A Potentially Simpler Reporting Framework for NFP Entities in Australia: Have Your Say!

The Australian Accounting Standards Board (AASB) has released two exposure drafts providing their proposals for reshaping financial reporting for not-for-profit (NFP) private sector entities in Australia.  

These documents could redefine financial reporting for thousands of organisations, making this consultation period a critical moment for stakeholders to engage. 

In this blog, we’ll explore the key aspects of these EDs and why your voice matters in shaping this framework. The clock is ticking—the comment period closes soon (February 2025 isn’t that far away), and the chance to influence these important changes will pass. 

What are the Exposure Drafts about? 

The Exposure Drafts propose two things: 

1. Remove the ability of certain NFP private sector entities to prepare special purpose financial statements (SPFS) and 

2. Introduce a third tier of accounting standards in a stand-alone standard which will be available for certain NFP entities to adopt as a general purpose framework. 

Smaller NFPs, often operating with limited resources, have long grappled with complex financial reporting requirements. While larger NFPs and entities with public accountability will continue to adhere to Tier 1 or Tier 2 frameworks, Tier 3 is designed to simplify financial reporting while maintaining core principles of good governance and stakeholder trust.  

Who does Tier 3 apply to? 

Tier 3 reporting will apply to smaller NFP entities, which are typically defined by thresholds based on revenue or other key financial metrics.  

It is important to note that the AASB is not responsible for determining who is able to use the Tier 3 standard, rather this is the remit of the regulators such as ACNC or state regulators of Incorporated Associations. 

What are the key documents? 

The consultation package includes: 

1. ED 334 Limiting the Ability of Not-for-Profit Entities to Prepare Special Purpose Financial Statements – this document proposes amendments to various Australian Accounting Standards to require general purpose financial statements for NFP entities who meet EITHER of the following criteria: 

1. Required by legislation to prepare financial statements that comply with either Australian Accounting Standards or accounting standards OR 

2. Required by their constituting or other document to prepare financial statements in accordance with Australian Accounting Standards.  We anticipate that existing documents will be grandfathered and this will cover only new or amended agreements after a specified date (yet to be determined). 

ED 334 also makes amendments to the Conceptual Framework for Financial Reporting to allow this to be applicable to NFP entities and would remove the Framework for the Presentation and Preparation of Financial Statements. 

2. ED 335 General Purpose Financial Statements – Not-for-Profit Private Sector Tier 3 Entities – this document outlines the proposed recognition, measurement, presentation and disclosure requirements for Tier 3 reporting. It is intended to be a stand-alone standards covering common transactions of smaller NFP private sector entities and offering simpler alternatives to existing Tier 1 and Tier 2 requirements. 

In addition, the AASB have provided a summary of the Tier 3 ED proposals with a comparison to Tier 2 and a key facts document.  The AASB have also indicated that they are in the process of developing a webcast. 

Why does this matter? 

Financial reporting is about more than compliance; it underpins the trust and accountability essential to the NFP sector’s mission. The proposed Tier 3 framework could make reporting less burdensome for smaller entities, freeing up resources to focus on what matters most: delivering impact to the communities they serve. 

Stakeholders need to consider: 

• Whether the proposed framework strike the right balance between simplicity / reliability / consistency / usefulness? 

• Will these changes improve the accessibility of financial statements for stakeholders? 

• The challenges and opportunities in your current reporting practices. Do these proposals make reporting easier or more meaningful? 

If the final standards don’t reflect the sector’s needs, the opportunity to adjust them will have passed. That’s why your voice is critical during this consultation period. 

A call to action 

The AASB’s proposals mark a pivotal moment for financial reporting in the NFP sector. The introduction of a simpler, Tier 3 framework could ease reporting for smaller organisations while maintaining the integrity and transparency that stakeholders rely on. However, the success of these changes depends on input from the people and organisations they aim to serve. 

Once the comment period closes, the opportunity to shape these standards will be gone. If you care about the future of financial reporting for NFP entities, now is the time to act. Review the Exposure Drafts, reflect on the proposals, and share your thoughts with the AASB. 

Share the consultation details with your networks to ensure a broad range of voices is heard. 

How can you provide your input? 

Whether you’re a finance professional, board member, auditor, or community stakeholder, your insights can shape the future of NFP reporting. Some options for engaging are provided below: 

1. Read the documents: Take the time to review the relevant documents. If they seem overwhelming, focus on the areas most relevant to your role or organisation. 

2. Complete the online survey(s): 

• ED 334, click here to access 

• ED 335, click here to access. 

3. Attend an outreach event: details to be made available on the AASB website. 

4. Reach out to the AASB directly: staff are available for meetings / emails. 

5. Submit a comment letter: details on the AASB website. 

Responses don’t need to be long or technical. The AASB values all perspectives, whether they are from experienced accountants or grassroots community organisations. 

For more insights on the latest financial reporting standards updates and best practices, watch Carmen Ridley’s session at the CwX APAC 2024 Conference here.