A change in accounting standards means not-for-profit bodies like schools, churches and charities may unwittingly be in breach of the Corporations Act.
The new standard takes effect from the end of the year. It requires not-for-profit entities that control funds in subsidiary bodies to produce a consolidated financial report. In its financial reporting, this means the organisation must now account for the activities and assets of its subsidiary.
Kimberley Carney, National Technical Senior Manager with Chartered Accounting and advisory firm William Buck, said that many not-for-profits were not aware of the change. Ms Carney also warned that many organisations might not even be aware they had control over funds in associated entities.
“If you are an entity than controls the use of funds of another entity then you would, generally speaking, have control and therefore you would consolidate. You would seek a single financial report that would combine all the activities and assets of both the parent entity and the subsidiary. You would amalgamate them,” she told Dynamic Business.
Ms Carney took the example of a school which controlled money placed into a subsidiary fund.
“At the moment, “control” is largely assessed on whether you have a direct ownership, for example, whether you own shares in an entity. Generally, a lot of these arrangements where you have one entity controlling another entity are set up where there is no ownership interest,” she said. “Under this changing model, even though there is no ownership interest, there is now control so the fund and the school will affectively amalgamate their interests.”
Ms Carney believes the new accounting standard, known as AASB 10, may affect nearly every school in Australia along with religious entities that have stakes in educational facilities. She encouraged those organisations that might be effected by the change to prepare sooner rather than later.
