Clarity in financial reporting – February 2022 not-for-profit edition

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:

• AASB not-for-profit financial reporting framework project
• Income of not-for-profit entities: Narrow scope amendments
• ACNC legislative review on revised financial reporting thresholds and new related party disclosures for ACNC-registered charities
• Removal of aged care bed licences.

The podcast and placemat are now available via the below link.

More information: November 2021 not-for profit client financial reporting update.

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.

More information: December 2021 Tier 1 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 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
• Assessing termination for convenience clauses.

More information: AASB Action Alert No.211 (November 2021).

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.

More information:

AASB Action Alert No.211 (November 2021)

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
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.

More information: AASB Action Alert No.211 (November 2021)

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.

More information: 

AASB Action Alert No.211 (November 2021).

ACNC legislative review final amendments: New ACNC thresholds and additional financial reporting obligations

Background

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.

Key amendments

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: