This week marks a significant milestone in Australian financial reporting: the Australian Accounting Standards Board (AASB) has issued a new Tier 3 general purpose financial reporting standard for the not-for-profit (NFP) sector, replacing special purpose reporting for many NFPs. The new standard introduces substantially simplified recognition, measurement and disclosure requirements compared with existing Tier 2 general purpose financial reporting.

It is worth looking back to CA ANZ’s Future of Special Purpose Reporting Survey in 2019, when more than 500 Chartered Accountants shared their views and priorities for this important reform project. While the survey showed mixed views at the time on the costs and benefits of moving from special purpose reporting to a dedicated tiered framework, members were clear about what mattered most in shaping that reform. Eighty per cent wanted simplified recognition and measurement in the NFP space, and 87% highlighted the need for reduced disclosures. The main areas identified for simplification were consolidation, financial instruments, impairment, leases, related parties and revenue.

Over the past seven years, we have continued to refer back to these member views and to use ongoing engagement with members as our northern star as we advocated to the AASB and involved many members in developing a workable NFP standard. It is pleasing to see meaningful simplifications and practical approaches across almost every key area identified in the survey—particularly consolidation, leases and income accounting.

This progress did not happen by accident. We should acknowledge the many dedicated members who have contributed their time, including our Charities and Not-for- Profit Advisory Committee and our in-house reporting and audit experts. The AASB also deserves recognition for its genuine approach to consultation, its willingness to respond to feedback, and its efforts to ensure these reforms improve consistency and clarity in the framework without imposing unnecessary burden on NFPs entities that can ill afford added complexity.

The primary challenge now is implementation. Clarity and consistency is needed from federal and state regulators on eligibility to apply the new Tier 3 standard. The AASB’s proposed application date of 1 July 2029, with early adoption permitted, allows time for the necessary legislative and regulatory alignment, but given the number of jurisdictions and laws involved this will not be straightforward. CA ANZ has engaged throughout the project with the Charities Minister and other key policymakers to emphasise the importance of clarity on how the Tier 3 standard will fit within existing legislative frameworks. The AASB will also be a critical voice in helping other parts of government understand how the new standard is intended to operate and which entities it is, and is not, designed for.

Despite the effort involved in transition, the benefits of reform are evident in the recent post-implementation review of special purpose financial reporting reforms in the for-profit sector. Seven years after the AASB’s initial proposals, the Board concluded that the reforms are operating effectively and achieving their objective of improving the quality of financial reporting. Member feedback, reflected in CA ANZ’s submission on special purpose reporting reforms and simplified disclosure requirements to the review, supported that conclusion, noting that the reforms were generally well targeted and had improved consistency and comparability, particularly for large proprietary companies.

This story highlights how important the perspectives of our expert members at the coal face are in achieving meaningful reform that serves the public interest and is workable in practice. That is especially true in the not-for-profit and charities sector, where resources are often stretched and even well-intentioned change must be carefully designed to avoid unnecessary burden. Our Reporting and Assurance Newsletter will continue to provide updates on these developments—please ensure you are subscribed.