Private sector NFPs to disclose extent of compliance with recognition and measurement requirements in special purpose financial statements

In May 2019 Accounting News, we discussed the AASB’s proposals to require all entities lodging special purpose financial statements with the Australian Securities and Investments Commission (ASIC) or the Australian Charities and Not-for-profits Commission (ACNC) to disclose the extent of their compliance with the recognition and measurement requirements of Australian Accounting Standards.

After further consideration, and in light of its proposals to scrap special purpose financial statements for certain for-profit private sector entities for annual periods commencing on or after 1 July 2020 (i.e. 30 June 2021 year-ends onwards), the AASB decided to limit these new disclosures to not-for-profit (NFP) private sector entities only.

Do the new disclosures apply to all private sector NFPs?

No. The new disclosures have been added to AASB 1054 Australian Additional Disclosures and are therefore only required for private sector NFPs required to comply with AASB 1054. As charities registered with the ACNC preparing special purpose financial statements must comply with the additional disclosures contained in AASB 1054, they will all be impacted.

New disclosures are required

Paragraph 9A has been added to AASB 1054 by amending standard AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements.

The following additional disclosures are required:

  1. Disclose the basis on which the decision to prepare special purpose financial statements was made
  2. Where the entity has interests in other entities – disclose either:
    1. Whether or not its subsidiaries and investments in associates or joint ventures have been consolidated or equity accounted in a manner consistent with the requirements set out in AASB 10 Consolidated Financial Statements or AASB 128 Investments in Associates and Joint Ventures, as appropriate.  If the entity has not consolidated its subsidiaries or equity accounted its investments in associates or joint ventures consistently with those requirements, it shall disclose that fact, and the reasons why, or 
    2. That the entity has not assessed whether its interests in other entities give rise to interests in subsidiaries, associates or joint ventures, provided it is not required by legislation to make such an assessment for financial reporting purposes and has not made such an assessment
  3. For each material accounting policy applied and disclosed in the financial statements that does not comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128), disclose an indication of how it does not comply; or if such an assessment has not been made, disclose that fact, and
  4. Disclose whether or not the financial statements overall comply with all the recognition and measurement requirements in Australian Accounting Standards (except for requirements set out in AASB 10 or AASB 128) or that such an assessment has not been made.
Extract of AASB 1054, paragraph 9A

Is the NFP expected to perform a detailed assessment of recognition and measurement differences?

No. For all material accounting policies applied and disclosed in the financial statements, AASB 1054, paragraph 9A(c) merely requires disclosure of ‘an indication of how it does not comply’. It is possible that this requirement could be met by simply including narrative disclosure. Paragraph 9A(c) also notes that ‘….if such an assessment has not been made, disclose that fact’. This suggests that NFPs do not need to undertake a detailed assessment of recognition and measurement differences if this information is not known.

Illustrative disclosure

AASB 2019-4 also adds implementation guidance and seven examples to assist entities in determining the appropriate disclosure.

Effective date

These amendments are effective for annual reporting periods ending on or after 30 June 2020.