As part of the consultation undertaken in relation to its standard-setting frameworks in 2017, the Australian Accounting Standards Board (AASB) asked for specific feedback regarding the definition of a “not-for-profit entity”, and whether there was sufficient guidance on how to distinguish entities as for-profit (FP) entities and not-for-profit (NFP) entities.
The majority of respondents supported retaining the term “not-for-profit entity”, but requested more guidance from the AASB in determining whether an entity is a FP or NFP entity under the accounting standards. Respondents also supported using the New Zealand Accounting Standards Board’s (NZASB’s) updated definition of “public benefit entity” (PBE) because it gives greater focus on what an NFP is, rather than what it is not.
In June 2019, the AASB released Exposure Draft (ED) 291 Not-For-Profit Entity Definition and Guidance which proposes to amend the definition of not-for-profit entity in Australian Accounting Standards. The ED is open for comment until 9 September 2019. Interested parties are encouraged to make submissions to the ED.
It would be prudent for entities to assess the application of the proposed change to the definition of an NFP entity to their circumstances sooner rather than later.
A suggested approach would be:
- entities currently classified as NFP entities should assess and understand why they are classified as such and identify the NFP reliefs they are currently entitled to under Australian Accounting Standards; and
- position papers should be prepared which document the assessment as an NFP or FP entity using the indicators and related guidance in the ED.
If it is concluded that the classification of the entity or group will change, entities should:
- consider and document the material impacts on their financial reports; and
- consider the amendments to their accounting policies which may be required.
Position papers should be presented to audit committees or boards, so they are across the changes and any potential material impacts.
To view the ProBono article in full, click here.
To register for the AASB webinar of ED 291 on Tuesday 27 August, click here.