Correct use of transitional arrangements
The ACNC has transitional reporting arrangements in place with several government agencies.
We also have streamlined reporting arrangements in place with South Australia, Tasmania and the ACT (since 2016), and with New South Wales and Victoria (since 2018).
Charities need to know the different types of transitional reporting arrangements as it affects the requirements of the financial reports they submit to the ACNC.
So that the ACNC could confirm that charities can take up transitional reporting arrangements, the 2017 AIS included questions asking:
- if charities reported to a state or territory regulator
- which state or territory the financial report was submitted to, and
- the reason it was submitted.
Of the 152 charities whose AFRs were included in our review, 69 (45.4%) said they reported to another regulator, 76 (50%) said they did not and seven charities (4.6%) did not respond.
But on review, 21.05% of charities were found to be eligible to use transitional reporting arrangements and 76.32% were not. This meant 70.39% charities responded to the question correctly, while 29.61% made an error.
Correct transposition of financial information from charities’ AFRs to AISs
Each year the AIS requires a summary income statement and balance sheet to cover a number of specific financial data elements. This also allows the ACNC to examine sector trends.
This year we compared financial information contained in charities’ AISs with their AFRs to check the accuracy of data transposition across:
- total revenue,
- total expenses, and
- total net assets/liabilities.
The results of the transposition checks for the 152 charities included in our review were:
|AIS matched to AFR||Total revenue||Total expenses||Net assets/liabilities|
Correct identification of charities’ financial statements as consolidated financial statements
Some registered charities are deemed to be ‘parent entities’ due to their control of other related organisations – for example, the way a charity’s head office might oversee branches or sub-branches of the same organisation, and can direct the operations of those organisations.
These parent entities prepare financial statements that group together the financial information of related organisations. These are known as consolidated financial statements.
Registered charities that prepare General Purpose Financial Statements (GPFS) are required to prepare and provide their consolidated financial statements to the ACNC.
Registered charities may also apply to the ACNC to report as a group and, once approved, provide us with the group financial report.
Through the AIS, the ACNC only collects financial information relating to registered charities. We included questions in the 2017 AIS to ensure that charities only provided us with information relating to registered charities.
Of the 152 financial reports reviewed, 27 were consolidated financial reports and 125 were single entity financial reports.
Just over 86.8% of charities correctly identified on their AIS whether consolidated financial statements were submitted, while 7.24% were not required to provide this information.
Of those that submitted consolidated financial statements, 73.9% correctly included financial information for registered charities. The remaining 26.1% may have incorrectly included information:
- of non-registered entities, or
- on entities other than the parent entity
Charities’ provision of complete sets of financial statements
AFRs must comply with AASB 101 Presentation of Financial Statements. This standard specifies that a complete set of financial statements comprises:
- a statement of profit and loss and other comprehensive income
- a statement of financial position
- a statement of changes in equity
- a statement of cash flows, and
- the notes to the financial statements.
Nearly 77 per cent (76.97%) of AFRs included in our review provided a complete set of financial statements.
And 96.05% of financial reports provided comparative information (noting that some charities may utilise transitional reporting requirements or the transitional relief for streamlined reporting).
The following table presents the percentage of charities that provided each financial statement.
|Statement of financial position ||99.34%|
|Statement of profit or loss and other comprehensive income||97.37%|
|Statement of changes in equity ||83.55%|
|Notes to the statements||96.71%|
The type of financial report medium and large charities prepare can depend on whether the charity is a reporting entity.
If the charity is a reporting entity, it must submit GPFS that comply with all applicable Australian Accounting Standards. The accounting standards issued by the AASB include standards for the presentation, measurement and disclosure of financial statements.
When preparing GPFS, charities can choose to prepare either full GPFS or GPFS – RDR.
If a charity is not a reporting entity, it may prepare SPFS that meet the minimum reporting requirements set out in the ACNC Regulations.
The following table presents our observations of financial statements included in the review, and whether they met selected GPFS and SPFS requirements.
|Financial report checks||Yes||No||Unclear or Not Applicable|
|Classification of current and non-current assets and liabilities or liquidity presented in the statement of financial position||98.68%||1.32%||-|
|Line items presented in the Statement of profit or loss and other comprehensive income||93.42%||6.58%||-|
|Disclosures of significant accounting policies||93.42%||6.58%||-|
|Disclosure of appropriate accounting estimates and judgements management made in the process of applying the charity’s accounting policies ||75.66%||22.37%||1.97%|
|Cash flow statement classified between operating, investing and financing activities||80.92%||13.82%||5.26%|
|Professional judgement applied in relation to potential impact of materiality on financial statements||16.45%||2.63%||10.53%|
|Disclosure for the purposes of preparing the financial statements, whether it is a for-profit or not-for-profit entity||58.94%||41.06%||-|
|Disclosure of the statutory basis or other reporting framework, if any, under which the financial statements are prepared||85.53%||14.47%||-|
|Disclosure of fees to each auditor or reviewer of the financial statements (optional for GPFS – RDR) ||62.5%||29.61%||7.89%|
|Disclosure of compliance with Australian Accounting Standards when all Australian Accounting Standards have been complied with||77.63%||23.37%||-|
|GPFS only – Disclosure of key management personnel compensation ||89.71%||10.29%||-|
|GPFS only – Disclosure of related party transactions||37.5%||1.97%||60.53%|
|GPFS only – Disclosure of deprecation methods, useful lives or the depreciation rates used ||67.11%||0.66%||32.24%|
Auditor/reviewer report requirements
New auditing standards applied for financial reporting periods ending on or after 15 December 2016. The ACNC developed new templates which applied these revised standards.
Of the 152 financial reports examined in our review, 93.42% had an auditor or reviewer report attached. Of these, 99.3% were signed.
More than 63% (63.38%) of the audit reports complied with the new auditing standards.
Excluding charities utilising the transitional reporting arrangements, 55.92% of the auditor/reviewer reports referenced the ACNC Act.
Responsible Persons’ declaration
Nearly 93% (92.76%) of the financial reports reviewed featured an attached Responsible Persons’ declaration.
Of those that provided the Responsible Persons’ declaration, 95.04% were signed and 92.91% included a statement that the registered entity was able to pay all its debts, as and when they became due and payable.
For the charities that did not utilise transitional reporting arrangements, only 55.71% referenced the ACNC Act.