Application of new Standards
Accounting standards AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 12 Disclosure of Interests in Other Entities apply to not-for-profit entities for reporting periods beginning on or after 1 January 2014.
AASB 10 can change the identification of controlled entities; AASB 11 can change the accounting for joint arrangements; and AASB 12 includes changed disclosures on subsidiaries, associates, joint arrangements and unconsolidated structured entities. Entities should understand the potential effects of these Standards on their financial reporting.
AASB 1053 Application of Tiers of Australian Accounting Standards (Reduced Disclosure Regime or “RDR”) established a differential reporting framework for reporting entities. The Standard applies from 1 January 2014 although many entities had early adopted the RDR reporting framework in previous reporting periods. There are potential benefits of adopting RDR, including being able to state the accounts are general purpose financial statements while still avoiding many disclosures required by other accounting standards.
Impairment testing and asset values
In the current economic climate it is important to carefully consider the recoverability of assets including intangibles and property, plant and equipment. It is important to ensure:
- Cash flows used are matched to carrying values of all assets that generate those cash flows, including inventories and receivables; and
- Cash flows and assumptions are reasonable having regard to matters such as historical cash flows, how an entity is funded, and market conditions. Significant variances between prior period cash flow projections and actual results may raise doubt whether assumptions are reasonable and supportable.
Where depreciated replacement cost is used as a means for determining recoverable amount it is important that appropriate adjustment is made to a replacement cost to reflect the remaining useful life of the asset.
Expense deferral
The ‘matching’ concept disappeared from the accounting framework in 2005. Expenses can only be deferred and recognised as an asset where permitted by Accounting Standards. Expenditure on training, relocation costs and some intangibles are not permitted to be recognised as assets.
Current vs non-current liabilities
Directors should carefully review and understand the terms of finance facilities and covenants to ensure that liabilities are correctly classified as either current or non-current.
ACNC obligations
Organisations registered with the Australian Charities and Not-for-profits Commission (ACNC) have six months to file their Annual Information Statement (AIS), so those with a 31 December year end should have filed their 2013 AIS by 30 June 2014. Charities that have missed their reporting deadline should receive final reminders prior to any penalties being applied. If charities fail to lodge their return they could be liable to a penalty and may lose their tax concessions.
Martin Olde, Nexia Australia and NZ Accounting and Audit Technical Director
