ACNC’s best practice financial report disclosures – start the new year on the right foot

The Australian Charities and Not-for-profits Commission (ACNC) is urging charities to “start the new year on the right foot”. The Australian public and governments are interested in the financial information of charities as an indicator of transparency and accountability, so it is important for charities to provide as much information as possible (the more detail the better), especially about the funds charities receive from government.

In summary, the ACNC’s Best Practice Guide recommends three disclosures:

• Information about sources of government revenue
• Economic dependency on government revenue
• Funding received from government but not yet recognised as revenue.

Information about sources of government revenue

The Best Practice Guide recommends a significant amount of granular detail about revenue received from government. If a charity receives 10% or more of its total revenue from government, it should disclose:

• Total revenue received from each level of government (e.g. Commonwealth, State, Local Council)
• Amount of revenue received from each government department or agency, including the name of the relevant department or agency (up to a maximum of 10 lines of disclosure), and
• Revenue from providing goods and services to beneficiaries who receive related financial assistance from government (e.g. payments from the National Disability Insurance Agency).

Charities should be updating their accounting systems to capture the information required for the above disclosures. If funding is received from more than 10 government sources, details of receipts from additional government departments or agencies should be provided in an appendix to the audited/reviewed financial statements (but included within the annual report).

The Best Practice Guide includes a detailed example note showing how a charity discloses its top 10 sources of revenue by government department or agency name.

Economic dependence on government revenue

Some charities are not economically viable without government funding, for example, a charity may need to reduce its programs or services if a particular source of government funding is no longer available. An economic dependency note in the financial statements is therefore important to show users the consequences if the charity no longer receives that funding. Disclosures should:

• Indicate the likelihood of the government support continuing
• Detail the judgements and assumptions made by management when considering economic dependency, e.g. when a significant government contract expires in the next reporting period
• Cover the charities ability to continue as a going concern as required by IAS 1 Presentation of Financial Statements.

The Best Practice Guide includes an example economic dependency note.

Government funding not yet recognised as revenue

Charities preparing special purpose financial statements are not required to include details of government funding not yet recognised as revenue (deferred income or contract liabilities) because they do not have to provide all the disclosures required by AASB 1058 Income of Not-for-Profit Entities and AASB 15 Revenue from Contracts with Customers. Nevertheless, the Best Practice Guide recommends disclosing this information by splitting the deferred income or contract liability into:

• Amounts received in advance – government, and
• Amounts received in advance – non-government.

It also recommends showing ‘cash received from government’ separately from cash receipts from other sources in the statement of cash flows.

You can see what the ACNC had in mind by referring to the example notes shown in the Best Practice Guide.