NFPs Face Financial Reporting Crunch Time
Thursday, 31st July 2014 at 11:37 am
Not for Profit organisations including 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, according to accounting firm William Buck.
Last year the Australian Accounting Standards Board introduced a new accounting standard (AASB 10), which changes the way businesses and Not for Profits determine control over associated entities.
According to Kimberley Carney, National Technical Senior Manager, with accounting and advisory firm William Buck, consolidated reporting rules changed for businesses in 2013 and will now become mandatory on December 31, 2014 for Not for Profits.
"However our research shows that most Not for Profits are either unaware of the new standard or they have assumed that there will be no changes to their financial statements," Carney said.
"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 Not for Profit that directs the activities or use of funds of another entity is now judged to have control. If they are preparing general purpose financial statements they must therefore consolidate. If they are preparing a special purpose financial statement, consolidation is optional."
Carney said she believed AASB 10 would impact nearly every school in Australia – private or public – that prepares financial statements.
"Most schools have a building fund or foundation where money is held for special projects," she said.
"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."
Carney said that as the changes would become mandatory in less than six months Not for Profits should already be preparing for the revised requirements.
"However, our experience shows that many Not for Profits, have not yet considered the changes much less performed a reassessment of their consolidation conclusions," she said.
"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."