Changes to Financial Reporting in the Australian Not-For-Profit Sector

 

Here at Roger Boghani, we specialise in providing financial and business services to the Non-Profit Sector. We are watching closely as the Federal Government, with direct input from the AASB work through potential changes to NFP Financial Reporting within the Australian Not-for-Profit Sector.

 

What do we know so far?

Consultation on Simplifying Australia’s Not-for-Profit Financial Reporting Framework closed on February 28 this year. The original proposal seeking consultation can be found here.

In summary, the Australian Accounting Standards Board (AASB) are suggesting changes aimed at making financial reporting easier for Australia’s non-profit sector. They plan to achieve this through a tiered system based on an organisation’s size and level of public accountability. Big NFPs (Tier 1) will still have to follow all accounting standards. Medium-sized groups (Tier 2) will have fewer things to disclose, and small NFPs (Tier 3) can use cash accounting. The changes could also include removing the self-reporting option to choose between General Purpose Financial Statements (GPFS) or Special Purpose Financial Statements (SPFS). Along with clearer rules to recognise revenue from grants and donations, alongside less strict lease accounting and practical tips for non-financial assets like volunteer work. It may sound complicated, but sector feedback so far has been positive overall, to simplify the process for many NFPs and make financial reporting clearer and less burdensome, particularly for smaller NFPs.

These reforms focus on important disclosures instead of standard requirements. This could substantially cut compliance costs for smaller groups. The changes are similar to international models like the UK’s Charities SORP. The AASB held its consultation phase until February 2025. 

The AASB encouraged people to look at the proposal and share their thoughts. The Chartered Accountants Australia New Zealand provided advocacy for members by completing a joint submission with CPA Australia. Whilst the changes should make financial reporting more useful and keep things transparent, there is more to understand to ensure compliance is achieved. On the whole, though, these are changes the sector has wanted for quite some time and will be welcome.

 

Major Changes to Consider:

Self-reporting
Simpler Tier Standards
Transition between Tiers
The Possible Advantages
Sector Impact

 

Removing Self-Assessment for Reporting Entities

The AASB’s proposed changes include getting rid of the self-assessment part from the Reporting Entity concept. Right now, NFPs can decide if they need to make General Purpose Financial Statements (GPFS) or Special Purpose Financial Statements (SPFS). The new framework will require all NFPs to prepare financial statements under Australian Accounting Standards to produce GPFS, removing the SPFS option. This change aims to make reporting the same across the sector, ensuring consistency and making comparisons easier. While this might mean more work for some smaller groups, the introduction of a simpler Tier 3 standard (as mentioned above and discussed in detail below) should help lighten the load. This shift shows a bigger push for openness, making sure stakeholders, donors, funders, and regulators can rely on the financial information they receive.

 

Introducing a Simpler Tier 3 Standard for Smaller NFP Organisations

The AASB has come up with a new Tier 3 accounting standard for smaller NFPs, knowing these groups often pay too much for compliance. This new standard is made for private sector groups like charities, trusts, and co-ops. Tier 3 makes recognition and measurement rules easier, giving practical breaks such as not having to recognise lease liabilities, choosing to measure donated assets at fair value, and using undiscounted provisions for employee benefits. These changes aim to make things less complex while still keeping groups accountable. Tier 3 still needs key statements about financial position and cash flows, but it doesn’t need all the detailed disclosures that Tiers 1 and 2 do. For many small NFPs, this could save a lot of time and money, letting them put more resources into their main work instead of dealing with tricky reporting.

 

Transition Pathways: Adaptability and Real-World Application

The AASB has laid out clear paths for NFPs to switch between reporting tiers. NFPs moving from SPFS to Tier 3 don’t need to restate comparative information, which makes first-time adoption easier. NFPs switching from Tier 1 or 2 to Tier 3 can keep some existing policies during the change, giving them more options. But, moving to Tier 1 or 2 means restating comparatives showing the higher standards at those levels. These rules for switching recognise that NFPs start from different points and try to minimise disruption. The step-by-step approach, with a suggested 2-3-year lead time, gives entities plenty of time to adjust.

 

Advantages: Uniformity, Ease of Comparison, and Money Saved

The reforms aim to fix reporting problems in NFPs where similar groups use very different rules. By requiring GPFS and adding Tier 3, the AASB wants to make it easier for donors and grant givers to compare organisations. The changes also promise “right-sized” reports for smaller NFPs, which could cut compliance costs by up to 30%. The Tier 3 exceptions for leases, revenue counting, and asset valuation tackle issues the sector pointed out. Big NFPs (Tiers 1 and 2) won’t see fewer rules, but the new system creates a more sensible tiered approach that matches international models like the UK’s Charities SORP.

 

Sector Impact and Stakeholder Engagement

The proposals have a wide-ranging effect on NFPs, their advisors, and stakeholders. People who prepare financial statements must learn about the new tiers and transition rules, while donors and funders might gain from more uniform data. The AASB asked for input through surveys, outreach events, and submissions, with groups like CA ANZ and CPA Australia offering joint responses. The sector’s feedback has welcomed the streamlining, though some worries persist about putting it into practice for entities that now have to produce GPFS for the first time. The AASB’s team-orientated approach hints at their readiness to adjust the framework based on real-world feedback, aiming to ensure the final standards strike a balance between openness and feasibility.

 

Closing Thoughts from the Experts at Roger Boghani

The AASB’s suggested changes are a big step toward updating NFP financial reporting in Australia. The new system replaces self-assessment with tiered GPFS and adds a simpler Tier 3 standard. These changes aim to make reporting more consistent and less burdensome. This could help smaller NFPs, giving them more time and money for their main work. Bigger groups will still follow strict rules, which keeps stakeholders’ trust. While we wait for the final rules after feedback, it’s smart to get ready now. This means learning about how to switch over and talking to experts. At Roger Boghani, we think these changes are well overdue. They bring Australia’s NFP system in line with the best global practices while meeting local needs.

We’ll keep watching what happens and help our clients through this change. If you’re an NFP considering new accounting and business support, please reach out to us today for a no-obligation chat.