The Australian Accounting Standards Board (AASB) published a discussion paper in September 2022 intending to create simplified accounting requirements for smaller not-for-profits (NFPs).
The simplified accounting requirements, to be known as Tier 3, is intended to replace the ability for certain types of NFPs to prepare special purpose financial statements, currently prepared in accordance with the ‘reporting entity’ concept.
This concept is being phased out by the AASB due to inconsistent application issues in Australia and closer alignment with international requirements.
In our response, consistent with development in the for-profit sector, we support the removal of the ‘reporting entity’ concept for NFPs that have legislative requirements to prepare financial statements in accordance with ‘Australian Accounting Standards’.
However, we did not support the removal of this concept for other types of reporting by NFPs.
We agree that the discussion paper is a good start to developing simplified accounting requirements for smaller NFPs, with simpler recognition and measurement requirements as well as reduced disclosures.
Our support is dependent on the following existing within the Tier 3 standard:
- It is predominantly self-contained, including its own summarised conceptual framework;
- It is based on requirements that already exist internationally or exist in other comparable jurisdictions rather than the AASB spending time and resources developing a framework from first principles;
- It does not contain reporting thresholds for its application, with this being left to regulators and policy makers;
- It deals with areas that commonly exist in smaller NFP entities, rather than deal with all topics in the full suite of accounting standards;
- Effective transition arrangements are developed which deals with entities that either currently prepare Tier 1, Tier 2 or special purpose financial statements;
- Disclosures are reduced further than that already in the Tier 2 Simplified Disclosure requirements; and
- It is reviewed once every five years (or after three years if there was a substantive case for doing so).
You can read our submission below.
You can find out more about our advocacy work on the website here.
