REPORTING STANDARDS AND DISCLOSURES IN THE NOT-FOR-PROFIT (NFP) SECTOR

Transcription

1 REPORTING STANDARDS AND DISCLOSURES IN THE NOT-FOR-PROFIT (NFP) SECTOR EXTRACT CPA Australia Ltd

2 CONTENTS Course overview 1 Learning objectives 1 Course content 1 Knowledge assessment 2 Symbols 2 Australian Accounting Standards 3 1. Australian reporting framework Reporting entity concept Impact of reporting entity decision 5 2. AASB 1053 Application of Tiers of Australian Accounting Standards 6 3. AASB 101 Presentation of Financial Statements Fundamental concepts for preparing financial statements Components of a complete set of financial statements Statement of profit or loss and other comprehensive income Presentation of Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of financial position Statement of cash flows Notes to the accounts Requirement for a third Statement of financial position AASB 1054 Australian Additional Disclosures AASB 107 Statement of Cash Flows Main features Cash and cash equivalents Classification of cash flows Disclosure requirements Reconciliations The Statement of cash flows and GST AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors Accounting policies Changes in accounting policies Mandatory change of accounting policy Voluntary change of accounting policy Changes in accounting estimates Errors Standards issued but not yet effective AASB 13 Fair Value Measurement Scope Fair value Determining fair value Fair value hierarchy 30 2 CPA Australia Ltd 2016

3 7.5 Highest and best use non-financial assets Disclosures overall objective AASB 102 Inventories Introduction Exclusions Inventory held for sale Inventory held for distribution Initial recognition of inventory Determining the cost of inventory Costs of purchase Other costs Excluded costs When is inventory on hand? Valuation of inventory Net realisable value Disclosure requirements Assets acquired at nil or nominal consideration AASB 140 Investment Property Initial recognition of an investment property Measurement after recognition Accounting for changes in fair value Disposal of investment properties AASB 116 Property, Plant and Equipment Introduction Exclusions Initial recognition of property, plant and equipment Subsequent costs (capitalise v expense) Measurement after recognition The cost model The revaluation model Revaluation of each asset Depreciation, residual amount and useful life Depreciation methods Gain or loss on disposal of assets Disclosure requirements AASB 138 Intangible Assets Key features AASB 136 Impairment of Assets Introduction Exclusions Testing for impairment impairment indicators Concept of recoverable amount under AASB What is a cash-generating unit? Allocation of the impairment loss Goodwill and intangible assets Reversal of impairment losses Disclosure requirements Impairment considerations 58 CPA Australia Ltd

4 13. AASB 123 Borrowing Costs When can borrowing costs be capitalised? Borrowing costs eligible for capitalisation Specific borrowing costs General borrowing costs Cessation of capitalisation Disclosure requirements AASB 5 Current Assets Held for Sale and Discontinued Operations Introduction Exclusions What is a non-current asset held for sale? Available for immediate sale Highly probable Timing of the sale Measurement of assets held for sale Disclosure requirements: assets held for sale Discontinued operations Disclosure requirements: discontinuing operations AASB 118 Revenue Introduction Exclusions Measurement of revenue Recognition of revenue sale of goods Recognition of revenue rendering of services Recognition of revenue interest, royalties and dividends Disclosure requirements AASB 1004 Contributions Requirements AASB 117 Leases Introduction Exclusions What is a lease? The risks and rewards of asset ownership Classification of leases How to apply the guidelines Economic substance override Accounting for leases in the books of the lessee Finance lease Operating lease lessee Disclosure requirements for lessees AASB 119 Employee Benefits Types of employee benefits Short-term employee benefits Salaries and wages Annual leave Sick leave Vesting sick leave Non-vesting sick leave 80 4 CPA Australia Ltd 2016

5 Profit sharing and bonuses Non-monetary benefits Long-term employee benefits Long service leave Other long-term benefits Termination (redundancy) payments Post-employment benefits Disclosure and presentation requirements AASB 137 Provisions, Contingent Liabilities and Contingent Assets Introduction Exclusions Provisions Provisions: recognition Provisions: measurement Contingent liabilities Contingent assets Restructuring costs Criteria Costs included in the provision Disclosure requirements Financial Instruments AASB 132 Financial Instruments: Presentation AASB 139 Financial Instruments: Recognition and Measurement AASB 7 Financial Instruments: Disclosures AASB 124 Related Party Disclosures Importance of related party disclosures Who is a related party? Exclusions from related parties Related party transactions Compensation of key management personnel Who are key management personnel? What is compensation? How should compensation be measured? AASB 110 Events After the Reporting Period Types of events after the reporting date Adjustable event Non-adjustable event Going concern 102 Self-assessment 104 Glossary 106 Suggested answers 111 Activities 111 Self-assessment 118 CPA Australia Ltd

6 1. AUSTRALIAN REPORTING FRAMEWORK 1.1 REPORTING ENTITY CONCEPT DEFINITION Statement of Accounting Concepts SAC 1 defines a reporting entity as: An entity in respect of which: it is reasonable to expect the existence of users who rely on the entity s general purpose financial report for information that will be useful to them for making and evaluating the decisions about the allocation of scarce resources. This requires consideration of: the level of separation of management from owners; economic or political importance/influence; and financial characteristics. The identification of reporting entities is therefore linked to the information needs of users. If users are dependent on the entity to prepare general purpose financial reports in order to make decisions about the allocation of scarce resources (for example, investment, lending or supply of goods or services), then the entity would be considered a reporting entity. However, if all users are able to command from the entity financial information that is specifically tailored to their individual needs, then the entity would not be considered a reporting entity. Some potential users of financial reports are listed below and entities should consider their existence as well as their requirements. Financial institutions. Suppliers. Customers. Employees. Government agencies. Trade unions. Financial institutions may be the main external users of the entity s financial reports and the majority of loan agreements state that financial reports should be prepared in accordance with Australian Accounting Standards. This would normally mean a general purpose financial report, however many financial institutions are happy if all of the recognition and measurement criteria of the standards have been complied with, meaning that entities may be able to exclude the disclosure requirements of certain standards (for example, related parties and financial instruments). Many financial institutions are looking at the process for obtaining financial reports and their content, and it is recommended that an entity speak to its banks to determine whether they are happy with the current format of the financial report. Note that if the users are able to demand financial information relevant to them then they may not need general purpose financial reports. The standards covered within this course will still form the framework for the financial statements of non-reporting entities, since there are no other standards in place. This course also covers disclosure requirements, which a non-reporting entity can choose to opt out of. It is therefore appropriate that you know the content to know whether or not to apply the standard to a given entity. 6 CPA Australia Ltd 2016

7 1.2 IMPACT OF REPORTING ENTITY DECISION Reporting entities are required to prepare general purpose financial statements. This means that each element of the accounting standards should be complied with, i.e. recognition, measurement and disclosures. A special purpose financial report can be compiled by non-reporting entities. The definition of a special purpose financial report is a financial report which does not comply with at least one element of an accounting standard in the financial statements. ASIC produced Regulatory Guide RG 85 in July 2005 Reporting Requirements for Non-Reporting Entities that confirmed that non-reporting entities should apply all of the recognition and measurement requirements of the accounting standards. This means that the numbers included in the primary statements in the financial report comply with Accounting Standards. The guide is available from the ASIC website at: < It is only in the area of disclosures that some exemptions from the requirements of the standards should be taken. At a minimum, the ASIC mandatory standards include: AASB 101 Presentation of Financial Statements/AASB 1054 Additional Australian Disclosures. AASB 107 Cash Flow Statements. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. AASB 1048 Interpretation and Application of Standards. ASIC stresses the need for directors to consider whether the disclosure requirements of other Standards may be necessary in order to give a true and fair view. Such disclosures may include certain significant related party and financial instrument transactions. The financial statements must set out clearly the extent to which Accounting Standards and Accounting Interpretations have, or have not, been complied with. This would normally be included in Note 1 to the financial statements. TIP Reporting/non-reporting determination summary A reporting entity is an entity in respect of which: it is reasonable to expect the existence of users who rely on the entity s general purpose financial report for information that will be useful to them for making and evaluating the decisions about the allocation of scarce resources. Examples of users could include: Employees; Suppliers; Financial institutions; Donors; or Government agencies. Reporting entities are required to prepare general purpose financial reports in compliance with all Australian Accounting Standards. Non-reporting entities may prepare special purpose financial reports which comply, at a minimum, with: AASB 101 Presentation of Financial Statements/AASB 1054 Additional Australian Disclosures. AASB 107 Cash Flow Statements. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. AASB 1048 Interpretation and Application of Standards. ASIC guidance expects all recognition and measurement criteria in the Accounting Standards to be complied with. CPA Australia Ltd

8 2. AASB 1053 APPLICATION OF TIERS OF AUSTRALIAN ACCOUNTING STANDARDS Reduced Disclosure Requirements establishes a differential financial reporting framework consisting of two tiers of general purpose financial statements: a) Tier 1: Australian Accounting Standards; and b) Tier 2: Australian Accounting Standards Reduced Disclosure Requirements. The entities in each tier are shown below. Tier 1 entities For-profit private sector entities who are publicly accountable. The Australian Government and State, Territory and Local Governments. Tier 2 entities For-profit private sector entities who are not publicly accountable. Not-for-profit private sector entities. Public sector entities except those in Tier 1. The following entities apply Tier 1 requirements in preparing general purpose financial statements: a) for-profit entities in the private sector that have public accountability (as defined in this Standard); and b) the Australian Government and State, Territory and Local Governments; c) subject to AASB 1049, General Government Sectors (GGSs) of the Australian Government and State and Territory Governments. The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements the choice is at the entity level: a) for-profit private sector entities that do not have public accountability; b) all not-for-profit private sector entities; and c) public sector entities other than the Australian Government and State, Territory and Local Governments. Whilst Tier 2 requirements would be available to all not-for-profit private sector entities and most public sector entities, regulators might exercise a power to require the application of Tier 1 requirements by the entities they regulate. Tier 1 incorporates International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and includes requirements that are specific to Australian entities. Tier 2 comprises the recognition and measurement requirements of Tier 1, but substantially reduced disclosure requirements. Except for the presentation of a third Statement of financial position under Tier 1, the presentation requirements under Tier 1 and Tier 2 are the same. Each Australian Accounting Standard specifies the entities to which it applies and, where necessary, sets out disclosure requirements from which Tier 2 entities are exempt. Disclosures under Tier 2 reporting requirements are the minimum disclosures required to be included in general purpose financial statements. Entities may include additional disclosures using Tier 1 reporting requirements as a guide if, in their judgement, such additional disclosures are consistent with the objective of general purpose financial statements. 8 CPA Australia Ltd 2016

9 Consistent with the IASB s approach in the IFRS for SMEs, the AASB concluded that users of general purpose financial statements of non-publicly accountable for-profit entities are particularly interested in information about: a) short-term cash flows and obligations, commitments or contingencies, whether or not recognised as liabilities; b) liquidity and solvency; c) measurement uncertainties; d) the entity s accounting policy choices; e) disaggregations of amounts presented in the financial statements; and f) transactions and other events and conditions encountered by such entities. IFRS for SMEs is used as a basis for determining which disclosures may be removed. The disclosures which are not required to be included by entities applying the Reduced Disclosure Requirements are shown by shading the relevant disclosure in the Australian Accounting Standard Examples of removed disclosures include: The impact of standards issued not yet effective. Most financial instrument risk disclosures. Most Australian specific disclosures (for example, audit fees). Fair value disclosures. The requirement to present a third Statement of financial position. TIP Not-for-profit entities currently preparing general purpose financial statements are strongly encouraged to consider whether preparing financial statements using the Reduced Disclosure Requirements is appropriate for them as, in most cases, the financial statements will be more meaningful to the users. CPA Australia Ltd