrow scope project and decided that additional education material should be developed regarding:
The ‘identified specifications’ requirement and revenue recognition in accordance with AASB 1058 in respect of transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity (e.g., capital grants)
The recognition of assets under contracts in the scope of AASB 1058 when grants are received in arrears
Assessing enforceability of agreements in the scope of AASB 15, such as legally enforceable agreements
Right-of-use assets of not-for-profit entities under concessionary leases
The AASB considered the accounting policy choice in AASB16 Leases (paragraphs Aus25.1–Aus25.2) for the initial measurement of right-of-use (ROU) assets arising under concessionary leases at cost or fair value and decided at its November 2021 meeting:
For NFP private sector lessees to retain the accounting policy choice as a permanent option (this is included in AASB ED 318 Illustrative Examples for Income of Not-for-Profit Entities and Right-of-Use Assets arising under Concessionary Leases)
For NFP public sector lessees, any reassessment of the accounting policy choice should be deferred until additional guidance on how to measure the fair value of such ROU assets is decided. This would be after consideration of the outcomes of the concessionary leases part of the IPSASB’s current leases project and the Board’s forthcoming ED that will propose modifications to AASB 13 Fair Value Measurement for NFP public sector entities.
The AASB noted concerns regarding the difficulty of measuring the fair value of historical concessionary leases, however it decided not to make a decision to grandfather existing concessionary leases from a possible future fair value requirement unless it decides to remove the accounting policy choice to initially measure concessionary ROU assets at cost.
AASB ED 318Illustrative 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 At its November 2021 meeting, the AASB decided to include the following proposals in the Discussion Paper (DP) on Tier 3 reporting requirements for NFP private sector entities:
1. Primary financial statements of a Tier 3 reporting entity should present:
A statement of financial position
A statement of profit or loss and other comprehensive income
A statement of cash flows that covers cash and cash equivalents and reports cash flows from operating activities using only the direct method. Cash flows from investing activities is not required to be presented separately to cash flows from financing activities
2. A request for stakeholder feedback on:
Considerations of other possible simplifications to the statement of cash flows, such as whether all cash flows should be presented net of GST
Whether the statement of changes in equity should be required
3. A replication of the Tier 2 requirements for information presented on the face of the primary financial statements, supplemented by guidance or education material
4. Tier 3 reporting requirements for leases (other than concessionary leases) should require a lessee (lessor) to:
Recognise lease payments as an expense (income), supplemented by disclosure of information about the entity’s lease commitments
Measure the lease expense (income) on a straight-line basis over the lease term, unless another systemic basis is more representative of the time pattern of the user’s benefit.
Fair value measurement for not-for-profit entities The AASB decided at its November 2021 meeting to propose the following modifications to AASB 13 for measuring the fair value of non- financial assets of NFP public sector entities held primarily for their service capacity (i.e., not held primarily for their ability to generate net cash inflows) in an ED which will be discussed at the February 2022 meeting:
Modifying AASB 13 paragraph 28(c) to propose that a possible use of such an asset would be financially feasible if it generates a sufficient return that it would be rational for market participants (including NFP public sector entities) to invest in the asset’s service capacity
Including implementation guidance on the assumptions to use in measuring the fair value when a market participant is not readily identifiable, and on the circumstances in which the presumption that the current use of such asset is its highest and best use can be rebutted
Certain assumptions around asset replacement and economic obsolescence when measuring an asset’s fair value under the cost approach
The AASB has decided not to:
Propose guidance regarding whether to include borrowing costs in measuring the fair value of a self-constructed asset under the cost approach
Provide additional guidance on how to measure the fair value of ROU assets arising under concessionary leases until after considering the outcome of the concessionary leases part of the IPSASB’s current leases project.
ACNC legislative review final amendments: New ACNC thresholds and additional financial reporting obligations
Following the draft legislation issued on 20 September 2021, the final amendments to the Australian Charities and Not-for-profits Commissions Regulation 2013 were registered on 12 November 2021 via Australian Charities and Not‑for‑profits Commission Amendment (2021 Measures No. 3) Regulations 2021.
The key amendments made to the Australian Charities and Not-for-profits Commissions Regulation 2013 include:
Increased financial reporting thresholds
Effective from the 2021-22 financial year (2022 Annual Information Statement reporting period) onwards, the amended thresholds are as follows:
Related party transactions disclosures
Effective from the 2022-23 financial year (2023 Annual Information Statement reporting period) onwards:
All medium and large Australian Charities and Not-for-profits Commission (ACNC) registered entities preparing special purpose financial statements will need to comply with an additional standard, AASB 124 Related Party Disclosures. These entities may choose to present full disclosures under the six prescribed mandatory standards under the Australian Charities and Not- for- profits Commissions Regulation 2013 or apply the simplified disclosure requirements under AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For Profit and Not for Profit Tier 2 Entities
For entities choosing to apply the simplified disclosure requirements under AASB 1060, special purpose reporting rules in AASB 1054 will remain mandatory which requires compliance with paragraphs 1-6, 9, 9A, 9B and 17 of AASB 1054.
Key management personnel compensation disclosures
Effective from the 2021-22 financial year (2022 Annual Information Statement reporting period) onwards, an exemption from the requirement to disclose key management personnel compensation as part of the related party transaction disclosures is provided to all medium registered charities and large charities with only one remunerated key management personnel.
The ACNC Commissioner has decided that comparatives for related party transaction and remuneration disclosures will not be required for the reporting period in the first year of adoption.
The ACNC is currently developing comprehensive guidance to help charities and advisers understand how to meet these new requirements.
Given the impending effective dates, we recommend affected charities take note of these changes and strongly encourage them to start their preparation to get their systems ready to comply with the new obligations when effective.
Whistleblower policy requirements for some charities
Charities structured as public companies limited by guarantee with annual consolidated revenue of $1 million are required to have a whistleblower policy.
The Australian Securities and Investments Commission (ASIC) has found that majority of companies, including some charitable companies, did not include all the information required for whistleblower policies under the Corporations Act 2001 and is concerned that whistleblowers may not get the important information about their legal rights and protections and how they can report misconduct. ASIC is calling on companies including charities to ensure their policies comply with legal requirements and has published a guide on this. Refer to link below for the guidance on ASIC’s webpage.
The ACNC recommends that all charities should consider having a publicly available whistleblower policy even if they are not legally required to have one.