At our recent financial reporting update we outlined a number of changes impacting on 31 December 2015 financial statements while also explaining the changes coming in the future.
Many of these changes relate specifically to not-for-profit entities. A summary of the key items have been outlined below.
Special purpose financial reporting under review
The AASB has continued to progress work on this project and is liaising with regulators including ASIC, the ACNC, as well as Treasury where any federal legal changes will be implemented. A key component of the project is the consideration of what entities should prepare general purpose financial reports within the Australian context.
The AASB is scheduled to make a recommendation in the first half of 2016. At this time it is likely that this recommendation will contain a requirement that all entities that lodge on the public record with a regulator (e.g. ASIC, ACNC etc.) will be required to prepare general purpose financial reports. A review of current threshholds for lodgement and / or specific requirements for the level of compliance will likely be considered by each regulator.
As this project appears to have renewed momentum, we believe that all entities currently preparing special purpose financial reports should consider the changes required to prepare general purpose financial reports.
AASB9 Financial Instruments is able to be adopted prior to its mandatory application date of 2018. One of the changes is that equity investments can either be measured at fair value through profit and loss or at fair value through a reserve account in equity. Under the second option the movements in fair value are no longer transferred to the profit and loss on disposal and impairment tests are no longer applied.
With the recent movement in values within the equity markets we are recommending that that entities with significant investment portfolios consider their accounting policy choice as this can materially impact the financial result reported in the current year.
The proposals to replace the often criticised accounting standard AASB1004 Contributions and provide application to the new revenue standard AASB15 for not-for-profits were contained in exposure draft ED260 Income for Not-for-profits. These proposals are likely to result in more not-for-profits that receive grants or donations for clearly defined purposes to defer the recognition of income and more closely match with the expenses incurred.
A more controversial component of ED260 is to specifically allow volunteer labour provided to an entity to be recognised as income based on the fair value. We believe this option contains many practical issues for entities seeking to adopt that require further consideration and clarification.
The new standard is expected to be released by the AASB in the second half of 2016.
Service performance reporting
The AASB recently issued exposure draft ED270 Reporting Service Performance Information. This ED proposes that a standard be issued requiring not-for-profit entities to report on their activities including inputs, outputs and outcomes. Interestingly, the proposal allows this information to be reported separately to the financial report with any requirement for audit to be determined by the relevant regulator. The proposal is open for comment until 12 February 2016.