Not-for-profit organisations including schools, churches and charities are being advised to ensure they are up to speed with revised requirements under accounting standard changes.
In October 2013, the Australian Accounting Standards Board issued amendments to the new consolidation standard – AASB 10 Consolidated Financial Statements. AASB 10 affects the way some businesses and NFPs determine whether they control other entities and whether they have to prepare consolidated financial statements. For example a school with a building fund.
The standard becomes mandatory for NFPs for periods starting on or after 1 January 2014 – for example, those with a 31 December 2014 year end. The financial reporting season for NFP entities with June year-ends has started and the board says they should consider the potential implications of the changes.
The main change from the previous requirements is that the concept of control is now more specific. A three-step approach is applied to determine if control exists focusing on power, returns and a link between power and returns. That is, the investor must have:
- Power over the investee
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect the amount of the investor's return
All three of these criteria must be met for control to be established. NFPs must reassess whether they still control or now control other entities under AASB10.
Some accounting firms have noted that failure to adhere to the changes could expose NFPs to a risk of breaching the Corporations Act and the Australian Charities and Not-for-profits Commission Act.
ACNC Assistant Commissioner General Counsel Murray Baird says the key issue for NFPs in relation to AASB 10 will be "turning their mind to whether their accounts ought to be consolidated, and that depends on the level of control that a parent entity may have over a subsidiary entity".
Baird says there is effectively a phasing in of the new reporting requirements over a three-year period.
There are exemptions. There’s no financial reporting for basic religious charities, and the ACNC is working with education departments to avoid duplicate reporting for non-government schools.
Baird expects the transition to AASB 10 to be reasonably smooth.
"ACNC provides guidance on its website (acnc.gov.au) and charities and their advisers can also talk with our reporting team or advice services team about particular reporting issues for charities," Baird says.
In other words
- NFPs need to be aware of changes to accounting standards.
- One of the main changes is to the concept of 'control', which affects the way some organisations determine whether they control other entitites and whether they have to prepare consolidated financial statements.
- The ACNC is encouraging NFPs to get in touch if there's any doubt about reporting
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