Date posted: 14/07/2023 5 min read

Tier 3 reporting coming for Australian not-for-profits

The Australian Accounting Standards Board is developing Tier 3 reporting standards for smaller not-for-profits.

In Brief

  • The Australian Accounting Standards Board (AASB) is developing Tier 3 reporting standards for smaller not-for-profits.
  • The AASB’s focus is on simplifying requirements, while providing consistent, comparable reporting.
  • An exposure draft is expected later this year, which is likely to incorporate feedback from CA ANZ and other stakeholders.

The Australian Accounting Standards Board (AASB) has been hard at work developing a third tier of reporting requirements that is set to make reporting easier for both preparers and regulators of not-for-profit financial statements. Tier 3 reporting is being designed so that there is a set of simplified reporting requirements for the not-for-profit sector that regulators can prescribe as a part of their compliance regime.

This proposal for a stand-alone standard – an exposure draft will be developed later this year – follows concerns that there is nothing for the smaller entities that need to report and that special-purpose financial reporting resulted in the selective use of accounting policies.

AASB chairman Keith Kendall says the development of Tier 3 reporting was driven by stakeholders that are keen to see some form of comparability and consistency in the reporting of not-for-profits. He says a call for consistency and comparability was in part from donors and potential donors to not-for-profits, but the entities operating in that sector appeared pleased something was being developed for their use.

“A lot of the entities are quite happy to take it as well, because Tier 3 reporting provides a consistent basis on which they can approach donors,” Kendall says.

Keith KendallPictured: Keith Kendall, Australian Accounting Standards Board.

Simplicity the priority

The Tier 3 standards being developed by the AASB, however, are yet to be prescribed as requirements for regulatory authorities. Kendall says the board is busy crafting the standard, but it will be up to authorities to decide to mandate its application for entities required to report on their affairs to a regulator and the broader community.

He says that the general idea is for the reporting regime to apply to the entities that have A$500,000–A$3 million, so “we are talking about some sizeable entities”, but that regulators such as state-based departments of consumer affairs and the Australian Charities and Not-for-profits Commission would make a call on the entities to which the new standards will apply.

Introducing another tier of reporting has meant taking on the task of simplifying reporting guidance for smaller entities, and the AASB has spent a significant amount of time consulting with likely users of the new standard.

Kendall says the AASB is taking seriously the approach to keeping this new tier of reporting simple and that has been the subject of debate at the public meetings of the standard setter.

“It was a point of discussion during our May board meeting that we can’t lose sight of the need to try and keep it as simple as possible,” he says.

Common transactions

One critical area of design, according to the AASB’s discussion paper on developing Tier 3 reporting, was to ensure that an accounting standard specifying requirements for common transactions was expressed in simple language and did not require preparers of accounts to consult other standards.

This contrasts with the full suite of accounting requirements that apply, for example, to listed companies. Each topic has its own standard and practitioners must refer to these when making a judgement on the appropriateness of accounting in specific circumstances.

Kendall highlights the AASB’s approach to accounting for revenue in the Tier 3 project as one example of this simplification.

“Tier 3 entities will need to refer only to that single standard for their revenue recognition requirements, as opposed to the current situation if they have to apply accounting standards,” he says. “Currently, not-for-profit entities need to refer to two standards for revenue recognition, those being AASB 15 for general guidance and AASB 1058 that is not-for-profit specific.”

“Tier 3 entities will need to refer only to that single standard for their revenue recognition requirements, as opposed to the current situation if they have to apply accounting standards.”
Keith Kendall, Australian Accounting Standards Board

A collaborative effort

Chartered Accountants Australia and New Zealand reporting and assurance leader Amir Ghandar FCA says the AASB’s work on simplified reporting had already been informed by an extensive consultation process that featured the involvement of CA ANZ members. The AASB is expected to spend the rest of the year developing an exposure draft that takes CA ANZ and other stakeholder feedback into account.

Amir Ghandar FCAPictured: Amir Ghandar FCA, CA ANZ

“We think the AASB has struck a pretty good balance with what they have put forward in the recent consultation,” Ghandar says.

“Through that process, we have heard where members believed the standards could be simplified. We feel the AASB has listened genuinely and they have actually met our member groups.”

Ghandar says there were a range of issues that needed to be dealt with in the context of the development of Tier 3 report requirements. This does not just involve the uptake of the new standard for not-for-profits by regulators to ensure comparability and consistency in reporting in the sector. It also involves chartered accountants working in not-for-profits getting their organisations ready to implement the new reporting requirements.

Ghandar says this process involves ensuring everyone is given the opportunity to understand what the new standard will mean and what role each person plays in achieving compliance.

“I would see this as a change-management process and that means you need to have the stakeholders involved from the outset, making sure that their voices are heard and that there is buy-in,” he says.