NFP financial reporting: the changes you need to know about

Posted on 25 Jun 2025

By Matthew Schulz, journalist, Institute of Community Directors Australia

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Boards should be alert to a series of recent updates and regulatory shifts in accounting standards for not-for-profits, according to a national expert.

In a webinar hosted by the Institute of Community Directors Australia (ICDA) this month, Kristen Haines, Moore Australia’s national head of technical accounting and sustainability reporting, highlighted several areas where board oversight is essential.

Kirsten Haines — Moore Australia's Kristen Haines

Regulator’s findings highlight common compliance gaps

The most recent review by the Australian Charities and Not-for-profits Commission (ACNC) of 250 Annual Information Statements (AISs) and Annual Financial Reports (AFRs) from charities revealed frequent compliance issues, including:

missing elements in reports, such as cash flow statements or notes
discrepancies between audited financial statements and AISs
incorrect identification of financial statements frameworks as general purpose instead of “special purpose”.

Haines said boards must “make sure you are putting your key management personnel disclosures both in your accounts and in your annual information statement”, and she said it was essential that auditors review the AIS.

“If you fail to do that self-assessment, you may actually lose the tax exemption."

Kristen Haines

New framework for tax-exempt status

NFPs not registered with the ACNC must now complete an annual self-assessment with the Australian Taxation Office (ATO) to maintain their tax-exempt status.

Haines warned that failing to submit the required form could affect an organisation’s tax status. “If you fail to do that self-assessment, you may actually lose the tax exemption,” she said.

The assessment covers the organisation’s activities, purpose and structure, and must be lodged annually. Boards of NFPs not registered with the ACNC should confirm whether their organisation is affected, and ensure appropriate processes are in place to complete the lodgement each year.

Haines also noted that the Australian Accounting Standards Board (AASB) is developing a “Tier 3” reporting standard. Drafted with mid-sized charities in mind (revenue between $500,000 and $3 million), the new framework is intended to replace special purpose reporting with simplified standards written in plain English. Final details are under development.

Meals On Wheels stock — Assessments may vary depending on whether income – for meal deliveries, for example – is assessed up-front or progressively.

Revenue recognition requires careful review

Recognising income remains a complex area for NFPs. Under existing rules, organisations must assess whether income falls under AASB 15 (revenue from contracts with customers) or AASB 1058 (income for not-for-profits). The distinction determines whether income is recognised progressively or upfront.

Haines said the distinction hinges on two key questions: is the funding agreement legally enforceable, and does it contain “sufficiently specific performance obligations”?

For example, a grant that requires an organisation to “deliver 10,000 meals to children by 30 June” is specific and likely enforceable, meaning income is recognised as those meals are delivered. By comparison, a general donation to “support youth development” is less specific, and the full amount would likely be recognised upfront.

Haines encouraged organisations to review the acquittal requirements associated with their funding. A requirement for detailed reporting, such as tracking the number of beneficiaries or services provided by the funding, can help establish that the obligations associated with the funding are specific. But “just because there is an acquittals process, that in itself will not mean it’s sufficiently specific.”

Boards should work with management to review each grant or contract individually, ensuring obligations are documented and income is recognised in line with funding conditions and accounting standards. This is particularly important where organisations rely on multi-year funding or government grants, where the timing of income recognition can significantly affect reported results.

Debt classification under scrutiny

For NFPs with loan facilities, new guidance tightens how debt is classified on the balance sheet. A key issue is loan covenants – conditions set by lenders, such as the need to maintain minimum reserves or stay within a debt limit.

Haines said that when covenants are tested before or at financial year end, failing to meet conditions can force a reclassification of long-term debt as current, even if the loan term extends beyond 12 months.

“Where you have covenant testing,” she said, “we need to consider those when working out whether debt is current or non-current.”

This matters because reclassifying a loan as current (due within 12 months) can affect how financially stable the organisation appears. Haines said boards should ask: Do we have any loan covenants? When are they tested? Could breach risks affect our financial position?