CA ANZ and CPA have lodged joint submissions to the AASB’s proposals to replace special purpose reporting in the not-for-profit sector with a standalone fit for purpose Tier 3 accounting standard resulting in a general purpose financial report. The proposals were contained in the following two separate EDs:

• ED 334 Limiting the Ability of Not-for-Profit Entities to Prepare Special Purpose Financial Statements which proposes that NFPs with requirements to prepare financial statements in accordance with accounting standards in their legislative or constituting documents will no longer be able to prepare special purpose financial statements.
• ED 335 General Purpose Financial Statements – Not-for-Profit Private Sector Tier 3 Entities which contains the AASB’s proposed standard that prescribes the form and content of the Tier 3 general purpose financial statement they will be required to transition to.

The joint submission on ED 335 generally supports the content of the AASB’s draft Tier 3 standard welcoming the recognition, measurement and disclosures proposals it contains, which have been significantly simplified when compared to the Tier 2 requirements. These simplifications have responded to member feedback over recent years, particularly in the areas of revenue, leases, financial instruments and consolidation. However, it contains some suggestions for amendments, further guidance and further simplifications that should improve the ability of the standard to stand alone and better meet preparer, auditor and user needs.

However, the joint submission on ED 334 expresses concerns about the proposed implementation approach for the new Tier 3 standard. While the AASB has not specified the size of entity it believes should apply the Tier 3 standard, it relies on regulators to determine how it fits into their respective reporting requirements. We believe that this solution, while essential in the long term, will not provide the necessary clarity to allow its implementation in the short to medium term, meaning its many benefits will be reduced. Therefore, the submission calls on the AASB to include a temporary maximum revenue threshold of $5 million into the final standard to provide NFPs with clarity on adoption while the necessary legislative changes are sought. To this end CA ANZ and CPA Australia have also written to Charities Minister Andrew Leigh advocating for the commencement of the process to update Commonwealth legislation to implement these reforms.

The ED 334 submission also does not support proposals to extend the application of the Tier 3 standard to NFPs with constituting documents referring to “Australian Accounting Standards” on the basis that this is a complex and costly burden without evidence that the benefits to users outweigh costs. We also do not support amendments to include public sector NFPs in these reforms, arguing that the planned public sector framework reform project should be progressed before such decisions are made.