Financial reporting
Draft annual information statements are available for inspection on the ACNC website. Charities have been separated into three groups or tiers, based on the consolidated income thresholds that currently apply to companies limited by guarantee.
The public interest and governance elements of the reforms are evident in requirements such as disclosures about whether there is a risk management system, descriptions of the entity’s objectives and activities undertaken to meet them, and declarations of compliance with charitable status.
The ACNC is liaising with the Australian Accounting Standards Board to ensure consistency in requirements. It appears that, where financial statements are required to be lodged, they must apply accounting standards. Although a uniform 30 June balance date was originally proposed, consideration is now being given to allowing substituted accounting periods.
Governance matters
A consultation paper has been issued setting out proposed standards for governance. These standards require the entity to identify responsible individuals who will have duties that are required under the Corporations Act, such as acting with care and diligence and avoiding conflicts of interest. However, they go further in requiring that the individuals understand their role and are aware of legal duties, and they ensure the NFP entity is operating to the highest standards. This area may require attention and education of existing officeholders and management.
It is proposed that responsible individuals will include:
- trustees/directors/officers of the registered entity
- persons who make or participate in decision-making in whole or substantial part
- persons who have the capacity to affect significantly the financial standing of the NFP (but not those acting as professional advisers)
- an individual in accordance with whose instructions or wishes other responsible individuals are accustomed to act
- a receiver, administrator or liquidator.
[breakoutbox][breakoutbox_title]Case study[/breakoutbox_title][breakoutbox_excerpt]Why Annie has a problem and Bev need not worry[/breakoutbox_excerpt][breakoutbox_content]
Why Annie has a problem
Annie is the financial controller of the Archdiocese of ABC. The annual financial statements show income of $8 million and include an aggregation of financial information of the church congregations and related organisations within the archdiocese. As they are private statements sent only to the church’s governing council, they have always been special purpose financial statements. They have not included the aged care facilities, hospital and schools that run as significant entities sponsored by the church but with their own councils and boards.
Annie’s problem is that she has not had to deal with accounting standards before and so does not monitor changes in them. Some of her entities are registered with the ATO as charities. This means she will need to lodge audited financial statements with the ACNC for the year ending 30 June 2014.
Two unrelated developments in accounting standards apply. First, AASB 1053 Application of Tiers of Australian Accounting Standards has a changed definition of general purpose financial statements. This will require the application of accounting standards in all financial statements made available to the public by a regulator, such as those Annie lodges with the ACNC. Second, changes to the definition of control through a new
AASB 10 Consolidated Financial Statements means Annie will have to review the relationship between the archdiocese and the aged care facilities, hospital and schools to determine whether she must consolidate these into the financial statements.
So, Annie faces many first-time accounting issues, a review of governance arrangements that have been longstanding but unclear, the education of other people in her group and the first-time release of information to the public.
Why Bev need not worry
Bev is finance officer at XYZ, an association incorporated in Victoria. She has been told XYZ is affected by the changes in the not-for-profit sector.
Bev is concerned about the reforms as she has read about some entities losing tax exemptions and having to provide new returns. However, as the association is not currently registered as a charitable organisation and is a state-registered organisation, the first round of reforms do not affect the association.
What Bev may have heard about – and confused with the NFP reforms – are separate changes to associations law in Victoria. These may require her to review some matters, such as the model rules.[/breakoutbox_content][/breakoutbox]
Fundraising rules
Laws have been proposed to bring consistency to fundraising rules and exempt entities raising less than $50,000 per annum or who raise funds over the internet. These proposals will at first only apply to entities regulated under a federal law. They will be required to register with the ACNC.
Minimum information disclosures must be made available when donations are solicited, and broader reporting and record-keeping requirements will also exist.
Registration requirements
From 1 October 2012, the ACNC is responsible for determining charitable status for all Commonwealth Government purposes. It will maintain the charity register, so all new registrations and changes of
details must be processed through the ACNC. Registered entities will need to obtain a ‘charity passport’ to use the new electronic portal. The ATO will continue to be responsible for tax law, including administering tax concessions for charities.
In conclusion
The scope of these reforms is broad and substantial, and there is potential for misunderstanding. Some entities may benefit, others will face new costs or challenges, as Annie’s case (below left) illustrates.
Accountants have a key role in getting to grips with the changes, monitoring developments and being involved with the education and planning needs of those in the not-for-profit sector.
