Article shared with the permission of the author Anthony Whyte, National Leader, Not-For-Profit. Original article dated 3 April 2020: https://www.bdo.com.au/en-au/insights/not-for-profit/articles/the-impact-of-covid-19-on-not-for-profits-with-a-december-year-end
Right now, many charities and not-for-profits with a December 2019 year-end are in the process of finalising or completing their year-end financials. However, with the current COVID-19 health crisis significantly impacting not-for-profits, there are several important considerations for the year-end process that charities and not-for-profits must pay particular attention to. As such, this article details these issues and provides advice on actions charities and not-for-profits can take to prepare themselves.
When completing the year-end financials, below are key questions that need to be top-of-mind for directors and the person(s) responsible for the charity or not-for-profit.
The question, “how is COVID-19 currently impacting or will impact our organisation?” needs to be front and centre as COVID-19 will in most cases be a subsequent event that will be required to be disclosed in the financial report.
Generally speaking, COVID-19 will be considered a non-adjusting event for financial reports for the year ended 31 December 2019. This means that there is no adjustment to the financial numbers at year-end, but rather a description in words of the actual and or expected impact of COVID-19 on the charity or not-for-profit, including an estimate of the financial effect of COVID-19. For some, this impact may not yet be known, and for others the impact is obvious. Therefore, the length and depth of disclosure will be individual to each organisation. One financial statement area where the impact is likely to be known is financial investments.
There may be some circumstances where there will be an adjusting event. We expect that an adjusting event will only occur for COVID-19 when the responsible person(s) realise that they cannot prepare the organisation’s financial statements on a going concern basis. This means that there is the intention - or no alternative other than – to liquidate the entity or cease trading.
This brings us to the important step of determining the key things that must be in place in order for the responsible person(s) to sign off on the declarations of solvency. In our other article here, we have highlighted some critical considerations concerning solvency and financial stability concerning COVID-19.
Some additional key activities organisations can undertake to support decision-making include:
We strongly recommend that management and responsible persons complete the detailed review and bring in appropriate expertise if they are not available inhouse.
If the 31 December 2019 financial report is being prepared on a going concern basis, consideration will need to be given to the disclosure required in the financial report explaining why the going concern basis of preparation is appropriate.
For most organisations, the impact of COVID-19 is likely to cause some users of the financial report to ask questions about the ability of the entity to continue as a going concern. It is arguable, therefore, that there are uncertainties that cast doubt on an entities ability to continue as a going concern. These uncertainties are required to be disclosed in the financial report, along with the reasons why the entity is considered to be a going concern.
There is a requirement for charities with revenue of over $250,000 to have a review or an audit. In the current circumstances, the audit or review may be required to be completed without on-site visits. Where possible the use of technology should be used to complete the work. Documents can be scanned electronically and shared with the auditors. Discussions can be held via telephone and video mediums. This will require adjustment but should allow the completion of audits and reviews. If your entity is not set up for remote work, we recommend that you contact our technology advisory team who can help you to transition onto online technology for accounting and management reporting.
The good news is that the ACNC has now advised that entities with an AIS due date between 12 March 2020 and 30 August 2020, will now have an extension until 31 August 2020.
As at 23 March 2020, the Australian Charities and Not-for-profits Commission (ACNC) recognises that the government has stated public meetings are unable to be held. They recommend that not-for-profits review their constitution to see if AGM’s can be held using technology. If technology is not permitted in the constitution, then discussions will need to be had with the ACNC, unless an extension is granted in future.
When planning to hold a meeting via the use of technology the ACNC has reminded charities to:
Finally, while this article focuses on concerns regarding 31 December 2019 year-end reporting, it’s also important that charities and not-for-profits review and reflect on their activities when it comes to revenue generation.
While the Australian public is very generous – as shown by the overwhelming support during the bushfire crisis - there is only so much that people can donate. As COVID-19 continues to have a substantial economic impact on individuals, families and small and large businesses donations will likely decrease. Other streams of donation revenue such as grants, corporate sponsorships, charity stores and significant donors may also be affected.
Also, the current restrictions on gatherings and physical distancing requirements have not only resulted in the cancellation of important fundraising events (with charities left to bear the event costs) but also has significant impacts on charities and not-for-profits who are heavily dependent on volunteers to carry out their activities.
As such, charities and not-for-profits must consider all of these issues and the extent to which they will impact the organisation. It’s also important that they seek professional advice early, especially if there are concerns that the charity may experience financial difficulty as a result of COVID-19. For more information, or if you have specific questions regarding your charity or not-for-profit, please contact your local office.