Financial reporting under associations law
An incorporated association must keep financial records which:
- correctly record and explain its transactions and financial position and performance; and
- enable true and fair financial statements to be prepared.
Financial records must be retained for a period of 7 years.
Three tiers of associations
An association is classified into one of three tiers for the purposes of determining its financial reporting obligations:
- Tier 1 - revenue of less than $500 000
- Tier 2 - revenue of $500 000 to $3 000 000
- Tier 3 - revenue of more than $3 000 000
Revenue is income which arises in the course of the ordinary activities of an incorporated association and is to be calculated in accordance with the Australian Accounting Standards.
Examples of revenue include: government and other grants, donations, bequests or legacies, sales of goods or inflows from other fundraising activities, fees and charges for the provision of services, interest earned and dividends.
Increases in revenue that affect an association’s tier classification
An incorporated association may, within three months of the end of a financial year, apply to the Commissioner for a declaration that the association is a tier 1 or tier 2 association for the purposes of a particular financial year. This is to allow for unusual or non‑recurring circumstances that may have caused an association’s revenue to temporarily exceed the tier 1 or tier 2 threshold.
The incorporated association must provide information to the Commissioner that shows that the increase in revenue for the financial year is temporary and not expected to continue for future financial years. For example:
- revenue for the previous financial year(s);
- revenue for the current financial year;
- details of the one-off event that caused the revenue increase; and
- projected revenue for the next financial year e.g. a budget or forecast.
Tier 1 associations
Tier 1 associations must prepare financial statements, using either the cash or accrual methods of accounting, for presentation to members at the annual general meeting.
A tier 1 association using the cash method of accounting must prepare:
- a statement of receipts and payments;
- a reconciled statement of bank account balances; and
- a statement of assets and liabilities.
A tier 1 association using the accrual method of accounting must prepare:
- a statement of income and expenditure; and
- a balance sheet.
The financial statements must give a true and fair view of the financial position and performance of the association, but are not required to comply with the Australian accounting standards.
The financial statements need not be reviewed or audited unless members make a resolution to that effect or if the Commissioner directs a review or audit.
Tier 2 and tier 3 associations
Tier 2 and tier 3 associations are required to prepare financial statements for presentation to members that give a true and fair view of the financial position and performance of the association and comply with Australian Accounting StandardsPursuant to the accounting standards, the financial statements must include:
- a statement of financial position (i.e. a balance sheet);
- a statement of comprehensive income (i.e. income statement/profit & loss);
- a statement of changes in equity; and
- a statement of cash flows for the period.
These statements, together with the notes to the statements and the management committee’s declaration (as to solvency and compliance with Part 5) together form the financial report of a tier 2 or tier 3 association.
Tier 2 and tier 3 associations must have their financial reports reviewed and audited respectively.
Review and audit
The regulations require a review to be undertaken by a member of professional accounting body and an audit must be undertaken by a member of a professional accounting body holding a public practice certificate.
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