Private sector NFPs: Simplified general purpose financial statements for Tier 3 entities

The Australian Accounting Standards Board (AASB) recently published AASB 1061 General Purpose Financial Statements – Not-for-Profit Private Sector Tier 3 Entities, its long-awaited Tier 3 general purpose standard for smaller private sector not-for-profit entities (NFPs).

AASB 1061 sets out simplified recognition, measurement, presentation and disclosure requirements, and works hand-in-hand with changes to the Conceptual Framework, AASB 1057 Application of Australian Accounting Standards and AASB 1053 Application of Tiers of Australian Accounting Standards (effected through amending standard AASB 2026-2) which scrap special purpose financial statements (SPFS) for many private and public sector NFPs that are required to prepare financial statements in accordance with Australian Accounting Standards, and in some cases, ‘accounting standards’.

Which entities can apply AASB 1061?

Not all NFPs can apply AASB 1061. However, entities eligible to apply Tier 3 may choose to prepare Tier 1 or Tier 2 general purpose financial statements (GPFS).

Which entities can report under the new Tier 3 standard?

AASB 1053 provides that entities that can apply Tier 3 are NFP private sector entities that:

  • Do not have public accountability, and
  • Are not prohibited by legislation, their constituting document or another document from applying AASB 1061.

Examples of entities that AASB 1061 may apply to include charities, companies limited by guarantee, incorporated associations and co-operatives. However, the AASB decided not to specify which types of entities could prepare Tier 3 GPFS and noted that it is more appropriate for the relevant legislation or regulatory authority to set size thresholds or other criteria, as appropriate.

Currently, charities registered with the ACNC may prepare SPFS under section 60.30 of the Australian Charities and Not-for-profits Commission Regulations 2022. This also applies to companies limited by guarantee that are not registered with the ACNC and preparing financial statements under Chapter 2M of the Corporations Act 2001. In both cases, the SPFS must comply with, as a minimum, AASB 101 Presentation of Financial Statements, AASB 107 Statement of Cash Flows, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, AASB 1048 Interpretations of Standards, and AASB 1054 Australian Additional Disclosures. In addition, ACNC-registered entities must also disclose related party information (AASB 124 Related Party Disclosures).

We expect regulators to provide more information regarding Tier 3 thresholds or qualifying criteria in due course.

Is AASB 1061 a ‘one-stop shop’?

Generally, AASB 1061 contains all the recognition, measurement, presentation and disclosure requirements for Tier 3 entities preparing GPFS. However, if applicable, Tier 3 entities will have to refer to the recording, measurement and presentation requirements in:

  • AASB 2 Share-based Payment, in relation to share-based payment arrangements
  • AASB 5 Non-current Assets Held for Sale and Discontinued Operations, in relation to non-current assets held for sale except for:
    • Financial assets within the scope of Section 10 of AASB 1061, and
    • Investment properties measured using the fair value model in Section 14 of AASB 1061
  • AASB 6 Exploration for and Evaluation of Mineral Resources, in relation to exploration for, and evaluation of, mineral resources
  • AASB 9 Financial Instruments and other applicable Australian Accounting Standards, in relation to ‘non-basic’ financial instruments
  • AASB 17 Insurance Contracts, in relation to insurance contracts issued by the entity
  • AASB 119 Employee Benefits, in relation to obligations arising under a defined benefit plan
  • AASB 141 Agriculture, in relation to biological assets (except for bearer plants, and agricultural produce at the point of harvest).

For these topics, Tier 3 entities must refer to the relevant disclosures required by AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.

When does AASB 1061 apply?

AASB 1061 applies to annual reporting periods beginning on or after 1 July 2029 and can be adopted early.

Despite the early adoption option, until legislators clarify which entities can use it, we recommend that private sector NFPs consider carefully and seek advice regarding adopting AASB 1061 before 1 July 2029.

Transition options

When first applying AASB 1061, the ‘date of transition’ is the beginning of the current period. Entities can choose to apply one of the following transition options:

  • Option 1: Apply the specific transition requirements in paragraphs 28.8 to 28.12 of AASB 1061, which include targeted reliefs and exemptions and reduce the complexity of first-time adoption, or
  • Option 2: Retrospectively apply the recording and measurement requirements of AASB 1061 as if the entity had always applied the Tier 3 reporting requirements. This is a modified retrospective approach, with transition adjustments recognised on the transition date, and no restatement of comparatives in either the statement of financial performance or position.

For Option 1, an entity can choose to restate comparatives in its first AASB 1061 GPFS. In this case, the ‘date of transition’ is the beginning of the earliest comparative period presented.

For Option 2:

  • The entity does not have to correct prior period errors retrospectively but can instead adjust the cumulative effect on the transition date, and
  • Comparative information for narrative disclosures in the notes is not required if the entity did not disclose that information in its most recent previous financial statements.

Where to from here?

As noted earlier, until the legislators decide on the criteria for Tier 3 GPFS, at this stage, we recommend private sector NFPs to carefully consider AASB 1061 adoption plans and consult. With the transition date (1 July 2029) still three years away, and no restatement of comparatives required, entities will have time to prepare. However, despite simplified requirements, adoption efforts should not be underestimated and left too late prior to the mandatory effective date. In the meantime, future editions of Corporate Reporting Insights will provide further insights into some of the areas where recording and measurement could change for Tier 3 entities.

We are here to help

AASB 1061 runs to 110 pages and there are many recording and measurement differences when compared with Tier 2 GPFS. Please contact our IFRS & Corporate Reporting team if you need help deciphering the new standard.