Correct selection of the type of financial reports
Overall, 68% of charities selected the correct type of financial report to submit with their AIS.
The results below show a higher than average number of charities misclassified the financial statement type when submitting GPFS-RDR or SPFS.
In our previous dealings with charities that made this error, we found those submitting the AIS were not always familiar with the distinction between the different financial statement types.
The most common errors observed were the misclassification of GPFS-RDR and SPFS as GPFS.
Correct use of transitional arrangements
The ACNC has transitional reporting arrangements3 in place with several government agencies. This means we accept financial reports submitted to another regulator even though they may not meet the ACNC’s reporting requirements.
We also have streamlined reporting arrangements4 in place with Tasmania, South Australia and the ACT (since 2016), New South Wales and Victoria (since 2018) and the Northern Territory (from 2019).
Only charities using transitional reporting arrangements should state in their 2018 AIS that they are doing so. The 2018 AIS asks charities where and why they submitted their AFR.
Of all the charities (excluding group reporters) reviewed, only 18% were eligible to use transitional reporting arrangements.
Of those that were not eligible to do so, 21% incorrectly indicated they were utilising the transitional arrangements by stating that they had to report to another regulator because they were an incorporated association or a fundraising organisation even though they were no longer required to report to their state regulator (eg. SA, ACT, TAS incorporated associations)
This also applies to companies that selected they were a fundraising organisation. But companies are unable to utilise transitional reporting arrangements because they were previously required to prepare financial statements in accordance with the Corporations Act 2001. These statements are similar to the current ACNC reporting requirements.
Correct transposition of financial information from the 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 monitor the sector’s financial health and 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;
- total net assets/liabilities.
The results of the checks for all charities were:
|AIS matched to AFR||Total revenue ||Total expense ||Net asset/liabilities|
In reviewing the financial reports of charities that incorrectly transposed income statement and balance sheet figures to the AIS, we found in some cases that the error occurred because the financial report may not have separately disclosed the same items required in the AIS amounts (as it is not required by the Australian accounting standards).
This meant some charities had to exercise their own judgement to aggregate or disaggregate the financial information within the financial report to allocate it back to the AIS. This process increased the chance of transposing errors in the AIS.
Correct identification of charities’ financial statements as consolidated financial statements
Charities (parent entities) that control one or more other entities (subsidiaries) may be required to present consolidated financial statements.
Charities that are reporting entities and/or GPFS are required to present consolidated financial statements to the ACNC.
Charities may also apply to the ACNC to report as a group and, once approved, provide a group financial report which could be on an aggregated basis rather than presenting on a consolidation basis.
Although we accept consolidated or combined financial statements which may include information relating to non-registered charities, the financial information provided in the AIS must only relate to registered charities.
Of all the financial reports reviewed, 20.3% were consolidated financial reports and 79.7% were single charity financial reports. More than 83% of charities correctly identified on their AIS whether consolidated financial statements were submitted. Just under 17% incorrectly identified their financial report as a consolidated financial report when it was, in fact, a single charity report.
AIS errors were identified for 42% of charities that submitted a consolidated financial report. In these cases, charities incorrectly provided AIS income statement and balance sheet figures for the consolidated group as a whole rather than financial information on an individual charity basis.
Charities’ provision of complete sets of financial statements
Annual financial reports must comply with AASB 101 Presentation of Financial Statements, unless the charity is eligible to participate in an ACNC transitional reporting arrangement or the first two years5 of a streamlined reporting arrangement.
This standard specifies that a complete set of financial statements comprises:
- a statement of profit or loss statement and other comprehensive income6,
- a statement of financial position,
- a statement of changes in equity,
- a statement of cash flows, and
- the notes to the financial statements
75% of AFRs examined included a complete set of financial statements. The following table shows the percentage of each financial statement included in the AFR.
|Financial statement ||Percentage of submissions (full sample)||Streamlined reporting charities only*|
|Statement of financial position||99.5%||100%|
|Statement of profit or loss and other comprehensive income+||100%||100%|
|Statement of changes in equity||80.2%||61%|
|Statement of cash flow||83.6%||67%|
|Notes to the statements||95.2%||93%|
* The results relate to charities that are incorporated associations in South Australia, Tasmania and the ACT, where the two-year transitional reporting period has ended, meaning charities should be complying fully with the ACNC reporting requirements.
+ Although all financial reports provided included a statement of profit or loss, a significant number of financial reports did not also include a statement of comprehensive income
Presentation of expenses
The accounting standards require charities to present expenses recognised in their profit or loss statement using a classification based on:
- their nature, or
- their function within the charity
A charity’s decision to present expenses by function or nature will depend on historical and industry factors, as well as the nature of the charity itself. Presenting expenses by both nature and function is not permitted.
Of the AFRs reviewed, 85% of charities reported expenses using the nature of expense method, while 5% reported expenses using the function of expense method. The remaining 10% of charities incorrectly reported their expenses.
The type of financial report medium and large charities prepare will 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 recognition, measurement and disclosure requirements.
When preparing GPFS, charities can choose to prepare either full GFPS, or GPFS-RDR.
If a charity is not a reporting entity, it may prepare SPFS that must meet the minimum reporting requirements set out in the ACNC Regulations.
The table contained in the link below presents our observations of financial statements included in the review, and whether they met selected GPFS and SPFS requirements. (Click on the link to view or download the document)
Some items with high percentages of ‘No’ for GPFS are because:
- these results were drawn from our initial observations prior to contacting charities to correct their errors
- some charities stated in the basis of preparation that the financial statements prepared were GPFS. However, the statements were more likely to be otherwise upon closer review. That is because of a number of disclosures required for a GPFS were missing and some audit reports were stating they are not GPFS
- lastly, due to a small number of GPFS observed in this review, any errors captured will have an amplifying effect on the overall statistics. Therefore, these results should not be extrapolated to draw broader conclusions. Refer to Restriction of Use section for more details.
Auditor/reviewer report requirements
New auditing stardards applied for financial reporting periods ending on or after 15 December 2016. The ACNC developed new templates which applied these revised standards.
Of the financial reports examined, 94% had an auditor or reviewer report attached. 99% of audit reports provided were signed, and more than 79% of the audit reports complied with the new auditing standards.
Excluding charities using transitional reporting arrangements, 72% of auditor/reviewer reports provided an opinion about whether their financial report complied with the ACNC Act.
Responsible Persons’ declaration
95% of financial reports examined included a Responsible Persons’ declaration.
98% of the Responsible Persons’ declarations provided were signed and 95% included a statement that the registered charity 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, 71% referenced the ACNC Act.
We contacted 66 charities that had made errors in their 2018 AIS and/or AFR. In response, charities made corrections to their AISs involving:
- $195,522,440 in Total Revenue
- $614,226,373 in Total Assets
3 Medium and large charities may currently submit financial reports to their state and territory regulator, eg cooperatives. The ACNC may be able to submit the same financial report to the ACNC as meeting our requirements for the 2018 reporting period. This statistic excludes any non-government school charities utilising the transitional reporting arrangements.
4 The ACNC has entered into streamlined reporting arrangements where charities that are incorporated associations will only need to report annually to the ACNC via the AIS.
5 To date, the ACNC has provided a two-year transitional period for charities eligible for new streamlined reporting arrangements to help them transition to ACNC reporting requirements. See for example the NSW incorporated association transitional period guidance on the ACNC website.
6 Charities may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections.