Is Your NFP Financially Compliant? A Clear Guide to AASB Reporting Standards

Introduction

For not-for-profit (NFP) organisations, maintaining financial compliance is fundamental to ensuring transparency and upholding public trust. Not-for-profits registered with the Australian Charities and Not-for-profits Commission (ACNC) are required to prepare a financial report that adheres to the mandatory standards and financial reporting framework established by the Australian Accounting Standards Board (AASB).

Understanding the AASB standards, however, can be challenging, as they contain specific and often complex requirements for NFP entities. This guide provides a clear overview of the essential standards that NFPs must follow, helping your charity understand its obligations and ensure its financial statements are fully compliant.

Understanding the AASB Framework for Your Not-for-Profit Organisation

The Role of the Australian Accounting Standards Board

The AASB is the governing body responsible for setting Australia’s accounting standards. As a Commonwealth entity under the Australian Securities and Investments Commission Act 2001 (Cth), the AASB stipulates the requirements that all Australian entities must meet in their financial report.

The primary objective of the AASB is to develop and maintain a consistent and high-quality set of accounting and reporting rules. This framework ensures that financial information is:

• Uniform across different organisations
• Comparable between all sectors, including for-profit and NFP organisations

Why AASB Standards are Mandatory for Your Charity

For NFP entities registered with the ACNC, compliance with Australian Accounting Standards is a mandatory part of NFP financial reporting. The ACNC, as the national regulator for the charity sector, requires organisations to prepare financial statements that adhere to these standards.

This requirement helps ensure that your charity maintains accurate and complete financial records. Following the AASB standards is crucial for:

• Meeting regulatory obligations
• Maintaining public trust and confidence
• Operating with transparency

Key Income & Revenue Standards for Not-for-Profit Entities AASB 1058 & AASB 15

The Role of AASB 1058 Income of Not-for-Profit Entities

The AASB provides specific guidance for NFP financial reporting through AASB 1058 Income of Not-for-Profit Entities. This standard was developed to address income sources that are unique to the NFP sector.

AASB 1058 establishes the accounting principles for transactions where an NFP entity acquires an asset for a price significantly less than its fair value, which is common for charities receiving grants or donations. The primary objective is to simplify income recognition requirements for NFPs. In conjunction with AASB 15, it supersedes the previous guidance found in AASB 1004 Contributions.

This standard specifically applies to:

• Transactions where the consideration to acquire an asset is significantly less than its fair value, enabling the NFP to further its objectives
• The receipt of volunteer services, allowing organisations to recognise these contributions in their financial report if they choose and can measure the value reliably

Applying AASB 15 Revenue from Contracts with Customers

While AASB 1058 covers many NFP-specific income types, AASB 15 Revenue from Contracts with Customers applies to the commercial revenue of an NFP. This standard is relevant when a charity enters into an enforceable contract that contains ‘sufficiently specific’ performance obligations – promises within the contract to provide goods or services in exchange for funding.

AASB 15 dictates that revenue should be recognised when the NFP entity transfers control of the promised goods or services to the customer. The timing of this recognition depends on how control is passed:

• If goods are transferred at a single point in time, revenue is recognised at that moment
• If services are provided continuously over a contract period, the revenue is recognised on a straight-line basis as the service is performed

Distinguishing Between AASB 1058 & AASB 15 for Your Charity

Correctly distinguishing between AASB 1058 and AASB 15 is essential for accurate NFP financial reporting and compliance with AASB standards. The fundamental difference lies in how revenue is recognised; AASB 15 uses a “transfer of control” model, whereas AASB 1058 provides principles for income that doesn’t arise from such a contract.

The decision of which standard to apply depends on the specifics of the funding arrangement. To determine the correct treatment for your financial statements, consider the following:

• Enforceable Contract: Does an enforceable contract exist between the NFP and another party?
• Performance Obligations: Does the agreement contain promises to provide goods or services that are ‘sufficiently specific’? This means the obligations are clearly defined and measurable.

If both conditions are met, the income should be accounted for under AASB 15. However, if these conditions are not met, as is the case with many general donations and grants without specific deliverables, the income typically falls under the principles of AASB 1058.

Other Essential AASB Standards for Your Charity’s Financial Statements

Standards for Assets & Liabilities

Beyond income and revenue, several other AASB standards dictate how your NFP organisation must report its assets and liabilities. These rules ensure consistency and transparency in your financial report, with some specific provisions tailored to the NFP sector.

A critical distinction for NFPs lies in how they handle asset revaluations. Important standards governing assets and liabilities include:

Standard(s)	Key Implications for NFPs
AASB 116 Property, Plant and Equipment & AASB 136 Impairment of Assets	NFPs offset revaluation increases and decreases for an entire class of assets, rather than on an individual asset basis as for-profit entities do.
AASB 16 Leases	This standard requires most leases, including “peppercorn leases” (renting for a nominal fee), to be recognised on the balance sheet. NFPs must assess all lease agreements to ensure compliance.

Standards for Inventories & Contributions

The way NFPs handle inventories and contributions differs from for-profit businesses, reflecting their unique operational models. For charities that distribute goods or rely on grants, understanding these specific accounting treatments is essential for accurate NFP financial reporting.

Two key standards in this area are:

Standard	Relevance to NFPs
AASB 102 Inventories	Provides special guidance for inventories held for distribution at no or nominal cost. These are measured at cost and adjusted for any loss of service potential, not at the lower of cost and net realisable value.
AASB 1004 Contributions	Historically applied to NFPs for contributions, including grants, which are fundamental to their operations. This differs from the guidance for-profit entities follow for government grants (AASB 120).

Reporting Cash Flow with AASB 107

A Statement of Cash Flows is a mandatory component of a financial report, and NFPs must adhere to AASB 107 Statement of Cash Flows. This standard provides a clear framework for presenting how cash is generated and used over a reporting period, offering stakeholders insight into the organisation’s liquidity and solvency.

AASB 107 requires cash flows to be classified into three distinct categories, helping to clarify the nature of the organisation’s financial activities:

Cash Flow Category	Description
Operating activities	Cash flows from the principal revenue-producing activities, such as grants, donations, and payments to employees and suppliers.
Investing activities	The purchase and sale of long-term assets and other investments, such as acquiring or selling property or equipment.
Financing activities	Changes in the size and composition of the entity’s equity capital and borrowings, such as repaying loans or credit card balances.

ACNC Compliance & Financial Reporting Obligations for Your Not-for-Profit

The Annual Information Statement & Financial Reports

All charities registered with the ACNC must submit an Annual Information Statement (AIS) each year. This statement provides key information about your organisation’s activities, governance, and basic financial details, including income, expenses, and balance sheet data. The AIS is due within six months of the end of your NFP organisation’s financial year and must be lodged through the ACNC’s online charity portal.

In addition to the AIS, medium and large charities are required to submit a financial report. This NFP financial reporting must comply with the AASB standards. While charities with an annual revenue below the $499,999 threshold are considered small and do not need to lodge these detailed financial statements, they are still obligated to submit an AIS.

Review & Audit Requirements for Your Charity

To ensure the accuracy and integrity of the financial information provided, the ACNC has specific requirements for external scrutiny. Medium-sized NFPs must have their financial statements either reviewed or audited by an independent party. For large charities, an independent audit of their financial statements is mandatory.

The primary purpose of this process is to obtain an independent opinion on the accuracy and completeness of the financial report. This verification is crucial for ensuring that the charity’s financial statements fully comply with the required accounting standards. The specific parameters of the review or audit will depend on the size and nature of the NFP entity, as well as any other applicable regulatory requirements.

Conclusion

Ensuring your NFP organisation is compliant requires a thorough understanding of the AASB framework, from key income standards like AASB 1058 and AASB 15 to ACNC reporting obligations. Adhering to these standards is essential for producing a transparent financial report that maintains public trust and meets regulatory requirements for all NFPs.

Exploring the complexities of NFP financial reporting can be a significant challenge for any charity. For trusted expertise tailored to the unique needs of NFP entities, our not-for-profit lawyers will help you ensure your financial statements are fully compliant and secure your organisation’s standing. Contact our team at LawBridge today.

Frequently Asked Questions