The Amending Standard, AASB 2013-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-profit Entities – Control and Structured Entities, follows an earlier exposure draft which was issued in March 2013. The amendments do not replace or revise the existing terminology, or amend or deviate from principles in AASB 10 and AASB 12, but seek to explain how not-for-profit entities can apply their concepts.

The main requirements include:

• Introduction of a new integral appendix to AASB 10, which applies only to not-for-profit entities and explains various principles regarding the criteria for determining when one entity controls another from the perspective of not-for-profit entities, covering:
  • power over the investee - the guidance notes that such power may arise through sources other than voting rights through equity interests or contractual rights, which might include rights arising from administrative arrangements or statutory provisions. Examples included in the guidance of situations that might lead to an investee being controlled include government provided organisations that assist an independent statutory office holder (such as auditor-general or the judiciary) in fulfilling their responsibilities, governing bodies where governments can appoint and remove the majority of members (even if the government is reluctant to do so due to electoral sensitivities). Examples cited of situations where control might not exist include research and development corporations where legislation provides that relevant activities are directed by participants in the research and development activities, local governments were the local council is periodically elected by the local community, and private schools, hospitals and aged-care providers that are financially dependent on government funding where an independent governing body has ultimate discretion whether to accept resources from government and how assets are deployed
  • returns to the investor - the guidance indicates the broad scope of the nature of returns for not-for-profit entities encompasses financial, non-financial, direct and indirect benefits, whether positive or negative, including the achievement or furtherance of the investor’s objectives
  • link between power and returns - the guidance notes that the existence of congruent objectives alone is insufficient for a not-for-profit investor to conclude that is controls an investee, and discusses a number of potential delegated power situations, e.g. a charity that appoints a trustee to undertake work in developing countries, and when a government department acts as agent or principal in relation to a responsible minister
• Introduction of a new integral appendix to AASB 12, which applies only to not-for-profit entities and explains the application of the definition of 'structured entity' by not-for-profit entities. The guidance explains that if administrative arrangements or legislation establishing a not-for-profit entity are dominant factors in determining control of such an entity, the entity is not a structured entity. Accordingly, for not-for-profit entities, the scope of structured entities is limited to entities that have been designed so that voting or similar rights, including administrative arrangements or statutory provisions, are not the dominant factor in determining control of the entity. Examples may include certain entities with predetermined activities and partnerships between a government and private sector entities directed by contractual arrangements
• Amendments to the Australian domestic standard AASB 1049 Whole of Government and General Government Sector Financial Reporting, to refer to AASB 10 and AASB 12 rather than the superseded AASB 127 Consolidated and Separate Financial Statements, and to clarify that General Government Sector financial statements are not required to comply with the disclosure requirements of AASB 12.

The amending standard does not address broader issues identified by the AASB through research, which are considered "fundamental to the notion of control and therefore beyond the scope of AASB 10". These include:

• the nature of government departments as reporting entities
• the role that disclosure of disaggregated information in whole of government financial reports might play in providing relevant information to users
• control of assets.

The AASB expects to address these fundamental issues as part of a later stage project, but concluded that they would not impede the application of AASB 10 by not-for-profit entities, and so would not need to be addressed prior to clarifying the application of the notion of control in AASB 10 by not-for-profit entities.

In finalising the amending standard, the AASB also considered a similar project by the International Public Sector Accounting Standards Board (IPSASB), and decided to finalise its own guidance "having considered the decisions of the IPSASB as it developed its Exposure Drafts".  (The IPSASB considered the AASB's exposure draft in developing its proposals.)

The amendments apply to annual reporting periods beginning on or after 1 January 2014. Early application is permitted for annual reporting periods beginning on or after 1 January 2013 but before 1 January 2014. These dates are the same as for the application of AASB 10 and AASB 12 to not-for-profit entities. The limit on early adoption coincides with the mandatory application date of AASB 10 by not-for-profit entities, as when making AASB 10, the AASB prohibited early adoption by such entities until specific not-for-profit guidance could be developed.

Click for press release (link to AASB website).