Not for Profit News April 2016 By William Buck on 01/04/16 - Mins to read: 6 minutes Welcome to the April 2016 Edition of Not For Profit News Packed full of useful information covering specific updates on financial reporting, education and tax as far as they affect the NFP sector as well as the latest on what the Australian Charities and Not-for-profits Commission has been up to. We very much hope that you enjoy the contents of this newsletter and your thoughts and comments are always welcome. In this edition we look at: Governance ACNC Activities Financial Reporting Auditing Future in focus Governance Charities commission launches guide on managing money The national charity regulator has launched a new guide Managing charity money – a guide for board members on managing finances and meeting ACNC duties. While directed at not-for-profit (NFP) board members and those who hope to join boards, it is also relevant to charities’ employees and volunteers. The guide provides insights into good financial-management practices, focussing on practical steps that charities can take to ensure that their finances are used appropriately and protected from misuse. It also explains charities’ obligations to the Australian Charities and Not-for-Profits Commission (ACNC), such as providing financial reports and ensuring that they operate as NFPs – that their funds are used to further charitable purposes and not for private benefit. The guide looks at the main reporting and record-keeping obligations and what ‘not-for-profit’ means in practice. It contains an overview of some of the main issues charity-board members need to beware of, such as being diligent about financial affairs, protecting resources from abuse and ensuring accountability. Governance Institute releases toolkit for school boards Governing schools can be complex, many school boards constantly reviewing policies and updating procedures to tighten governance frameworks. The Governance Institute has produced a toolkit to help school board members to navigate the unique terrain of school governance. It draws on the deep experience and knowledge of many institute members who sit on boards of non-government schools. Its advice is practical. The toolkit is freely available. The institute believes it is an essential toolkit for all non-government school boards. ACNC Activities ACNC retained The Federal Government has provided much-needed certainty to the charitable sector and community organisations by deciding to retain the ACNC. Minister for Social Services, Christian Porter, and Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer, said the decision followed extensive consultation with the sector on the alternative option of repealing and replacing the ACNC. ‘We have given this very careful consideration,’ Mr Porter said. ‘The Government’s consulted with, and listened to, all interested stakeholders. While there are a variety of views, within the charitable sector there is sufficient support for the retention of the ACNC.’ Ms O’Dwyer said eliminating uncertainty about the ACNC would allow it to continue regulatory reform and improve the NFP sector. ‘Today’s announcement sees us striking the right balance between having effective public accountability and cutting red tape,’ Minister O’Dwyer said. ‘The government will work with the ACNC to remove duplication and increase accountability and transparency. ‘(We) will continue to work with the ACNC, states and territories and the sector to identify areas where we can reduce the burden of red tape for charities and not-for-profit organisations.’ Transitional-reporting arrangements extended The ACNC has been working with the Federal Government to amend ACNC regulations to extend transitional reporting provisions, allowing the commission to accept certain reports lodged with other government agencies. In 2014 and 2015, the ACNC applied provisions to accept the following reports as meeting ACNC’s requirements: Financial reports lodged by incorporated associations, co-operatives and fundraisers with state and territory regulators Financial questionnaires lodged by non-government schools with the Department of Education and Training, and Annual returns and financial reports lodged by indigenous corporations with the Office of the Registrar of Indigenous Corporations. To give the sector immediate certainty the ACNC has committed to accept these reports for the 2016 reporting year. Information about transitional reporting provisions is at acnc.gov.au/transitionalreporting. Resolving charity banking issues The ACNC and the Australian Securities and Investments Commission (ASIC) have partnered to urge banks and other financial-service providers to change the way they interact with charities. Since December 2012, the ACNC has received more than 1000 complaints from charities regarding the way banks and other financial-services providers have tried to verify the information charities provide. Over the past three years, the commission has found that hundreds of loans and other instances of financial help have been denied charities. Other issues reported by charities include: Missing out on grants or funding Loss of AAA credit rating Previous directors being held accountable for the charity, and Previous directors being able to access charities’ bank accounts when they should no longer be able to do so. Before the ACNC’s establishment in December 2012, charitable companies limited by guarantee were required to lodge reports with ASIC or notify them of common changes. Since the commission’s inception, however, charitable companies, which account for around 10 per cent of all registered charities, have been required to report to the ACNC. Banks and financial-services providers continue to check the ASIC’s companies register for details of charitable companies. Anyone wishing to check them should go to the ACNC charity register, not ASIC’ companies register, to ensure that they are getting the most recent information. The ACNC and ASIC are writing to financial-sector representatives, sending them a new factsheet that explains why they need to change their organisation’s work processes. Financial Reporting New leasing standard arrives The Australian Accounting Standards Board has issued AASB 16 Leases (the equivalent to IFRS 16 Leases) and it applies to NFPs that prepare general-purpose financial statements. The standard eliminates the classification of leases as either ‘operating’ or ‘finance’, creating a single model that requires a lessee to recognise on statements of financial positions assets and liabilities for leases with terms of more than 12 months, unless the underlying asset is of low value. Peppercorn leases (below-market leases) entered into by NFPs, particularly in the public sector, will be considered as a consequential amendment in AASB 10XX Income of Not-for-Profit Entities rather than additional guidance in AASB 16 Leases and AASB 1004 Contributions. AASB 16 will have no effect on the total amount of cash flows reported, but it is expected to have an effect on their presentation. This is because cash flows relating to operating leases are presented as cash flows from operating activities; applying the new standard will result in the presentation within financial activities of cash flows relating to the repayment of principal on lease liabilities. The accounting requirements for lessors are substantially the same as those in AASB 117. A lessor, therefore, continues to classify its leases as ‘operating’ or ‘finance’ leases, and accounts for them differently. The International Accounting Standards Board is replacing 30-year-old IAS 17’s (locally, AASB 117) 18 pages with more than 340 pages of authoritative material. There are 90 pages on the standard itself, 57 pages of examples, 90 of bases of conclusions and 103 of effects analyses. To say the least, this presents a significant challenge for CFOs and boards. AASB 16 is effective from 1 January 2019, and early application is permitted for those that also apply AASB 15 Revenue from Contracts with Customers. The adoption of AASB 16 combined with the new AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers (effective 1 January 2018) means that big changes are coming in quick succession. CPA’s guidance on valuation and depreciation for public-sector entities and NFPs CPA Australia has released its revised CPA Australia Guide to Valuation and Depreciation for Public and Not-for-Profit Sectors under AASB Accounting Standards. The valuation of public and NFP-sector assets is a highly specialised field often requiring detailed accounting, engineering and valuation knowledge. The revised guide has been developed to provide a high-level, non-technical understanding of the subject matter and more detailed guidance for those from a technical background such as accountants, valuers and engineers. It incorporates the latest developments in accounting standards affecting valuation and depreciation of assets held by the public sector and NFPs. The guide recognises that across jurisdictions and over time a range of practices and different views on specific concepts has evolved. With the issuance of AASB 13 Fair Value Measurement and resulting standardisation of the definition of fair value, it has been developed to provide a central point of guidance on standards’ requirements and underlying concepts. Future in Focus Comment on reporting service performance ED by 29 April In the NFP sector, telling a story is often more useful than financial statements. Information about an entity’s objectives and how it has performed can be invaluable for accountability and decision-making. Exposure draft 270 Reporting Service Performance Information makes proposals for NFPs in public and private sectors to provide such information. ED 270 requires preparers to report on their entity’s: Inputs in delivering outputs Outputs delivered Outcomes sought to be influenced by the entity Efficiency in achieving service-performance objectives, and Effectiveness in achieving its objectives. The closing date for comment on ED 270 is 29 April. William Buck will be lodging a submission on this Exposure Draft with the Australian Accounting Standards Board.