There has been a lot of changes – and by default, confusion – on General Purpose - Simplified Disclosures for the Not-For-Profit (NFP) industry, since the introduction of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.
One of the areas that created the most discussion was around disclosures of key management personnel (KMP) balances. To help bring some clarity, we’ve put together five key KMP disclosure matters NFP entities and external audit teams need to consider when compiling financial statements.
The first step in determining whether KMP disclosure is required, is to determine the size of the entity.
Exemptions to KMP disclosures are available to:
All large entities that prepare SPFS are required to disclose their aggregate KMP remuneration if they have two or more KMPs. However, large entities that prepare General Purpose Financial Statements (GPFS) are also required to disclose sub-categories. For example, long and short-term benefits, post employee benefits, etc.
The definition of ‘key management personnel’ per AASB 124 Related Party Disclosures (paragraph 9) and AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-profit and Not-for-profit Tier 2 Entities (paragraph 193) is, “the people with authority and responsibility for planning, directing and controlling the activities of an entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.”
Examples of KMPs are responsible people like Board, committee members and trustees or senior staff such as the Chief Executive Officer, Chief Financial Officer (CFO) and Chief Operating Officer. These are senior decision makers, not team leaders or operational managers.
Entities that use an external party or separate management entity (e.g. an accounting firm providing a CFO) are also required to disclose this fee in the KMP disclosure.
The following are examples of what is considered to be remuneration:
The Australian Charities and Not-for-profits Commission (ACNC) has advised that the Commissioner has exercised discretion to grant relief for charities preparing SPFS in accordance with the amended regulations for the first time regarding comparative information for any KMP disclosures. These entities will only need to provide the disclosures for the reporting period from the first year of adoption.
Whether Simplified Disclosures are really simpler depends on what you are comparing it to. Regardless, NFP entities need to be aware of the changes in order to apply them to their next financial report.
Financial statement preparation for NFPs is a complex area so it’s important to seek advice to help ensure you are complying with the relevant rules and legislation. Please speak to your adviser for assistance or get in touch with the Crowe External Audit team.