Control in the not-for-profit sector

AASB 2013-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities – Control and Structured Entities [AASB 10, AASB 12 & AASB 1049] (“AASB 2013-8”) provides guidance to assist not-for-profit entities in assessing the AASB 10 Consolidated Financial Statements (“AASB 10”) control model and also applying the requirements relating to structured entities in the not-for-profit sector.

The AASB 10 control model contains three key elements and can be summarised as follows:

AASB 10 is drafted in a very ‘for-profit’ manner using terms such as investor, investee, returns and power so it can be difficult to determine how these principals would apply to a not-for-profit relationship.

The AASB 2013-8 guidance doesn’t change the requirements of both AASB 10 and AASB 12, but rather provides additional explanations and examples to illustrate how the requirements might be applied in for example local government and university situations as well as the public sector and private sector too.

The guidance applies to annual reporting periods beginning on or after 1 January 2014 which is the mandatory application date for AASB 10 in the not-for-profit sector.

1. Power 

In assessing power in the not-for-profit sector, an investor would have power over an investee when the investor can require the investee to deploy its assets or incur liabilities in a way that affects returns to the investor.  An ownership interest is not required.

Examples of power might include requiring an investee to provide goods or services to the investor or other parties that assist in achieving or furthering the investor’s objectives.

Power is often the most critical assessment in the not-for-profit sector, and for power to be present the investor must have substantive rights.

Rights that might give an investor power include the right to give policy directions or rights to approve or veto operating.  The rights of the investor need to give them power over the investee’s relevant activities.

Example: The power to appoint and remove members of a statutory authority without cause.

Notwithstanding that due to sensitivity in the electorate there may be a reluctance to do this, as the investor can remove the statutory authority whether or not they choose to.

2. Rights or exposures to variable returns

The term ‘returns’ is a very ‘profit’ oriented term, however the guidance explains that it encompasses financial, non-financial, direct and indirect benefits, whether positive or negative and includes the achievement or furtherance of investor’s objectives.

Some examples of returns may be below or above market interest loans or the company making payments that members would otherwise have been required to make.

3. Link between power and rights or exposures to returns

For control to be present there needs to be a link between the power and rights or exposures to variable returns.


Charity Inc establishes a trust and appoints a third party as trustee.  Charity Inc retains the ability to replace the trustee at its absolute discretion at any point in time.  Under AASB 10, Charity Inc would be considered to have power over the trust by virtue of its ability to replace the trustee at any point in time and assuming the other control criteria are present, Charity Inc would be considered to control the trust. 

If however Charity Inc did not have the ability to remove the trustee at its absolute discretion, it is possible the trustee may control the trust.

Under the old requirements (AASB 127), trustees were generally not considered to control a trust where they were not beneficiaries as they are expected to act in the best interests of those beneficiaries.  However, under AASB 10 provided the trustee cannot be replaced at the discretion of another party the trustee may have power and a careful assessment will be required.

Practical considerations

All not-for-profit entities that are preparing general purpose financial statements (either full or reduced disclosure regime) must apply AASB 10 and consolidate controlled entities.  Entities preparing special purpose financial statements are not mandatorily required to apply AASB 10 and accordingly can choose whether or not you wish to prepare consolidated financial statements.

For entities preparing consolidated financial statements for the first time there may be differences between the reporting dates of entities within the newly formed group which need to be considered.

There may also be instances where entities within the ‘new group’ have historically adopted different accounting policies for like transactions (e.g. PPE at cost and FV).

The application of AASB 10 and AASB 2013-8 may catch some entities unaware and therefore a complete review of all relationships is required.