Updates, changes and tips for your Not-for-Profit organisation
If you’re involved with running a not-for-profit organisation as a CEO, executive or director, you will know how important it is to keep up to date with changes in regulatory requirements and legislation. And you will probably also know how time consuming this can be.
Our team is here to assist and keep you informed, so you can spend your valuable time helping the people and community that you serve. The below provides a summary of critical information and updates for the not for profit sector. If you have any questions or concerns, contact one of our team or raise them when we next meet with you.
Changes to Accounting Standards
AASB 9 Financial Instruments
This standard mandatorily applies to annual reporting periods beginning on or after 1 January 2018 and will mainly impact the not-for-profit sector where equity investments are held. This standard will require a one-off, irrevocable decision as to the recognition of movements in equity investments, with an election to recognise fair value movements and gains and losses on sale either through the Income Statement or the Statement of Other Comprehensive Income. Should this election not be made then the default will be for these transactions to be recognised through the Income Statement.
AASB 16 Leases
This standard has an effective start date of 1 January 2019 and will see a single accounting model used for all leases, with certain exemptions. This will differ to the current finance or operating lease model. Currently operating leases are not recognised in the Statement of Financial Position/Balance Sheet rather these rental based lease agreements have been recognised through the commitment notes. The standard will see non-exempt operating leases recognised in the Statement of Financial Position/Balance Sheet as a value in use asset with a liability recognising the rental commitment. The standard applies to any leases over the approximate threshold of $5,000; organisations can set their own reasonable thresholds. This standard will require comparative figures to be disclosed in the December 2019 calendar year financial reports and June 2020 financial year reports.
AASB 1058 Income of Not-for-Profit Entities
There are new income recognition requirements for not-for-profit entities under AASB 1058 Income of Not-for-Profit Entities, with an effective start date of 1 January 2019. The new requirements are expected to result in better matching of income and related expenses, deferring income recognition until the associated performance obligation have been completed. This will be particularly relevant to any receipts of monies prior to the completion of performance obligations. It is important that organisations have clarity as to performance obligations within funding agreements, and work with their funders to be able to provide an appropriate recognition of income against expenses incurred.
AASB 124 Related Party Disclosures
This standard has been expanded to cover the not-for-profit sector and is effective in the 2018 financial year. Not-for-profit entities are now required to include a related party disclosure in their financial report.
Single Touch Payroll
Single Touch Payroll is a reporting change for employers implemented by the ATO requiring employers to report payments such as salaries and wages, PAYG withholding and superannuation to the ATO directly from their payroll solution at the time they pay their employees. As a result, employers may need to update their payroll solution to report through Single Touch Payroll. Under the new requirements, employers with 20 or more employees are considered substantial employers and therefore required to report through Single Touch Payroll from 1 July 2018.
It is our understanding that should any errors with the payroll submission be identified, the ATO will communicate these directly with employees, rather than employers. We therefore recommend that a communication piece is circulated to all employees, informing them of the changes, to avoid confusion or conflict over payroll following its implementation.
Good Management Reporting
Accounting for grant funds can be a particularly challenging aspect of working in the not-for-profit sector. Most funding agreements won’t allow for any restitution of overspends by the service provider, while any unspent funds at the end of the program are required to be repaid, making it a very narrow line for optimising grant outcomes. Good management reporting of grants is critical in assist appropriate financial management and to allow appropriate Board oversight. Good management reporting should be:
- We would expect that management reports are distributed to key management personnel monthly;
- Management reports should include a profit and loss statement (or summary) for each grant program within an organisation. These should include appropriate detail on under or over spends in grant programs;
- Each grant programs’ profit and loss statement should accurately reflect all income and expenditure incurred to date. In particular, overhead costs expected to be borne by the program should ideally be recovered from grant programs regularly through the year.
The Government has extended the ACNC’s transitional reporting arrangements to include the 2018 and 2019 financial years. These reporting arrangements will affect the bodies listed below who are registered with the ACNC.
|Registration Body||Reporting Requirement for 2018 and 2019|
|Office of the Registrar of Indigenous Corporations||Directly to ORIC.|
|Department of Education and Training||Directly to DET.|
|Australian Taxation Office (ancillary funds)||Directly to the ACNC. The ATO will advise those ancillary funds that will be required to submit an ancillary fund return.|
|Consumer Affairs and Fair Trading (Tasmania)||Directly with the ACNC.|
Supplier bank details
A recent attempt to defraud one of our clients was thwarted when an attentive employee noticed irregularities in the bank account details provided for payment. An email professing to be from an existing supplier was requesting payments to be made to a new bank account. Upon investigation, it was discovered that the email was fraudulent and the supplier had no knowledge of the request for payment.
Strong controls around changes to bank account details are important to reduce the likelihood of a fraudulent payment. We recommend a strong prevention control is to ensure that any changes to supplier bank details requested are confirmed directly with the supplier, using the phone number obtained from their website.