Proposed Simplified Financial Reporting for Not-for-Profit Organisations

Kristen Haines

6 November 2024

Proposals are now out that will potentially significantly simplify the financial reporting requirements of some not-for-profit (NFP) organisations. This is the most significant change in financial reporting requirements for NFPs in a number of years and is likely to also significantly curtail the use of special purpose financial statements (SPFS) by the sector.

Last week the Australian Accounting Standards Board (AASB) issued two Exposure Drafts, which outline their plans to introduce a new Tier 3 of financial reporting requirements for NFP organisations. The proposals will be contained in a separate standalone standard that will outline all recognition, measurement and disclosure requirements for Tier 3 reporters. The intention is that the standard should be understandable by individuals who do not have a financial reporting background, including volunteers, who are often involved in the preparation of smaller NFPs financial reports.

Removal of Special Purpose Financial Statements

Under the existing reporting framework, many NFP entities prepare SPFS, even when reporting to regulators such as the Australian Charities and Not-for-Profits Commission (ACNC). The proposals will bring the requirements for NFPs to comply with Australian Accounting Standards, in line with that of for-profit organisations.

Mainly, under the proposals all entities including NFPs must comply with the requirements of the Australian Accounting Standards if:

Required by legislation to prepare financial statements that comply with either Australian Accounting Standards or accounting standards; or
Required by their constituting document or another document to prepare financial statement that comply with Australian Accounting Standards; or
The financial statements are held out to be general purpose financial statements.

The ACNC regulations currently require financial reports that are lodged with the ACNC to be prepared in accordance with ‘accounting standards’ and therefore if the proposals are finalised as is, any entity that prepares financial reports for the ACNC will no longer be able to prepare SPFS but instead will need to prepare General Purpose Financial Statements (GPFS) that comply with the AASBs. These financial statements will be able to be either Tier 1 ‘Full IFRS’, Tier 2 ‘Simplified Disclosures’ (SDS) or the proposed new tier 3.

Whilst the removal of the ability to prepare SPFS may appear to be a step up in reporting requirements for many NFPs, the introduction of Tier 3 requirements combined with the existing minimum requirements made by the ACNC, will mean that we do not expect that there will be a significant increase in the reporting requirements for any NFPs.

Tier 3 reporting requirements

The purpose of the proposed Tier 3 reporting requirements is to simplify both the recognition and measurement requirements as well as the disclosure requirements. Therefore, unlike existing tier 2 SDS financial statements, the recognition and measurement requirements are not consistent with IFRS Accounting Standards, and instead there are a number of simplifications.

Areas of simplification where the proposed recognition and measurement requirements are different from existing accounting requirements include:

Revenue recognition
Leases – leases are not required to be recognised on the balance sheet
Business or ‘entity’ combinations
Consolidation becomes optional
Indicators of impairment
How to determine fair value
No requirement to recognise deferred taxes

Many other requirements are broadly similar to those in existing accounting standards, although contained in the stand-alone Tier 3 standard and set out in simpler English. The Standard also includes simplified disclosure requirements and transitional requirements.

The ED does not specify exactly what NFP entities the proposed Tier 3 will apply to. The NFP entity needs to not have public accountability and be permitted by applicable legislative or other reporting requirements to apply the Tier 3 standard.

The ACNC has yet to make any statement as to their thoughts as to the applicability of the standard, however in developing the ED, the AASB were contemplating the reporting requirements of the types of NFP entities that are currently considered ‘medium’ by the ACNC categorisation. That is NFP entities that have between $500,000 - $3 million in revenue.

Whichever entities the final standard will apply to the AASB have noted that there will be a three-year lead in window before it become mandatorily applicable, although they are proposing to permit early adoption.

Next Steps

If you are involved in an NFP that will potentially have to apply these requirements once they are finalised, you are encouraged to read more about the proposals and provide feedback to the AASB. Moore Australia will continue to consider the proposals so look out for further guidance from us.

If you have any questions or want to understand specifically what it might mean for your organisation contact your local Moore Australia Advisor.

Further information including the ED, a summary of the proposals and a link to a survey can be found on the AASB’s website. The AASB comment period ends on 28 February 2025.