Financial reporting hurdle ahead for many NFPs

Monday, 20 January 2014


    An accounting expert warns that a wide range of not-for-profit (NFP) organisations – such as schools, churches and charities – are about to be caught up in a little-known accounting standard change which could put them at risk of breaching the Corporations Act 2001. In fact, she believes it could affect nearly every school in Australia – private or public – that prepares financial statements.

    Kimberley Carney, national technical senior manager at chartered accounting and advisory firm William Buck, says because the changes will become mandatory in less than six months, NFPs should already be preparing for the revised requirements. But she has found that many NFPs have not yet even considered the changes.

    Carney explains that last year, the Australian Accounting Standards Board introduced a new accounting standard (AASB 10) which changes the way businesses and NFPs determine control over associated entities.

    She says consolidated reporting rules changed for businesses in 2013 and will now become mandatory on 31 December 2014 for NFPs.

    "However, our research shows that most NFPs are either unaware of the new standard or they have assumed that there will be no changes to their financial statements," she says.

    "There are also those entities that are aware of the changes, but have indicated that they will choose to prepare special purpose financial statements in order to avoid the extra work involved in consolidating. This highlights a significant flaw in the existing financial reporting framework.

    "Under AASB 10, any NFP that directs the activities or use of funds of another entity is now judged to have control. If preparing general purpose financial statements they must therefore consolidate. If they are preparing a special purpose financial statement, consolidation is optional."

    Carney adds: "Most schools have a building fund or foundation where money is held for special projects. In the past, these funds would not have been consolidated in their financial reports but as – in its simplest form – the school can direct the use of these funds, school councils need to be aware of their new reporting obligations.

    "Lots of religious organisations will also be impacted. Often they have relationships with entities which provide education programs within the church or which are devoted to fundraising. They wouldn't have previously thought these needed to be included in a consolidated report. However, if they direct the activities of these entities, they will now need to be included."

    However, Carney notes: “Our experience shows that many NFPs, have not yet considered the changes much less performed a reassessment of their consolidation conclusions. These entities may be caught out by the changes as the time commitment required for gathering the necessary additional information to perform the retrospective restatement may be greater than expected."

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