13 big questions on NFP financial reporting
A new issues paper asks some big questions aimed at firing up the debate on how financial reporting and accountability in the not-for-profit (NFP) and charitable sector can be improved. The paper was launched at the end of March by Anglicare Australia, the Australian Charities and Not-for-profit Commission (ACNC) and the Australian Accounting Standards Board (AASB).
‘While accounting standards may seem a technical area of limited interest, for a number of years now there have been increased calls for increased reporting by Australia's NFPs and charities, explains Dr David Gilchrist, the paper’s author and a director of Baxter-Lawley.
‘The problem continues to be that we do not know how this should look. This report is the first step in developing an understanding of how we might move forward.’
Entitled Issues Paper: Better Financial Reporting for Australian NFPs, the paper focuses on the transaction-neutral financial reporting framework formally established by the AASB. Fundamentally, it asks whether this framework meets the needs of the users of financial information or whether there needs to be a more nuanced, sector-specific path taken.
Unfortunately, the paper notes that it is difficult to identify the users of NFP and charity financial reports and thus it is equally difficult to identify users’ information needs. Users are those people who need the information, but must rely on the published reports of an entity.
Overall, the aim of the project is to kick start the development of a financial reporting framework that is fit-for-purpose; resource efficient (meets the cost/benefit test); and sensitive to the relative financial risks of the organisations involved.
‘This paper is not seeking to provide answers, but rather raises a set of 13 core questions which are intended to facilitate the national discussion,’ says Gilchrist.
The 13 questions are:
1: Who are the users of NFP and charitable organisations’ financial reports?
2: What are the financial reporting needs of those users?
3: Do the current standards support the provision of high quality financial information to the users of NFP financial reports?
4: Do the current financial reporting arrangements allow NFPs and charities to meet their financial reporting obligations in a cost-effective manner?
5: Should volunteer time be allowed and donated assets be required to be reported in financial reports as in AASB1058, in some different way or not at all?
6: If volunteer time and donated assets should be reported, how should these items be valued and reported in the financial report?
7: Should restricted assets be separated from unrestricted assets in the statement of financial position for NFPs?
8: Regardless of the answer to question 7, how should restricted assets be valued?
9: Should capital grant income be reported in the Statement of Financial Performance?
10: Should income relating to contracts for outcomes delivery over more than one financial period be matched to expenses incurred, on an annual basis, if the income is not at risk?
11: Should a different test be applied to NFP and charitable organisations for the purpose of determining whether consolidation should be undertaken?
12: Are the income levels appropriate segregation points for differentiating financial reporting requirements?
13: Should there be more tiers added? If so, how should those tiers be segregated and what should they be required to report?
The paper limits its focus to incorporated associations, companies limited by guarantee, charities and corporations established by Private Act of Parliament. It also limits its coverage to issues surrounding accounting standards and does not consider other legislative requirements, reporting or otherwise.