This is the second article in a series of three which is intended to provide an update to charities and not-for-profits on the key regulatory changes being introduced following the review of the Australian Charities and Not-for-profits Commission (ACNC). In article one we advised the three key areas highlighted in the Federal Government Response to the review:
The charity and not-for-profit sector is governed by national and state based regulators, each of whom have their own compliance requirements. With any decentralised system comes variance which creates challenges particularly for larger charities who operate in multiple jurisdictions.
A key recommendation from the Australian Charities and Not-for-profits Commission (ACNC) reforms included the need to reduce the compliance burden in the sector and streamline regulation. The Federal Government’s response to the recommendations did not include support for broadening the ACNC’s remit but did support other changes including those detailed below.
The recommendation for an adjustment to be made to the revenue thresholds for minimum reporting requirements was supported, as follows:
The Federal Government has reviewed the recommendations from the reforms and has agreed in principle to an easing of the minimum reporting requirements for small charities by allowing them to provide reports that are aligned with their accounting system. This is expected to positively impact over 18,000 of the 57,000 registered Australian charities and not-for-profits.
In other words, the number of charities who will not be required to submit a financial report will be increased by the raising of the threshold when it comes into effect.
Another recommendation supported by the Federal Government includes amending the Annual Information Statement requirements to enable small charities to provide a simplified balance sheet or statement of resources.Large charities will need to disclose the salaries of their responsible persons and senior executives. Organisations with only one remunerated responsible person or senior executive will be exempt from this requirement.
Currently only charities who are required to submit general purpose financial reports are also required to disclose related party transactions in their financial reports. The reforms being introduced will require all charities, regardless of size, to disclose related party transactions in their financial reports. Small charities will be permitted to make a simplified disclosure. The changes will be introduced in alignment with the changes to financial reporting thresholds.
It should be noted that any entity that is required to comply with Australian Accounting Standards and is currently only producing special purpose financials will most likely need to prepare themselves to submit more detailed information.
The Australian Accounting Standards Board (AASB) met in March 2020 and approved a proposal to remove the ability of certain entities to prepare special purpose financial statements as of 1 July 2021. At this stage this only applies to for-profit entities however it will next apply to private-sector NFPs and then the public sector.Full details are still being considered but it would be prudent for large charities to prepare themselves for this change.
Across each state and territory there are currently 45 statutory definitions of a charity. The review of the ACNC provided a recommendation to develop one national scheme for charities and not-for-profits around this issue. The Federal Government has noted the recommendation and stated it will consult with states and territories on the development of a common statutory definition. In it’s response the Federal Government said,“This will reduce complexity and regulatory burden for charities when seeking tax concessions”.
To put different reporting in place under the thresholds the AASB made a change to their definition of a not-for-profit as follows:
“An entity whose primary objective is to provide goods or services for community or social benefit and where any equity has been provided with a view to supporting that primary objective rather than for a financial return to equity holders”.
An additional statement was included in the AASB guidance with an aim to address feedback that some entities, listed as NFPs, may no longer be able to meet the above definition. The AASB noted there may be some organisations, and charities, who are currently considered NFPs and may not meet the definition of a not-for-profit any longer. For example, a NFP entity which generates profits for an overarching NFP or charity so that the overarching NFP is able to fulfil its charitable activities. There is also the possibility that member-based clubs, such as sporting clubs, do not meet the proposed definition. Feedback is currently being considered by the AASB before finalising the definition. If you are unsure if your organisation may be impacted by these changes, we recommend you seek advice from your accountant and stay across the updates from the AASB.
The inclusion of remuneration disclosures by large charities and related-party disclosures will provide more transparency on the quality and standard of governance for the organisations. Lifting the reporting thresholds will reduce administration for smaller charities however all charities will continue to face the requirements of multiple regulators with national, state and territory obligations. The Federal Government has stated they will engage with the states and territories on the matter of the definition of charities. The Impact Suite hopes this is not the end but the start of a roadmap for a single regulator, at least for financial reporting, for the sector.
