May 26, 2025 Matthew Hung

New Tier 3 Reporting Framework for Not-for-Profits

The current financial reporting framework for not-for-profits allows entities to prepare  General Purpose and Special Purpose Financial Statements.

General Purpose Financial Statements comply with all the measurement and recognition requirements of the accounting standards but have two different levels of disclosure, as follows:

• Tier 1 – which indicates full compliance with disclosure requirements of the standards; and
• Tier 2 – which indicates compliance with a smaller number of the disclosure requirements and is usually referred to as Simplified Disclosure.

Special Purpose Financial Statements are prepared in accordance with self-determined accounting policies, consistent with the purpose of the accounts and to meet specific requirements or needs of particular users, such as the requirements of members or the Associations Incorporations Act 2012.   Special Purpose Financial Statements may, but do not have to, comply with all the Accounting Standards.

The ability to prepare Special Purpose Financial Statements is an option that will be removed for not-for-profit entities, meaning that entities will need to start preparing General Purpose Financial Statements.  This includes incorporated associations, not-for-profits reporting to ASIC, charities reporting to the ACNC, and non-charitable NFPs reporting to ASIC or state and territory regulators.

The transition from preparing Special Purpose reports to General Purpose reports can be significant, so to make it easier the Australian Accounting Standards Board (AASB) has been working on new recently released exposure drafts which cover the development of a new General Purpose Tier 3 set of requirements, specifically for Not-for-Profit entities.  This new Tier 3 set of requirements is expected to apply to medium sized entities, but may also be an option for larger entities as well.

The exposure drafts include a simplified treatment of Grant income, operating leases, donated non-financial assets, employee benefits, and consolidation.

The effective date for this change is expected to be at least three years from the date the standards are issued, so these changes are unlikely to be mandatory until periods beginning on or after 1 January 2029 with the option to early adopt.

The full standard and more detail is available here.