31 December 2014 is fast approaching which means that many Charities in Australia will be required for the first time to report their financial results to the public. Information submitted will include income and assets as well as how funds are spent.
The Australian Charities and Not-for-profits Commission (ACNC) reached its 2nd birthday on 3 December 2014. With the Government's bill to abolish the ACNC not progressing before Parliament's summer break the first financial reports for June year ends are due to be lodged by 31 January 2015, the ACNC having just announced a month's extension for lodgement of Annual Information Statements. Charities with a December year end will for the first time have to provide their financial reports by 30 June 2015.
For many Charities this will be the first time their financial information will be available to the general public. It is therefore important that Charities undertake a review of their accounting methodologies as well as their financial statements in order to be confident as to:
- the accuracy and reliability of the amounts reported;
- that sufficient details are recorded in notes to the financial statements to ensure that the reader can fully understand the financial results; and
- ensuring that the financial reports comply with the ACNC requirements.
This review should also help to ensure that the reported amounts are neither misleading nor capable of being misinterpreted.
The public availability of financial and other information regarding Charities is occurring at a time when we are seeing greater expectations more broadly of transparency, accountability and governance for all Charities and Not-for-profits. This is coming from a combination of a more informed public, increased requirements of regulators and other funding organisations as well as from the expectations of other key stakeholders.
To ensure that Charities meet the expectations of the coming reporting season this review should be undertaken with contemporary financial reporting best practice frameworks at the forefront of considerations. This is a matter that all Charities must address be they for the purpose of religion, education, relief of poverty or others as legislated within the Charities Act 2013, and whether or not they have to currently report to the ACNC.
While the environment in which Charities operate is rapidly changing, 2014 has not been a year where we have seen major changes to the Accounting Standards framework applied by Charities. Although this is good news, with the changed legislative framework in which Charities now need to report it is vital that each Charity reviews its own framework to ensure it meets expectations and requirements of regulators and other stakeholders.
Being cognisant of the complex arrangements within many Charities and their unique issues in comparison to the for-profit sector, areas where we regularly see matters arise include:
- Accounting for grants and subsidies;
- Non-cash donations;
- Valuing assets on a fair value basis;
- Ownership-v-control-v-right to use property and other assets;
- Rental and development properties;
- Accounting for investment assets;
- Approach to intangible assets including IT infrastructure;
- Asset impairment considerations;
- Present value of liabilities;
- Non-commercial arrangements;
- Special purpose funds;
- Provisions and contingent liabilities;
- Control and consolidated accounts;
- Contractual arrangements (formal and informal);
- International dealings;
- Related party arrangements including with board members;
- Capital-v-liability determinations;
- Nature and purpose of unused funds;
- Preparing general-v-special purpose financial reports.
Addressing these issues is perceived by many Charities as fraught with problems and therefore often either overlooked or dealt with haphazardly. Given the range of issues and areas of uncertainty within the accounting framework which Charities need to apply, it is an important governance matter that financial reports are clear, transparent, and reliable and do not inadvertently mislead. With their trusted position within society it is also critically important that any financial information made available to the public reflects the highest standards of financial management and thus addresses these matters appropriately.
With the impending requirements of the ACNC including for those with governance responsibility to declare the accuracy of their accounts and ability to meet their financial commitments it is important to work with your board and advisers in ensuring these reporting matters are addressed effectively for your Charity.
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