Charity reporting regime – not a level playing field

Monday, October 23, 2017

Australian charities are burdened with a financial reporting regime that’s overly complex and inconsistent and which fails to promote the sector’s accountability or efficiency, according to research undertaken by the Australian Accounting Standards Board (AASB).

Australian charities make up a significant sector of Australia’s society and economy, with net assets of more than $180 billion and income of $134 billion. 

In 2012, the Australian Charities and Not-for-profits Commission (ACNC) was set up to promote the reduction of unnecessary regulatory obligations on the sector. While the ACNC has succeeded in harmonising financial reporting across some states and territories, the AASB contends that the underlying issue relates to the reporting framework within which charities are required to lodge. 

In reviewing charities’ financial reporting requirements in Australia, New Zealand, United Kingdom, Hong Kong, Singapore, South Africa and Canada, AASB’s research found Australia has the most complex regulatory environment for charities.

“Australian charities are covered by at least 18 sets of regulation and ten regulators at federal and state level, with many charities having to answer to more than one regulator,” said AASB Chair Kris Peach. “Very little of that regulation is consistent and much of it involves different reporting thresholds and requirements.”

“There is no level playing field for charities,” said Ms Peach. “Like charities have to produce different reports depending on their location, entity type and historic reporting choices. As a result, reports are unnecessarily complex and potentially irrelevant to donors and other stakeholders.”

As well as having the most complex regulatory environment, Australia is the only jurisdiction that requires charities to ‘self-assess’ as to whether they need to produce full financial reports or ‘special purpose’ financial reports. If they opt for special purpose reports, the information required in those reports varies depending on which regulations apply.

“The community isn’t getting clear and comparable financial information, and charities are having to spend time and money navigating a maze of onerous and inconsistent requirements,” Ms Peach said.

Undertaken with the Auditing and Assurance Standards Board, this research is the first part of an AASB project aiming to achieve clear, objective and comparable Australian charity sector financial reports.

“Financial reporting requirements must balance the objectives of improving trust and transparency with the preparers’ costs and be easy to implement”, said Ms Peach.

A consultation paper will be released later this month to encourage discussion within the charity sector. This, coupled with outreach, in conjunction with the ACNC and state regulators is designed to inform stakeholders who will feed into the ACNC legislative review, starting in December this year.

“This is a tremendous opportunity for all charity stakeholders to have their say on how to improve financial reporting in their sector. I encourage everyone to get involved,” said Ms Peach.

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