Charities Governance Finance Legal

Sector advisor warns changes to financial reporting too costly for smalls NFPs

Emma McDonald October 14, 2015

2 min read

The Australian Accounting Standards Board (AASB) released Exposure Draft (ED) 260 earlier this year, which aims to achieve better matching of the income and expenses of NFPs, such as that from grants and donations. The proposed changes relate to how not for profit (NFP) organisations recognise income in financial reporting.

However, Tutt, believes the draft will be far too expensive and technical for many smaller NFPs to administer, and has called on the AASB to reconsider the change.

“The last thing we want is NFPs wasting their scarce resources on complying with technical accounting standards,” he said.

“NFPs receive funding to enable them to deliver their valuable services or achieve their charitable objectives. It seems ridiculous that they need to review every grant or contract to determine if their obligation has been satisfied.

According to Tutt, if the proposed standard is implemented, whenever a NFP receives funding it will have to go through a technical process to determine the specific intention of that funding. In most cases, this will involve paying for accounting or legal advice.

“Smaller NFPs have tight budgets and that money would be better spent delivering on their core purpose, not paying for advice on how to comply with an accounting standard.”

Tutt said that if the standard is implemented, the regulator for the NFP sector, the Australian Charities and Not-For-Profit Commission (ACNC), may be forced to step in and exempt charities with a turnover of between $250k and $1 million, who are likely to be most heavily impacted.

“If this does go through, we would encourage the regulator to make the standard only applicable to large charities with a turnover of more than $1 million,” he said.

“NFPs with turnover between $250k and $1 million just don’t have the resources to meet the complex accounting requirements associated with this standard.”

Feedback on the standard closed last month, with the AASB currently conducting an extensive outreach program.