Managing the impact of COVID-19 on your not-for profit’s reporting

To help you navigate and manage the impact of COVID-19 on your not-for-profit’s reporting, we summarise below some key areas for Boards of Directors and Management to consider.

Fundraising Income

ISSUE

Future income is uncertain, and events may be cancelled.

REPORTING IMPLICATIONS

Accounts and annual reports may need to include more consideration of the going concern basis.

Costs incurred for future events may need writing off.

Forecasts underpinning the going concern assessment will need to consider the impact of a poorer donor base and the loss of corporate sponsors, future events and retail income.

NFPs are eligible for only limited Government support such as JobKeeper and the cash flow boost stimulus measures.

Bequests

ISSUE

Values of estates are likely to be less predictable, and there will be delays in realisation.

REPORTING IMPLICATIONS

Valuation of bequests receivable and the pipeline will be less certain.

Grant income

ISSUE

Just as companies have cancelled dividends, there needs to be confidence that promised grants will materialise.

REPORTING IMPLICATIONS
 

Grants receivable may need re-confirmation and longer term commitments may be less forthcoming.

Government support, such as the JobKeeper Scheme, will be accounted for as grant income.

Contract and trading income

ISSUE

Performance conditions may not be met, and/or customers may not be able to pay.

REPORTING IMPLICATIONS

Consider penalties for non-performance, and provision for slow or non-payment.

NFP retail

ISSUE

Where discontinued, the activity may not restart.

REPORTING IMPLICATIONS

Consider implications for impairment, onerous contracts and discontinued business disclosures.

Some NFPs running retail operations that have suffered decline in trading due to lockdowns, etc. may be eligible for JobKeeper 2.0 if there is a continued decline in trading through to March 2021.

Investment income

ISSUE

Income and capital returns are likely to have fallen. Dividends may have been cancelled.

REPORTING IMPLICATIONS

Ensure dividends are only recognised where they are not cancelled.

Zero interest rates may mean trustees should rethink investment and treasury policies.

Fundraising costs

ISSUE

Various investments of cost, such as websites or events, may need writing off.

REPORTING IMPLICATIONS

Review any costs and consider accounting for insurance recoveries. Onerous contracts may require recognition.

Staff costs

ISSUE

Staff and volunteers are working differently to previous work patterns, including working from home. Redundancies and a hibernating workforce may have occurred.

REPORTING IMPLICATIONS

The basis of staff cost allocation will need reconsidering in view of any change in activity. 

Redundancy costs may need recognising when announced – these should be included in the salary disclosures.

Foregone remuneration will need consideration depending on contractual arrangements.

Following on from the end of the first stage of the JobKeeper scheme on 27 September 2020, the JobKeeper scheme (extension 1) runs from 28 September 2020 through to 3 January 2021 and JobKeeper (extension 2) runs from 4 January 2021 to 28 March 2021.

Functional fixed assets

ISSUE

The use of properties (including leased right-of-use assets) may have changed, and values will be affected, possibly leading to impairment.

Third party valuations for fixed assets (held at valuation rather than cost) may be caveated.

REPORTING IMPLICATIONS

Consider carrying values, depreciation rates, and the availability and reliability of valuations.

Consider implications of other government stimulus measures such as some states offering land tax relief to lessors in order to compensate for lost rental during COVID-19.

IFRS 16 has been amended in May 2020 to address accounting for COVID-19 related rent concessions. Refer to our International Financial Reporting Bulletin: Accounting for lessee rent concessions: FAQs for more information.

Debtors

ISSUE

Recoverability of existing debts may be problematic, and some may be renegotiated into long-term.

REPORTING IMPLICATIONS

Consider provisions (expected credit losses) and discounting, where appropriate.

Customers may be experiencing financial difficulty, impacting on their ability to pay, and, thus, the NFP’s cash flow.

Liabilities

ISSUE

Commitments may be re-negotiated into long-term or even cancelled.  New or increased liabilities may arise where property use is reduced.

REPORTING IMPLICATIONS

Consider the effect of asset values on any loan covenants.

Provision may be needed for enhanced dilapidation costs (and impairment) when reducing property occupation.

Financial instruments

ISSUE

The basis of valuation remains unchanged.

REPORTING IMPLICATIONS

Consider implications of movements in foreign exchange and bond rates.

Traditional valuation models may need revisiting in the presence of zero interest rates.

Accounting Policies and Going Concern

ISSUE

The going concern basis of preparation may no longer be appropriate and in more uncertain. Some policies may need altering in view of changes e.g. to asset lives.

REPORTING IMPLICATIONS

Assess the going concern basis and policies. This assessment will also need to take into account the new requirements being introduced by ASA 570. 

Robust cash flow projections will be required, involving scenarios and focussing on unrestricted cash. 

These scenarios are to be more than simply “best case” and “realistic worst case”.

Judgement and estimates

ISSUE

In many cases these will need substantial expansion.

REPORTING IMPLICATIONS

It is accepted by many regulators that it is likely NFPs will be disclosing more uncertainty, impacting on going concern.

These disclosures should consider the:

  • Availability and extent of support through Government measures that have been announced
  • Availability, extent and timing of sources of cash, including compliance with banking covenants or reliance on covenants being waived, and
  • Duration of social distancing measures and their potential impacts.

Annual report

ISSUE

NFPs should disclose and communicate in the annual report how COVID-19 has impacted the organisation. 
Approval of financial statements will likely be done by virtual meeting.

REPORTING IMPLICATIONS

Consider the impact of COVID-19 in your annual report, in terms of both past performance, and future events, risk, reserves and going concern, and the impact on your workforce.

Directors should check their constitution allows the approval by virtual meeting.

A NFP’s Annual Information Statement (AIS) and financial report (if required) are due for lodgement with the ACNC within six months of reporting date. The Commissioner has extended the deadline for lodging the AIS by one month for years ending 30 June 2021. Refer to the ACNC’s web site for more information on lodgement dates for the AIS.

More information

For further information or to discuss any of the issued above in relation to your NFP’s reporting, please get in touch or contact your usual BDO adviser.

This publication has been carefully prepared, but is general commentary only. This publication is not legal or financial advice and should not be relied upon as such. The information in this publication is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The publication cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances.

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