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not for profit

AASB’s discussion paper update

Tier 3 word in wooden alphabet letters isolated on red background

As the AASB discussion paper deadline looms (31 March 2023), we offer you an AASB discussion paper update.

In this update, we revisit why we believe simplifying the accounting requirements for Tier 3 not-for-profit private sector entities is a significant and positive move in NFP accounting.

Business people busy discussing a graph on the meeting table

A brief overview of the AASB Tier 3 discussion paper

In September 2022, AASB Acting Technical Director Carmen Ridley and Board Member David Holland held a virtual education session to unpack the discussion paper that would simplify the Australian Accounting Standards (AAS) for smaller not-for-profit (NFP) private sector entities.

In the session, Carmen and David explained the intention of the additional tier in NFP reporting that deals explicitly with common balance and transactions for smaller not-for-profit private sector entities.

Although the AASB did not define the parameters for a ‘smaller entity,’ they did give an indicative guideline of between A$500,000 and A$3 million in annual revenue – this is consistent with the ACNC’s ‘medium’ tier.

Accounting For Good’s opinion on the AASB discussion paper

In a recent blog, we highlighted why simplifying the reporting requirements for NFP organisations was good for not-for-profit accounting. Some of the changes the discussion paper plans to make include the following:

  • A parent entity may choose to consolidate or to report separately with disclosures.
  • Recognition of revenue based on common understanding between funder and recipient.
  • Choose whether to measure non-financial assets acquired at significantly less than fair value (think: donated or generously discounted) either at fair value (current requirement) or cost with disclosures.
  • Impairment of non-financial assets measured at a cost to be impaired only when damaged or their service potential is adversely affected.
  • Lease accounting – can we say goodbye to AASB16?
  • Statement of changes in equity: to be excluded for Tier 3 entities?
  • Opting up – AASB seeking feedback on if and when to allow an entity to opt to use a Tier 1/2 recognition and measurement accounting policy.

“At AFG, we are particularly excited about two of the proposed changes in NFP accounting: lease accounting and revenue recognition,” says our CEO, Kirsten Forrester.

“Before AASB16 came into effect in 2019, leases would remain off the balance sheet, with payments recognised on a straight-line or systematic basis over the lease term. We are thrilled that the discussion paper is proposing a Tier 3 would reinstate this simplified requirement.”

Kirsten says that from a revenue recognition perspective, the proposed Tier 3 standard follows a much simpler, concise process compared to the current complex methodology that often results in irregular surpluses and deficits from year to year.

“The proposed changes for revenue recognition is to use a documented common understanding between funder and recipient that allows the revenue to be recognised when the related expenditure occurs.”

She says this will allow a not-for-profit organisation to have a more consistent presentation of their financial statements for stakeholders, members and donors, as revenue can be matched to the related expenditure.

Colleagues having discussion

Some industry opinions

In a recent article from the CPA’s monthly business magazine, CPA Australia’s senior manager of reporting and audit policy, Ram Subramanian, echoed the positive sentiment for the Tier 3 changes.

He did, however, highlight that with change come challenges.

Ram notes that, “the proposed framework would require regulatory changes across Australia to work properly.”

March 2023 blue color desk calendar

AASB Tier 3 feedback deadline

The AASB is encouraging feedback from NFP industry stakeholders by 31 March 2023. Information and links can be found here. The AASB is very keen to hear from the sector and has contacted AFG to ask us to help spread the word. There are many ways in which you can provide feedback and we believe the proposed Tier 3 standard would be a good thing for NFPs. We encourage you to take the opportunity to explore the information and respond to the AASB.

Imagine never having to do an ROU asset calculation again…!

If you haven’t yet and want to attend a virtual outreach event, click here for the last one, scheduled for 1 March 2023 from 12 noon to 1pm AEDT.

If you need to speak to a not-for-profit accountant about your organisation, contact us.

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