New Financial Reporting for Not-for-Profits to commence 2020

Not-for-Profits will be able to give a more accurate view of their true financial circumstances to donors when new standards for reporting are introduced in 2020. Revenue from grants and donations will only need to be recognised after associated performance obligations to provide goods or services have been met, and not immediately upon receipt (as usually occurs under the current standards).

Australian Accounting Standards Board (AASB) chair Kris Peach said.

The changes provide a better platform for NFP entities to communicate their story to their stakeholders.

… for example, if I gave you a donation to provide five hours of counselling to homeless people what it means is that you wouldn't recognise revenue until you had actually provided the five hours of counselling to the homeless people, whereas at the moment what would happen is you would recognise the revenue on day one and you wouldn't spread it,” Peach said.

So what's happening is that because they had to recognise revenue on day one and they hadn't actually incurred the expenses that go with that, when they went to speak to people to give them money what it was showing was that they seemed to have quite a big profit and so then people would say: 'Well, why do you need money because you look as though you've actually got enough.'

This is a better reflection to show that they haven't actually earned the money, earned the income yet, they still have to go and do something to earn that income. So when they go and speak to their donors it is showing a much more accurate picture of their financial circumstances."

Financial Reporting changes will give a much more accurate picture of the financial circumstances of Not-for-Profit organisations.

Changes in regards to how assets will be recorded on the balance sheet will also be made under the new requirements, including leases with significantly below-market terms and conditions. At the moment, only assets acquired by Not-for-Profit organisations at nil or nominal consideration must be recognised at fair value. When the changes commence, organisations paying significantly less than fair value, principally to let them further their objectives (ie not trade discounts or distress sales) must recognise these assets on their balance sheet.

Mr Peach said:

"So say if I'm Harvey Norman, you might come to me and say: 'Look, we are running a big campaign, we'd really like you to donate five mattresses,' and Harvey Norman says: 'Ok, well I'm not going to give you them for free but I'm going to give you them for $100 each rather than $500 each,

So in that case we would say you would recognise the mattresses at $500 which is the normal price you would have otherwise had to pay and you will recognise that $400 of that is actually effectively a gift to you, and that then depends on whether you have got a commitment to do something with those mattresses otherwise you might get revenue on day one."

The new standards will come into effect on 30 June 2020 but can be adopted earlier.

If you would like to discuss the new standards or your legal obligations when fundrising, contact %99%B4%CD%B8%D6%D7z%BD%DD%BF%B9Por %99%BD%CD%B6%E1%DB%BF%EE%8E%C3%B6%9E%98%89%D3%D8%D6%E5d.