ACNC publishes guidance for disclosing key management personnel remuneration and related party disclosures

In our October 2021 newsletter, we highlighted the Government’s proposal to amend the Australian Charities and Not-for-profits Commission Regulation 2013 (Regulations) to:

Increase the reporting thresholds for charities having to prepare financial reports for the Australian Charities and Not-for-profits Commission (ACNC)
Require related party disclosures for all medium and large charities preparing special purpose financial statements (SPFS) for years ending 30 June 2023 or later
Require disclosure by large charities of aggregate key management personnel (KMP) compensation if they have two or more KMPs (for years ending 30 June 2022 or later).

While these proposals were approved and the relevant Regulations updated in November 2021, it has taken some time to digest their full implications because the drafting of the final Regulation is quite different to the original exposure draft. It introduces the possibility of disclosures in special purpose financial statements following Simplified Disclosures contained in AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities rather than the five (now six) mandatory accounting standards listed in Regulation 60.30(2).

This article highlights recent ACNC guidance published by the ACNC on the topic and summarises the implications of the amended Regulations.

Increased revenue thresholds for determining financial reporting obligations at 30 June 2022

There has been a substantial increase in revenue thresholds used to determine a charity’s size (refer amended Regulation 205.1). The table below compares the old and new revenue thresholds for determining whether a charity is small, medium, or large for financial reporting purposes, and whether an audit or review is required.

Size of charity	Old revenue thresholds	New revenue thresholds for 30 June 2022 and later years	Audit/review requirement
Small	Less than $250,000	Less than $500,000	None
Medium	$250,000 to $1 million	$500,000 to $3 million	Review or audit
Large	Greater than $1 million	Greater than $3 million	Audit

Large charities preparing SPFS to disclose aggregate KMP compensation at 30 June 2022 if they have two or more KMPs

Large charities should note they must disclose aggregate KMP compensation for 30 June 2022 years or later (2022 Annual Information Statement) if they have two or more KMPs.

Recent ACNC KMP remuneration guidance explains:

What is considered remuneration/compensation (these terms are used interchangeably and intended to mean the same thing)
What is a ‘management entity’, and the fact remuneration/compensation includes KMP services provided by a management entity
That SPFS of large charities with two or more KMPs must disclose, as a minimum, the aggregate KMP remuneration/compensation.

The ACNC Commissioner has exercised discretion to allow charities preparing SPFS applying AASB 124 in full to disclose only the aggregate remuneration/compensation, and not all the sub-categories such as short-term benefits, post-employment benefits, long-term benefits, etc.

The ACNC KMP remuneration guidance also includes an example case study under four different scenarios to illustrate the required KMP compensation disclosure.

Large charities disclosing KMP compensation for 30 June 2022 can choose to prepare their SPFS using Simplified Disclosures instead of the mandatory standards listed in Regulation 60.30(2). Refer below for more information.

Are comparatives required for KMP compensation disclosures?

No. Large charities preparing SPFS and disclosing KMP compensation for the first time at 30 June 2022 (whether under AASB 124 or Simplified Disclosures) will not need to provide comparative information for KMP compensation. This is because the ACNC Commissioner has exercised discretion to all such charities applying AASB 124 (or relevant Simplified Disclosures) for the first time in their 30 June 2022 financial statements.

Related party disclosures required by all charities preparing SPFS for 30 June 2023

Amended Regulation 60.30(2) adds AASB 124 Related Party Disclosures to the list of mandatory standards required for SPFS. Charities preparing SPFS for years ending 30 June 2023 or later must therefore comply with all the full presentation and disclosure requirements contained in the mandatory standards listed in Regulation 60.30(2), and shown below:

AASB 101 Presentation of Financial Statements
AASB 107 Statement of Cash Flows
AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors
AASB 124 Related Party Disclosures
AASB 1048 Interpretation of Standards
AASB 1054 Australian Additional Disclosures.

Alternatively, they could choose to apply new Regulation 60.30(2A) which permits relevant disclosures from AASB 1060 (Simplified Disclosures) rather than the full presentation and disclosure requirements of the standards listed above.

Simplified Disclosures

If Simplified Disclosures are applied instead of the mandatory standards, the following paragraphs from AASB 1060 must be disclosed:

Mandatory standard	Relevant disclosure paragraphs from AASB 1060 (Simplified Disclosures)
AASB 101	AASB 1060, paragraph 8 AASB 1060, paragraph 11 AASB 1060, paragraphs 14 to 63 (a single Statement of Income and Retained Income is permitted in certain circumstances) AASB 1060, paragraphs 90 to 103
AASB 107	AASB 1060, paragraphs 64 to 89
AASB 108	AASB 1060, paragraphs 106 to 110
AASB 124	AASB 1060, paragraphs 189 to 203

In addition, if applying Simplified Disclosures, Regulation 60.30(2A)(d) also requires the following AASB 1054 disclosures:

That the financial statements are SPFS (paragraph 9)
Not-for-profit private sector entities – Information about the extent of compliance with the recognition and measurement requirements of Australian Accounting Standards (paragraph 9A-9B)
IFRS standards not yet issued in Australia (paragraph 17).

The implications of this are:

Audit fee and imputation credit disclosure is not separately listed as a required AASB 1054 disclosure because they form part of the relevant AASB 1060 disclosure shown in the table above
Reconciliation of cash flows is no longer required because AASB 1060 has no equivalent disclosure
Disclosure of accounting standards issued not yet effective is not required for Simplified Disclosures.

Please refer to the recent ACNC guidance that discusses the Simplified Disclosure alternative in more detail. Applying Simplified Disclosures results in an interesting ‘Basis of Preparation note’ (refer below), as extracted from the ACNC guidance.

‘This financial report is a special purpose financial report prepared in accordance with the disclosure requirements of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities to the extent applicable as required by the ACNC Regulation 2013.’

Extracted from ACNC Guidance, see FAQ ‘Can charities preparing special purpose financial reports apply the simplified disclosure requirements in AASB 1060?’

Are comparatives required for related party disclosures?

No. Charities preparing SPFS and disclosing related party information (whether under AASB 124 or Simplified Disclosures) for the first time at 30 June 2023 will not need to provide comparative information for related party disclosures. This is because the ACNC Commissioner has exercised discretion to all such charities applying AASB 124 (or relevant Simplified Disclosures) for the first time in their 30 June 2023 financial statements.

Need assistance with your related party and KMP disclosures?

Many charities may find it difficult to identify their related parties and KMPs and prepare these disclosures for the first time. Please contact BDO’s IFRS & Corporate Reporting team if you require assistance.