The Australian Accounting Standards Board (AASB) has announced plans to remove the ability of Tier 2* Entities to prepare special purpose financial statements. At the same time, it has introduced simplified disclosure standards for profit and NFP Tier 2 Entities.
NFPs that sit outside the Tier 2 classification should be aware that the AASB is currently reviewing reporting requirements. It has been suggested that in the future general purpose financial disclosures may also be required for NFPs registered with the Australian Charities and Not-for-Profit Commission.
Key differences between special purpose and general purpose financial statements
At present NFPs are free to choose accounting standards. There are several key differences between special purpose and general purpose financial statements.
|Can be in any format
|Follow specific format
|Usually involves P&L and Balance Sheet
|Prepared by most NFPs
|Prepared by some NFPs
|Disclose all transactions with related parties
|Easier to audit
Why make the change to general purpose?
In our experience there are many benefits for those NFPs that prepare general purpose financial statements. These include:
- The ability to provide more in-depth information that can assist with managing cashflow
- Greater transparency that boosts strategic decision making
- Effective management of contract acquittals
- Ensuring there are no ‘surprises’ that will impact NFP liabilities.
While there will be some transitional relief for those who adopt the changes early, the new AASB 1060 standard for Tier 2 entities will apply from 1 July 2021.
What to do now
Hopscotch Accounting is encouraging all NFP clients who currently prepare special purpose financial statements to discuss the benefits of transitioning to a general purpose disclosure model with their auditor.
How Hopscotch Accounting can help
Our team can provide information to your board about the difference between the two reporting methods and also discuss these developing changes with your auditor.
*‘Tier 2’ entities are:
For profit private sector entities that have no public accountability or NFP private sector entities (e.g. charities reporting to the ACNC)
Public sector entities (for-profit and not-for-profit) other than the Australian Government, State, Territory and Local Governments.