Reporting Update 24RU-16
Alignment to for-profit framework
In March 2020, the Australian Accounting Standard Board (AASB) finalised the ‘new’ for-profit private sector Australian financial reporting framework. The AASB has turned its attention to the not-for-profit (NFP) sector Australian financial reporting framework.
The overall project objective is to develop a simple, proportionate, consistent and transparent financial reporting framework for application by NFP entities. This is proposed to be achieved by extending the application of the Conceptual Framework for Financial Reporting (Conceptual Framework), including to remove the ability for certain NFP private and public sector entities from preparing special purpose financial statements (SPFS).
Following the publication and deliberation of feedback on Discussion Paper – Development of Simplified Accounting Requirements (Tier 3 Not-for-Profit Private Sector Entities) in late 2022, the AASB published two Exposure Drafts in October 2024:
- ED 334 Limiting the ability of Not-for-Profit entities to prepare Special Purpose Financial Statements which proposes superseding the reporting entity concept and extending the scope of Australian Accounting Standards to more NFP entities (both public and private sector). Consequently, certain NFP entities will be required to prepare general purpose financial statements (GPFS).
- ED 335 General Purpose Financial Statements - Not-for-Profit private sector Tier 3 entities which proposes to introduce a new general purpose reporting tier, Tier 3 contained in a stand-alone accounting standard specifically for use by smaller NFP private sector entities.
ED 334 key proposals
- extending the application of the Conceptual Framework, including adding ‘Aus’ paragraphs to ensure its contents are relevant to NFP entities
- extending the application of Australian Accounting Standards (AAS) to NFP private and public sector entities
- superseding SAC 1 Definition of the Reporting Entity and thereby removing the ability of NFP entities to prepare SPFS on the basis that the entity is not a reporting entity (as defined by SAC 1).
Under the proposal, NFP entities that are required by legislation to comply with either AAS or accounting standards, or are required by their constituting document or another document to prepare financial statements that comply with AAS will be required to prepare GPFS. An exemption to prepare GPFS is provided as long as the constituting or other document was created or amended before the effective date of the amending standards. Certain transition reliefs are also proposed for entities that early adopt the proposed standards.
ED 334 also proposes additional disclosure requirements covering information about the compliance with the recognition and measurement requirements in AAS in the financial statements of NFP private sector entities applying the exemption and still preparing SPFS.
ED 335 key proposals
ED 335 General Purpose Financial Statements - Not-for-Profit private sector Tier 3 entities proposes:
- a new single accounting standard for the GPFS-Tier 3 that is suitable for use by smaller NFP private sector entities
- the forms and contents of the proposed accounting standard that contains simplified recognition, measurement, presentation and disclosure requirements
- to provide relief from restating and presenting comparative information in the year of transition for entities transitioning to preparing Tier 3 GPFS.
The proposed GPFS-Tier 3 will be available only to NFP private sector entities that do not have public accountability and are not prohibited from applying GPFS-Tier 3 by the relevant legislation, constituting document or other document. The proposed standard does not specify which NFP private sector entities will be permitted to apply the GPFS-Tier 3 reporting requirement. This will be determined by the relevant regulatory authorities.
Some of the key simplifications include:
- simpler revenue recognition requirements
- choice whether to consolidate controlled entities
- simplified measurement and disclosure on investments where the entity has at least significant influence when presenting separate financial statements
- book value accounting for ‘entity combinations’
- choice of whether to record donated assets at cost or fair value.
When will these proposals become effective?
The AASB intends to provide at least three years of lead time between the issue and the effective date of any final standard.
Comments on the Exposure Drafts are open until 28 February 2025.
Read more in our Reporting Update.