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Clarity in financial reporting – July 2021 not-for-profit edition

Focus on financial reporting considerations for not-for-profit entities

Welcome to the July 2021 edition of our not-for-profit newsletter

In this issue

Recent not-for-profit specific client events

Helpful publications and tools

Accounting developments

Regulatory update

Emerging technical issues

Recent not-for-profit specific client events

May 2021 not-for-profit Client Financial Reporting Update – recording available
Our not-for-profit (NFP) Client Financial Reporting Update (CFRU) was held virtually on 19 May 2021.

Leading Deloitte NFP specialists in financial reporting from our assurance and advisory practice shared their thoughts and lessons learnt from the recent reporting season. The panel discussed current and emerging reporting issues in the NFP space.

Topics include:

  • Issues arising from the implementation of the new income and leases standards
  • ACNC proposed reporting thresholds
  • The AASB NFP framework project.

The recording of the webcast and the presentation material are now available.

More information: May 2021 CFRU

Helpful publications and tools

Not-for-profit illustrative disclosures for Tier 1 financial statements (30 June 2021)

Accounting Technical has released new Tier 1 model financial statements for financial reporting periods ending on or after 30 June 2021. These Tier 1 model financial statements contain illustrative general purpose financial statements prepared in accordance with Australian Accounting Standards.

For NFP entities preparing Tier 1 financial statements, Appendix 4 covers the NFP-specific illustrative disclosures to be used in conjunction with the model financial statements, to assist the majority of NFP entities in meeting their general-purpose financial reporting requirements.

More information: Appendix 4 – Tier 1 financial statements (30 June 2021)

Accounting developments

Discontinuation of project: Definition of not-for-profit entity

In June 2019, the AASB issued Exposure Draft ED 291 Not-For-Profit Entity Definition and Guidance proposing to replace the current ‘not-for-profit entity’ definition in Australian Accounting Standards with the definition used for public benefit entities in New Zealand.

At its April 2021 meeting, the AASB decided to discontinue this project. The Board decided to retain the current ‘not-for-profit entity’ definition in Australian Accounting Standards which is defined as an entity whose principal objective is not the generation of profit.

The Board recognised that while the majority of the respondents to ED 291 showed support for the proposals, many raised reservations about the clarity of the implementation guidance, the level of judgement required and the expected transition effort and cost for some entities. Acknowledging these concerns, the Board concluded that the potential benefits of the proposals are unlikely to justify the cost of their implementation.

More information: AASB Action Alert (April 2021).

AASB Not-for-profit financial reporting framework project
In June 2019, the AASB issued Exposure Draft ED 291 Not-For-Profit Entity Definition and Guidance proposing to replace the current ‘not-for-profit entity’ definition in Australian Accounting Standards with the definition used for public benefit entities in New Zealand.

At its June 2021 meeting, the AASB continued its deliberations on the development of a discussion paper and made decisions on the form and content of Tier 3 reporting requirements for NFP private sector entities.

Setting Tier 3 requirements in the context of Australian Accounting Standards

The Board is currently still in the process of forming a view on whether the primary objective of Tier 3 reporting requirements should be to simplify accounting requirements or to facilitate comparability between Tier 3 NFP private sector entities.

The AASB has decided to propose developing Tier 3 reporting requirements as a single stand-alone pronouncement that will be tailored to NFP private sector entities of the size contemplated by the Board for Tier 3 entities (revenue between $0.5m- $3m).

As decided in April 2021 the Tier 3 accounting requirements are subject to the following principles:

  • Tier 3 financial statements would be GPFS, and are being developed as a proportionate response to the costs incurred by certain entities whilst meeting the needs of the users of the financial statements
  • In developing accounting requirements the aim is to maximise leveraging information that management uses to make decisions about the entity’s operations.

Accounting for controlled entities
The Board also made some decisions around the accounting for controlled entities for Tier 3 NFP entities. The key decisions are:

  • Not to develop any specific guidance or criteria on identifying controlled entities and make any amendments to the “control” principle set out in AASB 10 Consolidated Financial Statements for Tier 3 reporting requirements as the forthcoming postimplementation review of Appendix E of AASB 10 is expected to address the application of this principle for NFP entities
  • Entities preparing Tier 3 GPFS are allowed the choice of presenting either:
    • Consolidated financial statements that consolidate all of its controlled entities, as specified by AASB 10, or
    • Separate financial statements as its only financial statements.

In addition, where an entity presents separate financial statements as its only financial statements, it shall also disclose of its ‘significant relationships’ (definition to be discussed by the AASB in future) to provide users of the financial statements with information on the other entities that could significantly affect the entity’s future financial position or performance.

More information:

Post-implementation review of AASB 1058 Income of Not-for-Profit Entities
The Board decided to add a narrow-scope project to its work program to consider implementation issues raised by NFP sector stakeholders during targeted outreach regarding AASB 15 Revenue from Contracts with Customers and AASB 1058. This project is expected to commence in 2022 and the issues to be addressed in the project will be considered further at a future meeting.

More information: AASB Action Alert (June 2021)

Tier 2 disclosure amendments
The AASB decided to issue an Exposure Draft proposing amendments to AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities and other domestic Standards that would require entities to disclose material accounting policy information rather than significant accounting policies. The Exposure Draft will be issued shortly with a 60-day comment period.

More information: AASB Action Alert (June 2021)

Regulatory update

ACNC legislative review: Announcement of new ACNC thresholds and additional financial reporting obligations

ACNC thresholds

In February 2021, the Treasury issued a consultation paper seeking views on increasing financial reporting thresholds for Australian Charities and Not for profits Commission (ACNC)-registered charities.

On 30 June 2021, the Council on Federal Financial Relations has announced the revised financial reporting thresholds for charities registered with the ACNC which is effective for the 2021-22 financial years onwards in the 2022 and later Annual Information Statements subject to the relevant legislation being passed.

Key management personnel and related party transactions disclosures

In addition to the change in thresholds above, further key financial reporting changes relate to amendments to disclosure requirements for ACNC registered entities.


These new disclosure requirements include:

  • For the 2021-2022 financial year onwards, large registered entities are required to disclose the remuneration paid to responsible persons and senior executives on an aggregated basis. This disclosure will only be required for entities with two or more key management personnel to accommodate privacy concerns
  • For the 2022-2023 financial year onwards, registered entities are required to disclose related party transactions. This was done for the purpose of increased transparency of transactions with related people or organisations that pose a higher risk of conflicts of interest.

More information:

ACNC best practice guidance on financial report disclosures
The ACNC has released ‘best practice’ guidance to encourage charities to provide better information for users of their financial reports to understand the source and amounts of government revenue.

The ACNC provides the following three recommended disclosures of government funding in a charity’s annual financial report:

  • Where a charity receives 10% or more of its total revenue from government (including grants), it should disclose the following information about the sources of its government revenue:
    • The total revenue it received by each level of government
    • The names of each government department which provided revenue (up to 10), including the amount received from each
    • The revenue received from directly selling goods or services or delivering programs to beneficiaries if the revenue, although not directly received from government, is ultimately funded by government. For example, National Disability Insurance Scheme (NDIS) payments or home and community care services
  • For a charity dependent on government for significant revenue or financial support, the charity should include an economic dependency note in its financial statements
  • For a charity that prepares special purpose financial statements and does not make the disclosures required by AASB 15 and AASB 1058, the ACNC recommend disclosing funding from government that has been received but not yet recognised as revenue.

More information: ACNC best practice guidance

Emerging technical issues

Cloud computing arrangements

New guidance on accounting for cloud computing arrangements is in place and needs to be taken into account in the current reporting season.

In April 2021, the IFRS Interpretations Committee (IFRIC®) published an agenda decision that deals specifically with configuration and customisation costs incurred in implementing Software-as-a-Service (SaaS) arrangements. They concluded that the majority of these costs need to be expensed, with only limited scope for capitalisation in certain circumstances. This follows from a previous decision in March 2019 that SaaS arrangements are likely to be service arrangements, rather than intangible or leased assets.

The IFRIC’s conclusions are expected to change current accounting practice and may have a significant impact on many financial reporting entities, in both the private and public sectors, irrespective of size and industry. Where a change in accounting policy is required resulting from the agenda decisions, comparative financial information will need to be retrospectively restated to derecognise previously capitalised costs, where material, in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

We have published a new edition of our Clarity publication Software-as-a-Service arrangements, providing more analysis and background to this important issue.

More information:

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