An Exposure Draft (ED 212 Not-for-Profits in the General Government Sector) aims at improving the financial reporting of not-for-profit entities (NFPs) within the General Government Sector (GGS).
We provide a synopsis of a number of proposed changes to financial reporting which will affect public sector entities.
Improving financial reporting for not-for-profit entities
An Exposure Draft (ED 212 Not-for-Profits in the General Government Sector)aims at improving the financial reporting of not-for-profit entities (NFPs) within the General Government Sector (GGS).
The ED limits certain recognition and measurement options to align with Australian Bureau of Statistics (ABS) Government Finance Statistics (GFS) and requires additional disclosures, rather than full disclosure of GAAP/GFS harmonised information, as was previously proposed by the Australian Accounting Standards Board (AASB) in 2009.
Key proposals are:
- The standard will only apply to not-for-profit (NFP) budget dependent government departments, statutory authorities and other NFPs within the GGS. It will not apply to universities, local governments, or for profit public corporations.
- Where Australian Accounting Standards allow options for recognition and measurement, in scope GGS entities will need to apply the option that aligns with the ABS GFS Manual.
- In scope entities will need to either classify and present information on the face statements that is consistent with GAAP/GFS, or include such information in the notes.
- GAAP/GFS information will be presented for both controlled and administered items.
- Disclosure of the original budgets to the extent that information is presented to Parliament together with explanation of variances to the actual accounts.
While the proposals are intended to improve the comparability of financial statements of GGS entities, the key implication of their adoption is that affected agencies will need to gain practical knowledge of the GFS Manual in order to be able to apply the proposals. Additional costs may be incurred in aligning accounting policies with GFS. Comments to the AASB were due by 31 October 2011.
Not for profit exemption from providing related party disclosures to be removed
NFP public sector entities are currently exempt from providing related party disclosures under AASB 124. An Exposure Draft (ED 214 Extending Related Party Disclosures to the Not-For-Profit Public Sector) proposes to delete this paragraph thereby requiring NFP public sector entities to apply AASB 124, consistent with for-profit entities.
This would mean that affected entities would need to provide disclosures related to their Key Management Personnel (KMP) and the abridged related party disclosures required for government related entities under AASB 124.25-27.
Most Treasuries already mandate a form of the KMP disclosures (often by pay bands), for entities within their jurisdiction, therefore the requirement to apply KMP disclosures may not be too onerous. Nonetheless, the related party disclosures could prove more problematic in terms of information gathering and presentation, although they can be presented in summarised form. Comments to the AASB are due by 31 January 2011.
New accounting standards
The Australian Accounting Standards Board (AASB) has also recently issued the following new accounting standards:
- AASB 10 Consolidated Financial Statements
- AASB 11 Joint Arrangements
- AASB 12 Disclosure of Interests in Other Entities
- AASB 13 Fair Value Measurement
AASB 10, 11, and 12 apply for reporting periods beginning on or after 1 January 2013. Early adoption of these standards has been disallowed for NFP entities (both in the public and private sector). The reason for this is that the AASB has identified that specific ‘control’ issues in the NFP sector need to be further addressed and guidance included in the Standards before they can be appropriately applied by NFPs.
The issues which are currently being considered by the AASB include the pervasive authority of governments, regulatory power, returns versus benefits, indicators of control and protective rights.
AASB 13 Fair Value Measurement applies to reporting periods beginning on or after 1 January 2013 with early adoption permitted. AASB 13 applies (with limited exceptions) when another standard requires or permits fair value measurements or disclosures about fair value.
The core principle of the standard is that fair value is a market based not an entity based measurement. Therefore, the objective of fair value is to determine an exit price for an asset or liability in an orderly market.
We will provide further details on the requirements of this new Standard and its implications for the public sector in future publications.
Amended accounting standard – AASB 119 Employee Benefits
The AASB has recently made amendments to AASB 119 Employee Benefits. The standard is effective for financial reporting periods beginning on or after 1 January 2013. The changes will impact public sector entities with defined benefit plans and entities with significant annual leave balances.
Further details on the requirements of this new Standard and its implications for the public sector will be provided in future publications.
For more information on these changes to accounting standards, please contact Lynda Tomkins on firstname.lastname@example.org.