Financial reporting requirements for charities are more strictly regulated now than ever before. In 2012 the Federal Government created the Australian Charities and Not-for-profits Commission (ACNC) under the Australian Charities and Not-for-profits Commission Act 2012 to provide nationwide uniform regulation and scrutiny of the charity and not-for-profit sector.
For a period of time after the introduction of the ACNC, reduced reporting standards were acceptable. This grace period was intended to allow charities time to adjust to their new obligations. The transitional period has now concluded and charities must be aware of and comply with the full extent of their duty to report to the ACNC.
Reporting requirements apply to all charities registered with the ACNC. Registration is not compulsory, but access to benefits, such as tax concessions, is conditional upon registration. The intent of the legislation is that all eligible charities will register.
Under the reporting laws, charities are divided into 3 groups according to size:
- Small – revenue less than $250,000;
- Medium – revenue $250,000 or above, but less than $1,000,000; and
- Large – revenue $1,000,000 or above.
Annual Information Statements
All charities, regardless of size, are required to submit an Annual Information Statement (AIS) to the ACNC. The easiest way to lodge an AIS is through the ACNC website. The online form will only prompt registered entities to provide information that is required of them, taking into account their registration details. This lessens the need to be familiar with the particular content requirements that may apply to different entities. An AIS must be submitted by 31 December of the financial year following the financial year to which the AIS relates.
Annual Financial Reports
The other core reporting requirement is to provide an Annual Financial Report (AFR). Unlike the AIS, only medium and large charities are required to provide an AFR. The content requirements for reports are based on prescribed Australian Accounting Standards. In this respect, there is no distinction made between medium or large charities per se. The accounting standards require financial reports to include a statement of cash flows and detailed accounting policy notes that describe the basis on which reports were prepared.
Audits and Reviews
Large charities are further required to subject their AFRs to an external audit, whereas medium charities are entitled to choose between an external audit and an external review. The requirements for audits and reviews are specified in legislation along with the requirements that an auditor or reviewer’s report must be provided to the ACNC, together with the financial report itself. An AIS does not need to be reviewed or audited.
Registered entities can apply to the ACNC for a substituted accounting period, which allows for reporting based on a timeline which does not conform to the standard financial year. This does not alter the essential nature of reporting requirements, but may provide helpful flexibility in some circumstances.
This is only an outline of the reporting requirements for charities. For example, there are other factors which may affect the application of certain Accounting Standards to mandatory financial reporting.
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