Driving reform in the NFP landscape

Author: Ram Subramanian, Senior Manager of Reporting and Audit Policy, CPA Australia.

While CPA Australia welcomes the regulatory road becoming less bumpy for NFPs, more work is needed, writes Ram Subramanian.

Australia’s not-for-profit regulatory landscape has historically been a pot-holed road of rules and requirements. These rough pathways have made it difficult for not-for-profits to navigate and operate smoothly. But finally, we’re seeing the signposts being erected and the traffic cones laid out.

Part-catalyst and part-instigator, the Australian Charities and Not-for-profits Commission (ACNC) appears to have shaken off its challenging early days to emerge as the lynchpin of this much needed reform process.

States step forward

We must give credit to state and territory governments for having listened and responded to the urgent calls for national regulatory reform. We now have Australia-wide agreement that something must be done to fix up the regulatory landscape. There is an obvious need for a nationally consistent and fit-for-purpose regulatory regime that better enables the not-for-profit (NFP) sector to go about its work while remaining accountable.

The Queensland Government’s consultation on proposals to streamline incorporated association and fundraising laws is the most recent positive development on this front. These proposals are the latest iteration in the NFP reform initiative undertaken by the Queensland Government. The first step, which is already in place, reduced regulatory duplication for Queensland NFPs that are also charities registered with the ACNC.

These latest proposals now seek to extend the reforms to Queensland incorporated associations and fundraisers that are not ACNC registered charities. This includes an option to align thresholds for financial reporting with those required of charities registered with the ACNC.

These are positive steps to help bring statutory reporting by Queensland incorporated associations and fundraisers into line with other reporting regimes in Australia. However, as with any major reform process, there are some kinks that need straightening out.

Kinks to be straightened

One such kink in the Queensland proposals is the need for alignment with the ACNC’s requirements for the disclosure of remuneration and related party transactions.

The latest Queensland proposals, if introduced, will mean that all incorporated associations will need to disclose specified remuneration disclosures at the Annual General Meeting. In our view, this is an unnecessary impost on all NFPs. The ACNC’s approach only requires large charities to make such disclosures.

In our submission responding to the Queensland consultation, we suggest that remuneration and related party transaction disclosures be aligned to the ACNC disclosure requirements.  Not only will this avoid ACNC registered charities having to provide two sets of information, but it will also lead to cost-savings for other resource-poor smaller NFPs.

Requiring smaller NFPs to disclose the proposed details will be a burden. Right now, many NFPs are already struggling to attract the necessary donations and volunteer support to meet the demand for their services.

Link to Australian Accounting Standards

Many current Australian statutory financial reporting requirements state the need for compliance with Australian Accounting Standards (AAS), which is an important piece missing from the Queensland NFP reforms.

The AAS provide a standardised financial reporting framework that adds credibility to the information provided by not-for-profits, demonstrating accountability and stewardship to stakeholders. It helps build trust within the community.

A differential reporting regime that only requires remuneration and related party transaction disclosures based on the AAS will ensure that an ideal cost/benefit balance is achieved. That is, larger not-for-profits will be required to prepare standardised information that is consistent and comparable but smaller organisations will be relieved from this regulatory burden.

Standardisation can also benefit the audit process. It gives auditors more confidence in the financial information they are reviewing and providing an opinion as to whether that information is “true and fair”.

Referencing the AAS for financial reporting requirements has yet another benefit. The Australian Accounting Standards Board is currently undertaking a project to develop a fit-for-purpose financial reporting framework for NFPs. This includes development of a new simplified accounting standard suitable for smaller not-for-profits.

Consultation on this standard is currently underway, which aims to significantly simplify many accounting requirements, including those relating to revenue, consolidation, leasing and fair value accounting. These have all typically been challenging areas of accounting for many NFPs.

Constructing a new regulatory road

The Queensland Government’s commendable efforts to align state requirements with nationally consistent reporting requirements require a few tweaks to transform it into a truly modern regulatory framework. One that encourages community organisations to flourish and allows them to focus on providing valuable support and services whilst remaining accountable to regulators and stakeholders.

We’re excited to see the regulatory road become more even more passable for NFPs including charities, but we know more work is needed.