Generally speaking, if people:
- use and rely on your charity's financial statements to help them make decisions about how to allocate resources, and
- cannot have their information needs satisfied if your charity prepared a Special Purpose Financial Statement
then your charity is most likely a reporting entity.
The Australian Accounting Standard AASB 1053 defines a reporting entity as:
'an entity in respect of which it is reasonable to expect the existence of users who rely on the entity's general purpose financial statements for information that will be useful to them for making and evaluating decisions about the allocation of resources. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries'.
Ultimately, whether your charity is a reporting entity will depend on a number of factors, including its particular circumstances.
Consideration of these factors will help determine whether there are likely to be users of your charity’s financial statements - meaning your charity is likely to be classed as a reporting entity.
Primary factors for consideration
Where it is not apparent that people use and rely on your charity’s financial statements, the primary factors you need to consider are:
- If there is a spread of ownership/membership, or a level of separation between management and owners/members/others, that have an economic interest in your charity. The greater the separation of membership from management, the more likely members will use and rely on your charity’s financial statements.
- Whether your charity has economic or political importance or influence. The more economic or political importance or influence your charity has, the more likely it is that people will use and rely on your charity’s financial statements.
- If your charity is large, if it has a high level of sales/assets/debt/funding from governments or other parties, or if it has a high number of employees. The larger your charity is, the higher its level of sales/assets/debt/funding, or the higher its number of employees, the more likely people will use and rely on your charity’s financial statements.
For more information you can refer to the Definition of the Reporting Entity (Statement of Accounting Concepts SAC 1) on the AASB website.