Charity reporting requirements are too complex

Australian charities are burdened with a financial reporting regime that is overly complex and inconsistent, according to AASB research report number 5, Financial Reporting Requirements Applicable to Charities.

The regime fails to promote the sector’s accountability and efficiency, says the report.

The ACNC was set up to promote the reduction of unnecessary regulatory obligations.  While the commission has succeeded in harmonising financial reporting across some states and territories, the AASB contends that an underlying issue is the reporting framework within which charities are required to lodge.

In reviewing charities’ financial-reporting requirements in Australia, New Zealand, the United Kingdom, Hong Kong, Singapore, South Africa and Canada, the board’s research found that Australian charities have the most complex regulatory environment.

‘Australian charities are covered by at least 18 sets of regulation and 10 regulators at federal and state level,’ said AASB chair Kris Peach.

‘Very little of that regulation is consistent, and much of it involves different reporting thresholds and requirements.

‘There is no level playing field for charities,’ said Ms Peach.  ‘[Similar] charities have to produce different reports depending on their location, entity type and historic reporting choices.  As a result, reports are unnecessarily complex and potentially irrelevant to donors and other stakeholders.’

As well as having the most complex regulatory environment, Australia is the only jurisdiction that requires charities to ‘self-assess’ on whether they need to produce full financial reports or ‘special purpose’ financial reports.  If they opt for special-purpose reports, the information required varies depending on which regulations apply.

‘The community isn’t getting clear and comparable financial information, and charities are having to spend time and money navigating a maze of onerous and inconsistent requirements,’ Ms Peach said.

Undertaken with the Auditing and Assurance Standards Board, the research is the first part of an AASB project aiming to achieve clear, objective and comparable Australian charity-sector financial reports.

‘Financial reporting requirements must balance the objectives of improving trust and transparency with the preparers’ costs and be easy to implement,’ said Ms Peach.

Coupled with a forthcoming consultation paper, the report will encourage discussion within the charity sector and is designed to inform stakeholders in their responses to the ACNC legislative review.

‘This is a tremendous opportunity for […] charity stakeholders to have their say on how to improve financial reporting in their sector.  I encourage everyone to get involved,’ Ms Peach said.

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