Consolidation required for NFP entities

Australian Accounting Standard AASB 2013-8 'Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities – Control and Structured Entities' applies to 31 December 2014 balance date for the first time..  Schools, churches and charities are likely to be affected.

The amendments provide significant guidance to assist not-for-profit entities in private and public sectors to apply AASB 10 'Consolidated Financial Statements' and AASB 12 'Disclosure of Interests in Other Entities'.

The main change from the previous requirements is that the concept of control is now more specific.  A three-step approach is applied to determine if control exists focusing on power, returns and a link between power and returns.  That is, the investor must have:

power over the investee
exposure, or rights, to variable returns from its involvement with the investee, and
the ability to use its power over the investee to affect the amount of the investor's return.

All three of these criteria must be met for control to be established.  NFPs must reassess whether they still control or now control other entities under AASB 10.

Many schools have a building fund or foundation in which money is held for special projects.  In the past, these funds might not have been consolidated in financial reports, but as schools can direct their use, school councils need to be aware of new reporting obligations.

Religious entities will also be affected.  They often have relationships with entities that provide education programs within a church, say, or that are devoted to fundraising.  Religious entities might not have previously thought that these needed to be included in a consolidated report.  If they direct the activities of these entities, they will now need to be included.

The guidance does not amend or deviate from the principles underlying the standards.  The guidance illustrates the principles with a range of comprehensive examples.  It explains various principles in AASB 10 regarding the criteria for determining whether a not-for-profit entity controls another entity.  For example, it explains that the basic terms 'investor' and 'investee' in AASB 10 refer to entities that have a relationship in which control of one entity (the investee) by the other (the investor) might arise.  The guidance also addresses 'protective' and 'substantive' rights and the relevance of non-financial returns in applying the control criteria.  A range of comprehensive examples illustrates the principles.

The AASB decided to include detailed examples based on the circumstances of NFP entities to illustrate how the requirements might be applied.  Examples address local government, universities, and delegated powers in the public sector.  Examples reflecting some common circumstances for NFP entities in the private sector are also included.  The examples would apply by analogy to types of NFP entities other than those identified.

 From these the following guidance was ascribed:


NFP Context


Financial interest not necessary

Its about the relationship


Deploy assets or incur liabilities

Providing goods and services to investor/other parties

Might arise from legislation


Policy directions

Veto rights over budget

No need for day-to-day responsibility


Financial and non-financial

Direct and indirect

Furtherance of investors objectives

In respect of AASB 12 "Disclosure of Interests in Other Entities", the implementation guidance explains the application of the AASB 12 definition of 'structured entity' by NFP entities. This affects the disclosures that an NFP entity would have to make in its general-purpose financial statements to meet the requirements of AASB 12.

Many NFPs have not yet considered the changes much less performed a reassessment of their consolidation conclusions.  These entities might be caught out by the changes; there is a significant time commitment for gathering the necessary additional information to perform the retrospective restatement of newly consolidated subsidiaries and extensive disclosure requirements for subsidiaries, joint ventures and associates.

New superannuation standard – AASB 1056

The Australian Accounting Standards Board (AASB) has issued a new standard applying to superannuation entities.

AASB 1056 'Superannuation Entities' replaces AAS 25 'Financial Reporting by Superannuation Plans' with effect for annual reporting periods beginning on or after 1 July 2016.  Early application of AASB 1056 is also allowed.

AASB 1056 applies to large superannuation entities regulated by the Australian Prudential Regulation Authority and to public-sector superannuation entities.  It does not apply to self-managed superannuation funds or small APRA funds.

In relation to the matters it specifically addresses, AASB 1056 applies in place of the requirements of other Australian Accounting Standards.  On matters that AASB 1056 does not specifically address, other Australian Accounting Standards apply.

AAS 25 was issued in the early 1990s to address the financial reporting issues that superannuation entities were specifically dealing with.  AASB 1056 updates the requirements in light of recent significant developments in the superannuation industry and the adoption of IFRS in Australia.

AASB 1056 is a substantial improvement on AAS 25, particularly in respect of its liability measurement requirements and the consistency of requirements in relation to the financial statements to be presented by all types of superannuation entities, whether they have defined contribution members, defined benefit members, or both.


Financial report reminder

Registered charities are required to prepare their first financial reports for the ACNC for the 2013-14 financial year.  The first financial report will need to be lodged with the ACNC by 31 December 2014, or within six months after the end of an approved substituted accounting period that commences after 1 July 2013.

Large registered charities are required to have their financial reports audited, and medium registered charities can choose either to have their financial reports reviewed or audited.

Companies that are not registered with the ACNC or cease to be registered with the ACNC must continue to lodge their annual financial reports with ASIC if it's obligatory according to tests in the Corporations Act.


Charity reporting released

Chartered Accountants Australia and New Zealand released 'A guide for charities reporting under the ACNC Act 2012' to help them to determine whether the ACNC reporting requirements apply.  The guide provides details about obligations on not-for-profit entities in relation to record-keeping, reporting and auditing.  It also covers what financial reports need to be lodged.

The new guide is a supplement to the latest issue of 'Enhancing Not-for-profit Annual and Financial Reporting'.  This was released in April 2013 when not all the regulations relating to the ACNC Act were finalised.

Section 1 contains an explanation of record keeping, reporting and audit requirements of the ACNC Act.  Section 2 provides decision flowcharts that will help users to decide if the ACNC reporting requirements apply to them, what type of reporting is appropriate, and what the report should contain.

This material supplements the content of sections 4 and 5 of 'Enhancing Not-For-Profit Annual and Financial Reporting that deal with reporting matters'.  Sections 1, 2 and 3 remain unchanged and continue to be relevant.

The guide is applicable for the first annual reporting season commencing on or after 1 July 2013.  It also reminds users of potential changes to charity regulation in light of the Federal government's intention to replace the ACNC with a Centre of Excellence.  This will not affect the 2014 financial year but may affect subsequent reporting periods.


National Standard Chart of Accounts updated

The National Standard Chart of Accounts (NSCOA) has been updated and is available on the ACNC website.

NSCOA is a data-entry tool and data 'dictionary' for not-for-profits, including charities.  All Australian governments (Commonwealth, State and Territory) have agreed to accept NSCOA when requesting information from not-for-profit entities.

While NSCOA is not compulsory, there are benefits in using it, and it is part of the ACNC's efforts to reduce red tape.  It provides a common approach to the recording and reporting of accounting information, reduces the time and cost of preparing financial statements, and provides a consistent approach to preparing financial information for reporting to multiple jurisdictions.