Clarity in financial reporting - March 2023 not-for-profit edition

Client events tailored for the not-for-profit sector

May/June 2023 not-for-profit Client financial reporting update

We are pleased to announce that we will be hosting our special edition not-for-profit (NFP) Client financial reporting update in person nationally from May to June 2023.

Leading Deloitte NFP specialists in financial reporting from our accounting technical team will share their thoughts and lessons learnt from the recent reporting season. Topics include:

• Recent NFP-specific accounting developments from the AASB including:
  • The Discussion Paper around simplified accounting requirements (new Tier 3) for smaller NFP private sector entities
  • The various Invitations to Comment around post-implementation reviews on NFP-specific topics (e.g., income recognition and control)
• Australian Charities and Not‑for‑profits Commission (ACNC) regulatory updates
• Other emerging technical issues that will impact NFP entities including sustainability reporting considerations for NFP entities.

Action: Keep an eye out for your email invitation to the event. If you would like to attend but have not received an email invitation, please reach out to your Deloitte contact to assist you on this.

Key NFP developments in standard setting

AASB development of simplified accounting requirements for smaller not-for-profit private sector entities

As part of the AASB’s project around revising the financial reporting framework for Australian NFP private sector entities, the Board have released the Discussion Paper (DP) containing Tier 3 reporting requirements for smaller NFP private sector entities. A 6-month consultation period is provided with comments due by 31 March 2023. The primary objective of the new Tier 3 reporting requirements is to develop simplified financial reporting requirements for smaller NFP private sector entities. Some of the key proposals include:

• A new income recognition model that is simpler to apply
• Accounting policy choice in preparing consolidated financial statements, or separate financial statements with disclosures about the entity’s significant relationships
• Leased assets not to be recognised on the balance sheet for lessees supplemented by disclosures.

During the consultation, the Board will also consider removing the ability of NFP private sector entities to prepare special purpose financial statements in the future.

In terms of next steps, the Board will consider the comments received on the DP before deciding whether and how to develop an Exposure Draft.

More information:

• DP Discussion Paper – Development of Simplified Accounting Requirements (Tier 3 Not-for-Profit Private Sector Entities)
• AASB Staff Snapshot

AASB not-for-profit post-implementation reviews

The AASB is currently performing post-implementation reviews (PIR) on the following pronouncements:

• AASB 1058 Income of Not-for-Profit Entities and Appendix F of AASB 15 Revenue from Contracts with Customers.
• Appendix E of AASB 10 Consolidated Financial Statements
• Appendix E of AASB 12 Disclosure of Interests in Other Entities
• AASB 124 Related Party Disclosures by public sector entities
• AASB 1054 Australian Additional Disclosures relating to Special Purpose Financial Statements.

As part of the PIR, AASB has issued two Invitations to Comment (ITC) to seek feedback from stakeholders on the application of these pronouncements with comments due on 31 March 2023.

More information:

• ITC 50 Post-implementation Review – Income of Not-for-Profit Entities
• ITC 51 Post-implementation Review – Control, Structured Entities, Related Party Disclosures and Basis of Preparation of Special Purpose Financial Statements
• AASB Staff Snapshot

AASB public sector specific developments

Below is a list of accounting developments in the NFP public sector space:

• AASB 2022-10 Amendments to Australian Accounting Standards – Fair Value Measurement of Non-Financial Assets of Not-for-Profit Public Sector Entities
  The Standard amends AASB 13 Fair Value Measurement (AASB 13) for fair value measurements of non-financial assets of NFP public sector entities not held primarily for their ability to generate net cash inflows. It applies prospectively to annual periods beginning on or after 1 January 2024, with earlier application permitted.
  
  
• AASB 2022-8 Amendments to Australian Accounting Standards – Insurance Contracts: Consequential Amendments
  This amending Standard applies to annual periods beginning on or after 1 January 2023, in order to defer the application of AASB 17 Insurance Contracts (AASB 17) to public sector entities from that date until periods beginning on or after 1 July 2026.
  
  
• AASB 2022-9 Amendments to Australian Accounting Standards – Insurance Contracts in the Public Sector
  This amending Standard makes public-sector-specific modifications to AASB 17 for application to annual periods beginning on or after 1 July 2026, with earlier application permitted.
  
  
• Invitation to Comment ITC 49 Post-implementation Review of AASB 1059 Service Concession Arrangements: Grantors
  The AASB has sought feedback from stakeholders to assist its assessment of whether AASB 1059 Service Concession Arrangements: Grantors continues to meet its objectives and could be improved through amendment. The Board issued an Invitation to Comment (ITC) with comments closed on 28 February 2022.

Topical regulatory and ACNC updates

Reminder of ACNC related party disclosure requirements

A friendly reminder that the ACNC requirements for all charities to report their related party transactions annually to the ACNC is effective from the 2023 Annual Information Statement (AIS) onwards. Under the new rules, medium and large charities also need to disclose related party transactions in their financial reports, in accordance with relevant Australian Accounting Standards. This means:

• Those who submit an AIS at the end of the financial year (30 June year-ends) must report related party transactions from 1 July 2022
• Those who submit at the end of the calendar year (31 December year-ends) must report related party transactions from 1 January 2023.

Although the 2023 AIS due date is well ahead, charities should be keeping records of related party transactions now. It is recommended that charities put policies and procedures in place to deal with related party transactions and conflicts of interest as well as establishing a related party transactions register.

More information:

• New rules to reinforce transparency of related party transactions
• Related party transactions | ACNC

National fundraising red tape reform

The Australian Government has announced that Australian state and territory treasurers have agreed to a set of nationally consistent fundraising principles. This reform to Australia’s outdated fundraising laws is long overdue as nationally consistent fundraising regulation has been recommended by several reviews over the past decade.

The 16 National Fundraising Principles streamline state and territory requirements on charitable fundraiser conduct and will give charities and donors a clear understanding of appropriate conduct. Each state and territory will release plans by July 2023, outlining how they will give effect to the principles.

More information:

• Australian Government announcement
• ACNC media release

Key emerging issues that you need to know

Sustainability reporting for not-for-profit entities

Entities should understand the rapid evolution of sustainability reporting in Australia as we move towards a possible mandatory sustainability disclosure framework from as early as 2024-25. Mandatory reporting would be introduced in a phased implementation, initially focused on large listed entities and large financial institutions, and may later be extended to other entities (e.g., NFP entities) and government.

The AASB held a one-day meeting in February to discuss the implementation of sustainability disclosure standards in Australia, which includes both climate-related financial disclosure requirements and a broader sustainability reporting standard-setting framework. Although it is currently unclear what the framework will look like for NFP entities, we encourage NFP entities to start taking steps in embedding sustainability into their strategies given the fast pace of the developments and the increased shift in focus by many stakeholders on not only what a NFP entity does but also how services are delivered in the most sustainable way.

More information:

• AASB Action Alert (Issue No. 220)
• Clarity publication Towards mandatory sustainability reporting in Australia
• Treasury consultation Climate-related financial disclosure (submissions closed 17 February 2023)