Proposed new reporting tier to support small NFPs

The Australian Accounting Standards Board (AASB) is calling on industry professionals to review proposed changes aimed at simplifying accounting and reducing costs for small private-sector NFPs.

The Australian Accounting Standards Board (AASB) is seeking feedback from key stakeholders on its proposed new reporting requirements that aim to remove the complexity and cost experienced by many NFPs.

The proposed changes were created in response to ongoing concerns from small private-sector NFPs – non-governmental organisations with a revenue between $500,000 and $3 million – that current reporting requirements were too arduous.

Acting technical director of the AASB Carmen Ridley says this is likely a result of the limitations of the size of smaller NFPs, which reduce an organisation’s capacity and resources to properly invest in financial management.

“The standards are not necessarily easy to read, interpret or apply in many cases for these entities, and often require a fair amount of analysis and interpretation,” Ridley said.

“The profit sector generally has relatively larger finance teams – comprising of a CFO, a director of finance, qualified accountants – who have the ability and time to be able to work through and interpret these standards. 

“Some NFPs might be completely run by volunteers, who may be really well meaning, but don’t have the financial knowledge. They might have a bookkeeper or part-time accountant, so it is very onerous for them to look at the reporting side of things.

“It’s very much been front of mind for us as to how we can make life easier for those smaller NFPs preparing financial statements. The proposal has purely been written based on their concerns.”

The changes proposed by the AASB would introduce a third tier of accounting standards that are easier to apply. This new tier will see substantial updates to the revenue model, the ability to expense leases, and an accounting policy choice to prepare consolidated financial statements or separate financial statements with disclosures, among other items.

The expected outcome of the changes are twofold. Not only will it simplify accounting processes and reduce costs for small NFPs, but it will also improve the comparability and quality of financial reporting in the long term, which enhances sector governance.

“There are regulatory requirements in this 500,000 to three million dollar space to prepare financial statements, so effectively, it is for governance,” Ridley said.

“The changes will mean you have transparency in the financial statements and are reporting appropriately and consistently, and it’s hopefully less costly and time consuming because it is easier to fulfil that requirement.”

The consultation period is open for six months until 31 March 2023 to ensure wide engagement from key stakeholders, which include those actively using and preparing financial statements in the NFP sector. 

Individuals are encouraged to review the full proposal or an accessible 12-page snapshot and complete an online survey with their feedback. The AASB has also planned monthly virtual outreach informational sessions and released a pre-recorded educational video. 

The Australian Accounting Standards Board is a federal government agency that is responsible for setting financial reporting standards for entities across all sectors within Australia.

• If you are an eligible NFP, you can now apply for a three-year extension to register as a charity to maintain your DGR status. If approved, you will have until 14 December 2025 to register as a charity with the ACNC. Visit the ATO website for more information.