Government funds are a significant source of revenue for many charities – the Australian Charities Report 2018 shows that nearly half of the revenue of the charity sector came from government.
Whether a charity received funds from government, the amount it received, and the sources from which it received funds is of interest to charity donors, funders, supporters, and the public.
To help charities provide information that is useful, informative and consistent, and to encourage transparency and accountability, the ACNC recommends ‘best practice’ disclosures for government funds in an annual financial report.
The recommended disclosures are based on the ACNC’s financial reporting scaffolding strategy which states that ACNC decisions regarding financial reporting should be made with the interests of users of financial reporting as a priority.
The recommended best practice disclosures provide important information to users of a charity’s annual financial report.
Importantly, the recommended disclosures are not intended to replace existing disclosure requirements under the Australian Accounting Standards (AAS) – for some charities, the recommended disclosures are already required. Instead, they provide the ACNC’s view of best practice in disclosing this kind of financial information and encourage charities to adopt this approach.
Why these recommended disclosures?
Widespread use of the recommended disclosures will improve the consistency and comparability of the financial information available on the ACNC Charity Register.
They will ensure that the information a charity provides in its annual financial report supplements and is comparable with the information it provides in its Annual Information Statement.
Disclosing such information may also allow the ACNC to pursue more ways to cut red tape for charities, particularly when the information is already required in certain grant acquittals.
Best practice recommendations in summary
The ACNC provides three recommended disclosures of government funding in a charity’s annual financial report.
1. Disclose information about the sources of government revenue
For a charity that received 10% or more of its total revenue from government, it should disclose the following Information about the sources of its government revenue:
- the total revenue it received by each level of government
- the names of the government departments or agencies from which it received revenue (up to 10), as well as the total amounts it received from each
- the revenue from providing goods and services to beneficiaries who receive related government financial assistance (for example, payments from the National Disability Insurance Agency).
2. Disclose economic dependency on government revenue
For a charity dependent on government for significant revenue or financial support, it should include an economic dependency note in its financial statements.
3. Disclose funding received from government but not yet recognised as revenue
For a charity that prepares Special Purpose Financial Statements and does not make the disclosures required by AASB 15 and AASB 1058, we recommend disclosing funding from government that has been received but not yet recognised as revenue.
Best practice recommendations in detail
1. Information about the sources of government revenue
For a charity that receives 10% or more of its total revenue from government sources (including grants), we recommend separate disclosures for the revenue from government.
Revenue from government could include:
- Grants from government of all levels (including local councils)
- Revenue received under a contract with government to provide goods and services
- Government rebates, supplements, subsidies or funds for programs
- Revenue received from directly selling goods or services or delivering programs to beneficiaries if the revenue, although not directly received from government, is ultimately funded by government. For example, National Disability Insurance Scheme (NDIS) payments or home and community care services. These disclosures are only recommended if the information is readily available or easily accessible.
Charities may want to review and update their accounting system to generate the information required for the recommended disclosures. The ACNC maintains and promotes the use of the National Standard Chart of Accounts (NSCOA) which provides examples of accounting for revenue from different levels of government.
In the notes to the financial statements, we encourage charities to disclose the total amount received from each level of government and include the total amounts of funding from up to 10 government departments or agencies and the names of those departments or agencies. The total amount a charity received from all levels of government should reconcile to the amount it provided as ‘Revenue from government (including grants)’ in its Annual Information Statement.
If a charity received funding from more than 10 government sources, it should include the details of the additional government departments or agencies in an appendix outside the reviewed or audited financial statements. The appendix can be submitted with the annual financial report.
Alternatively, a charity that receives funding from more than 10 government sources can include a link in its Annual Information Statement to the information on its website.
Example note that shows how a charity separately discloses its top 10 sources of government revenue by level of government and department or agency name:
Government revenue (including grants) Commonwealth government
- Department of Health
- Department of Finance
- Department of Social Services
- National Disability Insurance Agency - NDIS payments*
50 40 Total 1130 1020 State government
- NSW Ministry of Health
- Service NSW
- Department of Health and Human Services Victoria
30 - Total 665 365 Local government
- City of Sydney Council
- North Sydney Council
175 120 Total 275 120 TOTAL 2,070
* Note: A charity may consider this type of revenue as provision of services and allocate it to ‘Revenue from providing goods/services’ in its Annual Information Statement. The ACNC does not mandate the allocation of these revenue sources under a specific category as long as the allocation is consistent in both the financial statements and the Annual Information Statement.
2. Economic dependency on government revenue
Many charities are economically dependent on government revenue. Economic dependency disclosures show users when a charity is significantly reliant on government funding, and the consequences of it no longer receiving that funding.
If a charity is dependent on government for significant revenue or financial support – for example, it would need to significantly reduce its programs or services without a particular source of government funding available, or a significant government contract will expire in the next reporting period – we recommend that it should include an economic dependency note in its financial statements.
It should also include the assessment from the charity’s management of the likelihood that this economic support for the charity will continue.
A charity should consider also disclosing the judgements and assumptions made by its management when considering its economic dependency.
If the charity’s management believes that there are material uncertainties about the revenue from government that cast significant doubt on the charity’s capacity to continue for the next 12 months, a mandatory disclosure that includes the underlying judgement is required under AASB 101 Presentation of Financial Statements.
Example note in the financial report disclosing the economic dependency on government funding or financial support:
Note x: Economic dependency Charity ABC is dependent on the ongoing receipt of financial assistance from the Commonwealth government to continue delivering its charitable programs. At the time of this report, the Responsible People of the charity were aware that a significant government contract with the Department of Health was set to expire on 31 December 2021. Negotiations for a new government contract have commenced and the Responsible People have no reason to believe that the government will discontinue its support of Charity ABC.
3. Government funding not yet recognised as revenue
A charity that prepares General Purpose Financial Statements (GPFS) is required by AASB 15 and AASB 1058 to make disclosures about contract liabilities and revenue received in advance. For a charity that prepares SPFS and does not make the disclosures required by AASB 15 and AASB 1058, we recommend disclosing funding from government that has been received but is not yet recognised as revenue.
If revenue received in advance is presented as a liability balance and consists of government revenue for which the charity has not yet satisfied performance obligations, we recommend the charity discloses this separately from other revenue received in advance in a liability note (if it is not presented elsewhere in the financial statements).
Example of disclosing government revenue received in advance:
Note X – Revenue received in advance
- Revenue received in advance – government
- Revenue received in advance – non-government
400 180 TOTAL 1,140
A separate line item in the Cash Flow Statement may be presented to show the total amount of funding received from government during the year.
The following is an example of our recommendation to present a separate line item in the Cash Flow Statement for government funding classified as operating activities.
Example of disclosing funding received from government separately in the Cash Flow Statement:
ABN: xx xxx xxx xxx
Statement of cash flows for the year ended 30 June 2020
Cash flows from operating activities
- Cash receipts from government
- Cash receipts in the course of operations (except government grants)
- Dividend received
- Interest received
- Payments to suppliers and employees
Net cash flows from operating activities
Making the disclosures in the annual financial report
To ensure the financial statements are clear and easy for users to read and understand, we recommend making the majority of these disclosures in the notes to the financial statements rather than on the face of the financial statements.
Legislative requirements and changes to AAS requirements
The financial statements that a medium or large charity can submit differs according to whether it self-assesses as a ‘reporting entity’ or not.
A charity that is a reporting entity is required to prepare GPFS that comply with all relevant requirements under the AAS, with the option to comply with Reduced Disclosure Requirements (RDR).
A charity that is not a reporting entity can choose to prepare SPFS and is required to apply, at a minimum, the following accounting standards:
- 101 Presentation of Financial Statements
- 107 Statement of Cash Flows
- 108 Accounting Policies, Changes in Accounting Estimates and Errors
- 1048 Interpretation of Standards
- 1054 Australian Additional Disclosures (including a requirement to disclose information about compliance with all recognition and measurement requirements in the AAS from the reporting period for the 2020 Annual Information Statement).
From 1 July 2021, there will be a single standard that includes all disclosure requirements under AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (GPFS-SDR). This standard will replace the RDR disclosures, and a charity that prepares GPFS-RDR will be required to transition to the new GPFS-SDR. See the AASB website for more on the new single standard for disclosure requirements.
The ACNC encourages a charity that prepares SPFS to consider whether the application of a specific AAS is significant and material to its overall preparation of its annual financial report (for example, AASB 15 and AASB 1058). If so, the charity should apply the specific AAS in full, with an option to apply GPFS–SDR for disclosures relevant to that AAS and the recommended best practice disclosures, to give a true and fair view of its financial position and performance.