The Australian Accounting Standards Board (AASB) has confirmed new disclosure requirements for non-profit organisations preparing Special Purpose Financial Statements (SPFS). New requirements will apply to financial years ending on or after 30 June 2020. This will affect your audit if you report Special Purpose.
How do I know if my organisation is reporting Special Purpose?
Your audit report will either be prepared Special Purpose or General Purpose (including General Purpose under the reduced disclosures regime or RDR). Your report should name the basis of preparation in Note 1 (the start of the wordy bit).
What’s the difference between Special Purpose and General Purpose?
General Purpose is the highest standard of reporting. Essentially the organisations that adopt General Purpose apply all the accounting standards in the presentation of the audit report.
With Special Purpose, a subset of key accounting standards are complied with in the audit. However, not all accounting or presentation standards must be applied. Special Purpose audit reports are often shorter in length, with less disclosure (explanatory) notes.
There are guidelines for who can report General Purpose, and who can report Special Purpose. For larger orgs, with a broad cross section of potential readers of the financial statements, the expectation is for the org to report General Purpose. For orgs with small constituencies, there is an option to prepare the audit as Special Purpose.
What are the changes and why are they occurring?
An entity that reports Special Purpose will need to make new disclosures that aim to provide clarity around compliance with the recognition and measurement standards for assets and liabilities.
There have been changes upstream in the international reporting standards with which Australia complies. These changes tighten the reporting standards for Special Purpose, reducing some of the current flexibility to bring Special Purpose more in line with General Purpose.
Does this impact you?
Orgs will need to make new disclosures about compliance with the recognition and measurement requirements if they are:
- a charity registered with the ACNC with an annual revenue of $250,000 or more, and they prepare Special Purpose
- an NFP lodging Special Purpose with ASIC under the Corporations Act 2001 (for example companies limited by guarantee)
What do you need to do?
A high level summary has been prepared by the AASB to help understand the new requirements. If you are affected by the changes, from 30 June 2020 your Special Purpose report will need to disclose:
- why the decision was made to prepare Special Purpose
- for each accounting policy that does not comply with the general purpose standards, an indication of where it does not comply or that the assessment has not been made
- the overall compliance of your Special Purpose accounts with the recognition and measurement requirements
We have worked with one organisation to early-adopt the new disclosure requirements. Through conversations involving us, the auditor, and the Board, we reached a shared understanding of the new requirements and drafted the disclosures into the audit report. For other organisations this might be a time to consider whether Special Purpose reporting is for them.