Guidance on risk released
A new guide has been released by the Governance Institute of Australia outlining the importance of an integrated approach to risk management. It is designed to be a practical resource to assist Australian directors in any sector.
Risk management for directors: A guide revises its 2016 risk publication, addressing the challenges boards and directors can expect in coming years and how to address best some of the current ones.
It examines risks associated with digital technology, environmental, social and governance considerations, issues uncovered by the aged-care royal commission, and recovery from the pandemic.
It is intended to help boards to integrate their surveillance of governance and risk-management. This should assist organisations to achieve strategic foci by providing boards with the information they need and ensuring risk ownership by employees.
The guide covers:
- An integrated approach to risk management
- The regulatory environment
- Shareholder and member interest in board overseeing of risk management
- Distribution of responsibility
- Board committees — audits and risks
- Tools, processes, and improvements
- Non-financial and emerging risks, and
- When risk management fails.
The guide may be accessed at the institute’s website.
Audit committees need plans
The Institute of Internal Auditors in Australia has issued a timely Factsheet: Audit Committee Work Plan.
Work plans amount to what audit committees do over a period – usually a year.
Without one, an audit committee:
- Is operating in an ad hoc way and does not have a structured approach to its work
- Will not know if it has covered the range of governance and assurance activities required to do its job properly, and
- Will generally have its agenda determined by management – an audit committee should be setting its own agenda.
The guide can be accessed at the institute’s web site.
Adhering to governance standards
The Australian Charities and Not-for-profits Commission governance standards is a set of core principles dealing with how a charity should be run.
Charities must meet the standards to be registered and remain registered with the ACNC. The principles do not apply to basic religious charities.
They require charities to remain charitable, operate lawfully, and be run in an accountable and responsible way. They help to maintain public trust in charities.
The principles are high-level, not precise rules, and charities must determine what they need to do to comply with them.
|1 Purposes and not-for-profit nature
|A charity must be not-for-profit and work towards its charitable purpose.
It must be able to demonstrate this and provide information about its purposes to the public.
|2 Accountability to members
|A charity that has members must take reasonable steps to be accountable to its members and provide them with adequate opportunity to raise concerns about how the charity is governed.
|3 Compliance with Australian laws
|A charity must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty of 60 penalty units or more. The current value of a Commonwealth penalty unit is $222.
|4 Suitability of responsible people
|A charity must take reasonable steps to:
|5 Duties of responsible people
|A charity must take reasonable steps to make sure that its responsible people are subject to, understand, and carry out the duties set out in standard 5.
|6 Maintaining and enhancing public trust and confidence in the Australian not-for-profit sector
|A charity must take reasonable steps to become a participating non-government institution if the charity is, or is likely to be, identified as being involved in the abuse of a person either:
The ACNC’s self-evaluation tool aims to help charities assess if they are meeting their obligations. It also helps to identify issues that might prevent them from doing so.
It poses questions and prompts charities to describe both the practical steps they are taking to meet their obligations, and to list the relevant policies or procedures.
A charity that conducts activities overseas – including sending funds overseas from Australia – must also comply with external-conduct and governance standards.
Four external-conduct standards cover certain aspects of a charity’s overseas operations.
|1 Activities and control of resources (including funds)
|The way a charity manages its activities overseas and how it is required to control the finances and other resources it uses overseas.
|2 Annual review of overseas activities and record-keeping
|The requirements for a charity to obtain and keep sufficient records for its overseas activities.
|3 Anti-fraud and anti-corruption
|The requirements for a charity to have processes and procedures that work to combat fraud and corruption in its overseas operations.
|4 Protection of vulnerable individuals
|The requirement for a charity to protect the vulnerable people that it works with when conducting its overseas operations.
An ACNC self-evaluation tool for charities operating overseas aims to help charities assess if they are meeting their obligations and identify issues that might prevent them from doing so.
The tool poses questions and prompts charities to describe both the practical steps they are taking to meet their obligations.
Financial reporting insights
SD replaces RDR
The Australian Accounting Standards Board has developed a new simplified-disclosure standard to replace reduced-disclosure requirements.
AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities, a new simplified disclosure standard based on IFRS for Small and Medium-sized Entities, to replace the RDR. These simplified disclosure requirements are now collated in a single disclosure standard.
The 98-page AASB 1060 applies to reporting periods ending 30 June for the first time.
The standard sets out a separate disclosure standard to be applied by entities reporting under Tier 2 of the differential reporting framework in AASB 1053 Application of Tiers of Australian Accounting Standards.
Importantly, AASB 1060 does not change which entities are permitted to apply Tier 2 reporting requirements. Recognition and measurement requirements for Tier 2 are the same as for Tier 1.
Disclosures relevant to Tier 2 entities are set out in AASB 1060. Disclosure requirements in the body or appendix of other standards will no longer be shaded or unshaded in relation to Tier 2 requirements.
While entities that comply with this standard need to apply recognition and measurement requirements of other standards, they are exempt from disclosure requirements in specified paragraphs of other standards.
Tier 2 entities are also not required to comply with other standards that deal only with presentation and disclosure.
Charity thresholds change
Reporting and assurance thresholds will change in 2022 annual charity statements. For many charities, this will apply to the reporting period between 1 July last year and 30 June.
The table below compares old and new revenue thresholds for small, medium, and large charities.
|Size of charity
|Current revenue thresholds for the 2021 AIS
|Revenue thresholds from 1 July 2022
|Less than $250,000
|Less than $500,000
|Must complete only an AIS online
|$250,000 - $999,999
|$500,000 - $2,999,999
|Financial report can be either reviewed or audited
|$1 million or more
|$3 million or more
|Financial report must be audited
While thresholds have changed, the following should also be considered:
- Check governing documents to see if an audit is required. If an audit is required, then the changes to thresholds have no effect unless governance documents are amended
- If a review has become an option, consider whether this lower level of assurance provided by your auditor meets your needs and those of report users, and
- If a review is no longer required, consider how the lack of any firm assurance will affect your compliance obligations with governance standards and relationships with external stakeholders.
What is revenue?
Revenue determines reporting thresholds, and the ACNC has provided the following definition.
‘Revenue is a component of total income. A simple formula to help charities understand this is: Revenue + Other Income = Total Income.’
Revenue is realised from the sale of goods and services or through the use of capital and assets. Revenue can also arise from the contribution of an asset to a charity when certain conditions have been met during the charity’s ordinary activities.
Revenue is usually shown as the top line item in an income (profit and loss) statement.
Common examples for charities include:
- Grants from government, foundations, private and any other sources
- Donations, tithes, bequests, and legacies
- Fees for provision of services
- Sale of goods
- Inflows from fundraising activities and sponsorship
- Interest earned on investments and dividends
- Royalties and licence fees, and
- In-kind donations (for example, volunteer time and goods).