The financial reporting environment for NFPs in Australia has become slightly simpler during 2010 due to the following changes:
- The reduced reporting and lodgement requirements for companies limited by guarantee following changes to the Corporations Act;
- The ability for NFPs to prepare a general purpose financial report with reduced disclosure requirements following the Australian Accounting Standards Board (AASB) approval of AASB 1053, Application of Tiers of Australian Accounting Standards; and
- The introduction of a National Standard Chart of Accounts available for NFPs reporting to Governments.
While these changes will be beneficial for many the regulatory and financial reporting environment in Australia continues to be a highly complex one for NFPs. This will continue to see valuable resources consumed in meeting these obligations.
These issues are exacerbated by the AASB continuing to issue sector neutral accounting standards. The result of this is that many of the current requirements while highly relevant to entities where the primary purpose is profit, have limited relevance to NFPs or in some instances requires details to be reported which provides little information on the NFP meeting its objectives. This contrasts with a number of foreign jurisdictions such as with the UK Charity Commission and the Statement of Recommended Practice for Accounting and Reporting by Charities specially designed to address the needs of NFPs.
There is also the added complexity in Australia of the decision for NFPs as to whether they are a reporting entity and thus whether a general purpose financial is required to be prepared.
Combined with the continuing greater level of financial reporting required for most NFPs it is important that the recent recommendations by Governments and other bodies to enhance and streamline the regulatory environment for NFPs is acted upon. This also needs to be aligned with the accounting standard setters developing a private sector NFP financial reporting framework similar to the UK model to ease the financial reporting burden.
The good news is that no AASB currently has ongoing projects around the following:
- Developing a standard on disclosure requirements by private sector NFPs focusing on both financial and non financial matters including service performance standards. This includes the focus on the cost / benefit aspects and the appropriateness of many of the current requirements.
Further developments in respect to reduced disclosures requirements including clarifying the meaning of general purpose financial reports (GPFR) to change the focus from the reporting / non-reporting entity issue to GPFR.
While this greater focus of the AASB on the particular needs of NFPs will go some way to streamlining and reducing the current financial reporting burden, there is much more work to be done on this and in the regulatory area to ensure the full benefit is achieved for private sector NFPs.
Since the introduction of International Financial Reporting Standards by the AASB in 2005 we have seen many more NFPs than previously being required to prepare general purpose financial reports. This is a trend that is certain to continue given the continuing demand by the community and government for greater transparency and reporting by private sector NFPs.
With this it is critical that regulators and accounting standard setters address the issues that will ensure these matters can be addressed by NFPs in a cost effective way.
We are committed to supporting the sector in ensuring that these objectives are achieved.