Push to streamline not-for-profit financial paperwork

The Australian Accounting Standards Board (AASB) wants feedback on a discussion paper that aims to remove some of the administrative pain and uncertainty for medium to large not-for-profits.

Industry experts believe the affected “Tier 3” not-for-profits – mainly groups generating between $500,000 and $3 million in revenue – should make their voices heard to ensure the new reporting rules will be fit for purpose.

AASB chair Dr Keith Kendall said this month that existing reporting requirements were too complex, and that new guidelines developed by the federal agency would:

• develop a standalone accounting standard for smaller not-for-profits
• address “common transactions” for those entities
• create a new income recognition model that’s easier to apply
• provide options about what financial statements need to be lodged
• consider scrapping “special purpose” financial statements relied on by about a third of all groups

The AASB has released a 12-page summary, a 119-page report, a video presentation and an online survey and scheduled five “outreach events” to explain the proposals as part of a six-month consultation which ends in March 2023.

“These proposals are expected to provide simpler accounting while improving the comparability and quality of financial reporting and reducing costs for smaller not-for-profit private sector entities,” Dr Kendall said.

Ending special purpose financial statements, for example, would end a confusing mix of accounting standards, “lack of transparency” and “inconsistent quality” in financial reports. Dr Kendall said the intention was to create a simpler financial framework, which would reduce costs and effort, and improve compliance.

The AASB said it would work with relevant authorities to determine whether any legal changes were needed.

The discussion paper is already generating interest in the sector, with one of the country’s top experts in not-for-profit finance, Professor David Gilchrist, telling Our Community Matters that the discussion paper was a “genuine opportunity to change not-for-profit accounting for the better by ensuring the sector’s voices are heard by the AASB”.

Prof Gilchrist leads the Australian Non-profit Accounting Standards Research Program, part of the Not-for-profits UWA Research Group, which is funded by the Institute of Community Directors Australia (ICDA) and involves tertiary institutions including Queensland University of Technology, Newcastle University, Western Sydney University and Swinburne University.

Prof Gilchrist said the paper was “a sound starting point for improving standards” and contained a number of “significant improvements” for the sector. But he stressed there were several hurdles to overcome to ensure their effectiveness. This included federal, state and territory laws that would need to be changed.

He praised the AASB’s push to properly engage the sector, noting the six-month timeframe for consultation, and said he would draw on his program’s connections, research and existing survey data to contribute to a substantial response.

Prof Gilchrist said if done well the accounting changes would:

• reduce red tape
• cut costs, or at least keep a lid on rising auditing costs
• help groups make better financial decisions in a difficult environment
• boost the financial sustainability of not-for-profits
• enable organisations to demonstrate the true cost of programs
• assist groups to better advocate for realistic funding of services
• tailor financial reporting that accounted for the different risk profiles of the community sector, such as mental health or disability support organisations.

But he said the changes would only succeed if “we bring the sector with us and we get this right”.

“I think this is a great opportunity for the sector to guide the AASB in what it needs with its reporting requirements.”

The general manager of the Institute of Community Directors Australia (ICDA), Adele Stowe-Lindner, said ICDA would support that goal by working with Prof Gilchrist to host information sessions to explain changes in language that community directors, treasurers and staff would easily understand.

“With a set of clearer and simpler guidelines, not-for-profit financial leaders will be able to better focus their resources on improving their impact, financial sustainability and transparency. I’m hopeful that these changes will lead to groups being able to generate more useful financial reports, while keeping within their means,” Ms Stowe-Lindner said.