Australian Charities and Not for profits Commission

Australian Charities and Not-for-profits Commission (“ACNC”) – an update

From 1 July 2013, medium and large charities registered with the ACNC are required to submit audited (or reviewed) financial statements to the ACNC, either exclusively or in conjunction with reporting requirements imposed by other regulators.

The main entities impacted by these changes are incorporated associations, companies limited by guarantee, co-operatives and charitable trusts that are charities.
1. Companies limited by guarantee
From 1 July 2013 companies limited by guarantee are no longer required to interact with ASIC on many of the matters they previously did.

For example, they no longer need to lodge changes to their constitution with ASIC, they are no longer required to notify ASIC of changes to address and business details, nor are they required to notify ASIC of changes in directors and secretaries.  The company will also no longer have to pay an annual review fee.

Under the ACNC certain provisions of the Corporations Act are also no longer applicable and the ACNC Act and associated Regulations become mandatory.

a) Directors report
Unless there is a constitutional requirement for them to do so, companies limited by guarantee reporting under the ACNC are no longer required to prepare a directors report.  Notwithstanding there is no mandatory required, the inclusion of a directors report including things such as the names of directors, principal activities and short and long term objectives (similar to the section 300B Corporations Act reporting requirements) is considered better practice.
b) Auditor independence declaration
There is no longer a requirement for the financial report to include an Independence Declaration, however again one can be included if desired.  The auditor is still required to report to those charged with governance in writing confirming their independence however there is no external reporting requirement.
c) References to the Corporations Act
References to the Corporations Act in the financial statements (typically Note 1), the engagement letter and also the representation letter should be updated, as well as the directors’ declaration which must all now refer to the ACNC Act rather than the Corporations Act.
Note:  The ACNC Act refers to the concept of a responsible entity declaration, however for a company this is a directors and the terminology of director or responsible entity can be used.
d) Annual General Meetings
Companies limited by guarantee are no longer bound to hold a formal AGM (as they would have under the Corporations Act), again, provided there is no constitutional requirement to hold one.  These entities are however required to comply with Governance Standard 2 and therefore the charity does have an obligation to report to members and provide members with opportunities to ask questions and vote on resolutions for example.  Practically it is unlikely there will be a great deal of change on this point.
Note:  If a charity cease to be registered with the ACNC, the Corporations Act provisions will ‘re-apply’ and the company limited by guarantee must comply with the Corporations Act requirements as they did historically.
2. Associations, co-operatives and charitable fundraising organisations
Unlike companies limited by guarantee, the ACNC Act does not override the requirements of state and territory legislation acts and therefore these entities may have two requirements to lodge financial statements (once with the state based regulator and once with the ACNC).
According to the ACNC website, where an Association, Co-operative or charitable fundraising organisation is required to submit reports to a state based regulator, the ACNC will accept this report as meeting the ACNC requirements for the 2014 reporting period, and therefore there is no requirement for these entities to update the basis of preparation for example like CLBG.
The requirements can be summarised as follows:

Note:  If a charity is an incorporated association or co-operative AND a charitable fundraising organisation, it should submit to the ACNC the report provided to the incorporating regulator (not the fundraising report).  However, if the charity is a trust or is unincorporated, it can submit its fundraising report. 

In the interests of reducing compliance, while the ACNC Act does require a responsible entity declaration, if this is not required by the state based regulator the charity is not currently required to prepare one for the purposes of the ACNC Act.

In jurisdictions where there is no state based regulator requirement to lodge financial statements (e.g. WA for an Incorporated Association) the entity will be required to lodge ACNC compliant reports with the ACNC.

Future of the ACNC
As we are already into the June 2015 reporting period it is likely that 2015 reporting for state based regulated entities will be the same as 2014 (i.e. submit to the ACNC what you submitted to the state based regulator), however this is still unknown and further information will be provided as it comes to hand.

3. Reporting under the ACNC
The ACNC uses the reporting entity concept, and therefore if the charity is a reporting entity, it must submit general purpose financial statements (either full or reduced disclosure regime) otherwise it can submit special purpose financial statements which comply with the minimum six standards being AASB 101, AASB 107, AASB 108, AASB 1031, AASB 1048 and AASB 1054.

Transitional provisions
The ACNC acknowledges that there may be situations where entities were not required to prepare financial statements in prior years and has put certain transitional provisions in place.

For example, if a medium or large charity was not required to and did not prepare a financial report that complied with Australian Accounting Standards in the 2013 reporting period it will not be required to provide general or special purpose financial statements for the 2014 reporting period.

Instead, the charity only needs to complete the financial information section within the 2014 Annual Information Statement, and have this information either reviewed or audited (depending on the charity’s size), as this information will be the charity’s ‘financial statements’ for the 2014 reporting period.

Cash versus accruals
Further, for those medium or large charities that have historically reported on a cash basis, they can provide information to the ACNC on a cash basis for the 2014 reporting period, and are therefore not required to comply with the accruals basis accounting required by Australian Accounting Standards.

2015 and beyond
For the 2015 reporting period, if a medium or large charity was not required to submit a full financial report in 2014 they are not required to provide full comparative information in their 2015 financial report.  The charity and its auditor or reviewer will just need to communicate this and if applicable the shift from cash to the accruals basis due to the potential confusion this may cause.

4. Key dates
For a charity with a 30 June 2014 year end, by 31 January 2015 ensure you have lodged your 2014 Annual Information Statement and financial report if required.

If you are using a substituted reporting period, for the 2014 reporting period you have six months from the end of your substituted year end to lodge your AIS and annual report if required.

© William Buck International Limited November 2014 – all rights reserved
This presentation is intended for information.  It is general information only, and is not specific business advice or financial advice and no person should rely on the contents without first obtaining advice from a qualified professional person acting in that role or reference to source materials such as accounting standards or other regulation.
Nevertheless, all care has been taken in preparing this information to the time of its distribution at the briefing.  William Buck International Limited, related entities, officers and employees do not accept any contractual, tortuous or other form of liability for this content or for any consequent arising from its use or from omissions or errors, including responsibility to any person by reason of negligence.


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