ACNC guidance - Who is a related party?
ACNC guidance - Who is a related party?
In our April 2022 edition of Corporate Reporting Insights, we highlighted the new key management personnel (KMP) and related party disclosures that not-for-profit entities (NFPs) registered with the Australian Charities and Not-for-profits Commission (ACNC) must present in their 2022 or 2023 financial statements. Large charities with more than one KMP must disclose the aggregate KMP compensation for years ending 30 June 2022 or later, while medium and large charities must disclose related party transactions for years ending 30 June 2023 or later.
Therefore, it is important to be able to identify who is a KMP and who is a related party to ensure that all required disclosures are made.
Key management personnel
- Responsible people (i.e. people responsible for governing the charity such as the board, committee members, trustees, etc.)
- Senior staff (for example, the CEO, Chief Financial Officer, or Chief Operating Officer).
It is important to note that KMPs are not always employed by the charity. In some cases, KMP services are provided by a separate ‘management entity’. An example of this is where an accounting firm provides a CFO, or company secretary, to the charity in return for a fee.
The separate ‘management entity’ may provide a combination of KMP and non-KMP services, such as IT support and bookkeeping, for a single fee. The charity will need to use a reasonable method to calculate the cost of the KMP services for disclosure purposes. If this allocation is not practicable, then the charity must disclose that fact.
Other related parties
Our article in this month’s Corporate Reporting Insights, Disclosing related party transactions – Who is a related party?, demonstrates how complicated it can be for for-profit entities to determine whether a person or entity is a related party. The ACNC has therefore published additional guidance to help not-for-profit charities to identify related persons and entities. This additional guidance is based on the definition of related parties contained in AASB 124 Related Party Disclosures, but has been adapted to suit structures and relationships that might exist in a not-for-profit context.
Small charities must disclose related party transactions in their 2023 Annual Information Statement, but not in their financial statements. On this basis, the ACNC appears to define related parties of small charities more narrowly in the additional guidance than in AASB 124. They include:
- A charity’s responsible people and their close family members
- A charity’s senior management and their close family members
- Other people or organisations/entities that can influence a charity’s decision-making.
It is important to note that a person is not a related party simply because they are an employee or volunteer of a charity. To be a related party, they must be a KMP. That is, they have significant influence over the charity’s strategic and financial decisions.
Medium and large charities
Medium and large charities must disclose related party transactions in their 2023 Annual Information Statement and in their financial statements. In developing guidance on who is a related party, the ACNC adapts the AASB 124 definition of a related party for a not-for-profit charity structure. Related parties would include:
- A person that is connected to the charity, such as a Responsible Person or a close member of their family, that has control or joint control of the charity
- An organisation that is connected to the charity and has control or significant influence over the charity, such as a parent entity of the charity
- An organisation that the charity has control or significant influence over, such as a subsidiary entity
- Any organisation and the charity that are members of the same group (for example, fellow subsidiaries)
- A member of the charity’s key management personnel (people with authority and responsibility for planning, directing and controlling the activities of the charity directly or indirectly) or a close member of their family
- An associate (an entity over which the charity has significant influence) or joint venturer (an entity that shares control of an arrangement with the charity and has rights to the net assets of the arrangement).
Source: ACNC guidance – What is a related party? – Medium and large charities