STANDARD CHART OF ACCOUNTS FOR NON-GOVERNMENT ORGANISATIONS
GENERIC TRAINING MANUAL
Queensland University of Technology: School of Accountancy Centre of Philanthropy and Nonprofit Studies
April 2006
Contributors: Stephen Marsden - Parts 3, 4, 5 Odette Winter – Part 2 Myles McGregor-Lowndes, Stephen Marsden, Dawn Butler – Part 1
Editors: Myles McGregor-Lowndes, Dawn Butler, and Kathryn Crissman
Reviewers: Christine Kwasny (Kwasny Communications) Perry Hembury (Volunteering Queensland Inc) Maureen O’Brien (Technical Aid to the Disabled) Patrick Hoiberg (Chartered Accountant) Jenny Willis (Save the Children Fund)
Nonprofit Organisations Reference Group: Christine Kwasny (Kwasny Communications) Jenny Willis (Save the Children Fund) Jan Darr (Youth & Family Service Inc, Logan) Patsy Meyer (Institute for Healthy Communities) Janet Baker (Queensland Council of Social Service) Andrew Marnie (Namtec Inc) Jo McLaren (Queensland Cancer Fund) Paul Teefy (CPA Accountant) Joanne House (SHARE Inc) Brian Tucker (Public Accountant) Paula Nixon (ZigZag Women’s Resource Centre) Charlene Turner (Women’s Health Queensland Wide Inc) Selina Utting (Children by Choice) Greg Payme (Queensland Meals on Wheels Services Assn Inc)
Government Reference Group: Representatives from – Queensland Treasury Queensland Department of Communities Queensland Department of Child Safety Queensland Department of Housing Queensland Health Queensland Department of Sport & Recreation Disability Services Queensland Community Benefit Funds Unit, Queensland Office of Gaming Regulation Queensland University of Technology project team: Emeritus Professor Lew Edwards Professor Myles McGregor-Lowndes Professor Chris Ryan Stephen Marsden Ted Flack Margie O’Connell Hood Dr Dawn Butler
Manual produced for: The Strengthening Non-Government Organisations Strategy, Queensland Department of Communities and Disability Services Queensland
STANDARD CHART OF ACCOUNTS FOR NON-GOVERNMENT ORGANISATIONS
GENERIC TRAINING MANUAL TABLE OF CONTENTS Part 1:
Introduction, Frequently Asked Questions
Introduction Frequently Asked Questions
1-1 1-5
Part 2: Processing Transactions in MYOB
2-1
2.1
Getting Started 2.1.1.1 Loading the software onto Your Computer 2.1.1.2 Loading the Standard Chart of Accounts 2.1.2 Loading Opening Balances 2.1.2.1 Conversion at Beginning of new Financial Year 2.1.2.2 Conversion during the Financial Year 2.1.3 Setting up GST Tax Codes 2.1.4 Linking Accounts 2.1.5 Setting up Cards (Customer Cards, Suppliers, Employees, etc).
2-1 2-1 2-1 2-2 2-2 2-3 2-3 2-3 2-4
2.1
Entering Transactions 2.2.1 Entering Sales Transactions 2.2.2 Entering Purchases and Expenses 2.2.3 Making Payments 2.2.4 Banking 2.2.4.1 Spend Money 2.2.4.2 Receive Money 2.2.4.3 Performing a Bank Reconciliation 2.2.5 Debtors and Creditors 2.2.5.1 Debtors (Accounts Receivable) 2.2.5.2 Creditors (Accounts Payable)
2-6 2-7 2-8 2-9 2-10 2-10 2-10 2-11 2-12 2-12 2-12
2.3
Reports 2.3.1 Preparing the Profit and Loss Statement 2.3.2 Preparing the Balance Sheet 2.3.3 Category, Job or Class Costing Reports 2.3.4 Comparing Actuals to Budgets and Variance Analysis 2.3.5 Graphs, Charts and Tables
2-12 2-12 2-12 2-13 2-13 2-14
2.4
GST and Tax Invoices 2.4.1 Introduction to the GST 2.4.2 Types of Supplies (a) Taxable Supplies
2-16 2-16 2-17 2-17
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2.4.3 2.4.4 2.4.5 2.4.6 2.4.7 2.4.8
2.5
(b) GST-Free Supplies ( c) Input Taxed Supplies Registration for GST Attribution Basis (Cash v Accruals) Tax Periods (Monthly v Quarterly) Understanding GST Tax Codes Tax Invoices Preparing the Business Activity Statement 2.4.8.1 Setting up BAS Information
Employment Issues and Payroll 2.5.1 Australian Business Numbers and 48.5% ABN Withholding Tax 2.5.2 Setting up Employee Cards 2.5.3 Superannuation 2.5.3.1 What to do to Track Superannuation 2.5.3.2 Printing a Superannuation Entitlements Report
Part 3:
2-18 2-19 2-19 2-19 2-20 2-21 2-22 2-22 2-23 2-28 2-29 2-31 2-31 2-33 2-33
Transactions Unique to Nonprofit Organisations
3.1
Introduction
3-1
3.2
What is a Grant? 3.2.1 Is a Grant Subject to GST? 3.2.2 Accounting for Grants
3-1 3-2 3-3
3.3
Accounting for Donations and Donated Assets 3.3.1 Monetary Donations 3.3.2. Non-Monetary Donations (a) Donated Asset Valued at less than $5,000 (b) Donated Asset Valued at more than $5,000
3-6 3-7 3-8 3-8 3-9
3.4
Accounting for Sponsorships and Fundraising Events
3-10
3.5
Accounting for Memberships Fees
3-12
3.6
Residential Rent
3-13
Part 4:
Getting Ready for Year-End
4.1
Introduction
4-1
4.2
The Difference between Management Accounts and External Accounts
4-1
4.3
The Notion of Differential Reporting 4.3.1 What is a Reporting Entity? 4.3.2 What if the Organisation is Classified as a Reporting Entity? 4.3.3 What if the Organisation is Classified as a Non-Reporting Entity?
4-3 4-4 4-6 4-7
4.4
Financial Reporting Requirements of Companies Limited by Guarantee
4-10
4.5
Financial Reporting Requirements of Incorporated Associations
4-11
4.6
Audit Requirements
4-12
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4.6.1 Companies Limited by Guarantee 4.6.2 Incorporated Associations
4-12 4-16
4.7
When does the Annual Report have to be Sent to Members? 4.7.1 Companies Limited by Guarantee 4.7.2 Incorporated Associations
4-20 4-20 4-22
4.8
What should I give the External Accountant or Auditor? (Checklist of Reports and Documentation to be printed off at Year-End)
4-23
4.9
Audit Engagement Letter
4-25
4.10
Management Representation Letter
4-30
4.11
Preparing the Annual Report
4-34
4.12
Preparing for the Annual General Meeting
4-37
4.13
Forms to be Lodged 4.13.1 Companies Limited by Guarantee 4.13.2 Incorporated Associations
4-38 4-38 4-40
4.14
Conclusion
4-41
Part 5:
Glossary
A glossary containing common bookkeeping, accounting and taxation terms will be provided at the end of the manual for easy reference. Part 6:
5-1
Forms and Documents
This will contain sample forms, including: 6.1 6.2 6.3 6.4 6.5 6.6 6.7
Profit and Loss Statement; Balance Sheet; Aged Receivables – Summary; Aged Payables – Summary; Quarterly Business Activity Statement (BAS) Front and Back; PAYG – Payment Summary; PAYG Summary – Withholding where ABN Not Quoted.
Part 7:
Useful Websites for Bookkeepers
Part 8:
Index
Appendix Full Chart of Accounts, with Data Dictionary (22 pages) 1-0000 Assets 2-0000 Liabilities 3-0000 Equity 4-0000 Income 5-0000 Cost of Goods Sold 6-0000 Expenses
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(Insert) Insert 1 Insert 6 Insert 8 Insert 9 Insert 14 Insert 15
Table of Contents
Part 1: INTRODUCTION & Frequently Asked Questions
Hello and welcome to the Generic Training Manual, written specifically for treasurers or bookkeepers of Queensland community organisations. This manual assumes that organisations are using the Standard Chart of Accounts, developed by the Centre of Philanthropy & Nonprofit Studies (CPNS) at Queensland University of Technology. The primary purpose of this manual is to help bookkeepers and voluntary treasurers in preparing and maintaining internal management accounts, as well as reporting on grants to government funding departments. This manual will guide and assist bookkeepers and treasurers to process transactions in their accounting software. Guidance is also given in developing a range of reports for internal management purposes, as well as collating information and documentation for external accountant/auditors who will prepare end-of-year financial statements. All this will assist the organisation to meet its accounting and statutory requirements imposed under the Associations Incorporation Act (1981) as amended.
Background The background to this manual lies in the fact that until recently there has been a lack of consistency in accounting categories and terms required by government departments in their funding relationships with nonprofit organisations. This causes significant compliance costs for community organisations, especially those with more than one source of government funding. A project between CPNS and the Queensland government developed this Standard Chart of Accounts. With the collaboration of Treasury and 24 government departments, grant documentation was collected and analysed to establish what accounting terms are used to acquit grants to all government departments. It was found that there was no consistency between government departments, and there is a wide range of incompatible financial reporting requirements across departments and even between different programs within the same department. For example, a total of 129 different revenue line items and 836 different expense line items were identified in the departments’ forms or instruction documents. Differences occurred both in the line descriptions and in the accounting treatment for the same types of expenses. The main variations occurred around the expense item for labour costs. There was a total of 113 different line descriptions relating to direct labour costs; e.g. for some, ‘salaries’ covered salaries only; others included salaries and direct oncosts; for others, ‘wages and salaries’ included costs of employment, such as staff training, protective clothing, staff transport, and even workers compensation insurance.
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Part 1 Introduction & Chart of Accounts
For community organisations, these variations in terminology and categorisations created high costs of compliance. Because accounting systems are designed to capture financial transactions just once, having to report similar transactions in incompatible ways means that organisations often have to manually recalculate financial transactions from the vouchers. Further, when data is not comparable, it is difficult for government departments to use this financial information to evaluate the financial performance of organisations, or to build efficiency benchmarks of similar activities by different community organisations. Collecting comparable data would greatly facilitate feedback to community organisations to increase their capacity to evaluate performance, and hence their ability to be more accountable. The Standard Chart of Accounts has been developed to meet the major legislative requirements of the sector such as taxation, the Associations Incorporation Act, the Charitable Gaming Act, Liquor Act and the Collections Act, as well as Australian International Financial Reporting Standards (AIFRS).
Extensive consultations Consultations on the Standard Chart of Accounts have been held with Queensland Treasury, as well as the five largest government department funders of nonprofit organisations. It has also been approved by community peak bodies and a wide range of organisations. For further information on https://olt.qut.edu.au/BUS/dyo
the
Standard
Chart
of
Accounts,
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Implementation of the Standard Chart of Accounts Queensland Treasury and the major funding human service departments are currently implementing the Standard Chart of Accounts. They are at present revising service agreements across all programs, as well as revising acquittal procedures and documents, to be consistent with the Standard Chart of Accounts. Through the Community Bookkeeper project—part of Strengthening Non-Government Organisations project—the Department of Communities is providing practical support to funded community organisations who are delivering services funded by the Department of Communities, and Disability Services Queensland. This work is being co-ordinated across several government departments, including Departments of Communities and Child Safety, Disability Services Queensland, Queensland Health and the Department of Housing. As government departments change their funding acquittals to align with the Standard Chart of Accounts, then by adopting it as well, community organisations can prepare acquittal reports more easily. Most organisations will probably convert to the Standard Chart of Accounts at the end of a financial reporting period, e.g. 1 July 2006. However, it is not mandatory for your organisation to use the Standard Chart of Accounts.
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Part 1 Introduction & Chart of Accounts
Advantages of project The whole project—especially this manual, which is based on the Standard Chart of Accounts—aims to promote the following advantages: • • • • • •
it will guide volunteer treasurers and bookkeepers on ways to record financial transactions in ways which meet the latest requirements and accounting standards; it will provide a broader base for understanding and meeting the legal requirements for community organisations; for each community organisation, it will reduce administrative reporting duplication; it will enhance consistency of bookkeeping practices between community organisations; it will simplify the reporting process for both government funders and community organisations; it will provide government funders with comparable information, which will help them to evaluate the financial performance of community organisations.
Structure of the Manual The manual is structured as follows: Part 1 contains Frequently Asked Questions, an insert of the Standard Chart of Accounts (22 pages long), and data dictionary explaining each account and what should be included or excluded in that account. Part 2 will assist bookkeepers in setting up their Chart of Accounts. It walks bookkeepers through the transition of loading the Chart of Accounts onto the computer (assuming that they are using software other than MYOB or QuickBooks). It discussions conversion to the new CoA, setting up cards, and entering opening balances. The chapter discusses ways to enter transactions, including sales, purchases and banking as well as reconciliations. It also discusses a range of reports, as well as GST on transactions. There is a guide to the preparation of the Business Activity Statement (BAS), as well as employment issues, such as payroll and superannuation. Part 3 specifically focuses on transactions unique to community organisations. It discusses issues such as accounting for grants and donations (both monetary and nonmonetary) as well as accounting for sponsorships and fundraising events, memberships and registrations. Part 4 deals with the information collated by bookkeepers and treasurers to pass on to the external accountant/auditor at year-end. This part looks at the difference between management accounts and external accounts; differential reporting for reporting entities and non-reporting entitles, companies limited by guarantee and incorporated associations. There is a checklist of supporting documents, forms and reconciliations that are typically required by accountants/auditors in preparing the external financial statements at year-end. Examples are given of an Audit Engagement Letter and a Management Representation Letter, and finally, this part of the manual outlines forms to be lodged by companies limited by guarantee and incorporated associations. At the end, the manual includes a glossary of terms, examples of forms, suggests some useful websites for bookkeepers, and provides an Index. Generic Training Manual April 2006
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Part 1 Introduction & Chart of Accounts
Good Luck Please take your time reading through this manual. We have tried to write it specifically from the viewpoint of a bookkeeper and a treasurer. If you are new to bookkeeping, hopefully you will find the manual provides you with a basic understanding of how to enter transactions into your software, and how to generate reports to be considered and reviewed by the management committee. If you are an experienced bookkeeper, we hope you find something in this manual which will assist you in your task as well.
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Frequently Asked Questions, Chart of Accounts (and Data dictionary) What is the Standard Chart of Accounts? Unlike the US, UK, and Canada, Australia does not have a special accounting standard for community organisations. Each government funder has its own financial acquittal terms, which makes it impossible for multi-funded organisations to easily prepare one form of acquittal. "Apples aren't apples." The compliance burden on community organisations is heavy because there are no standardised acquittal documents. The Standard Chart of Accounts provides a common approach to the capture of accounting information by community organisations. If all parties use the same standard terms and categories, e.g. Wages & Salaries, Printing & Stationery, to refer to the same activities, this Chart will simplify the work of community organisations when acquitting government grants. Government departments and community organisations will talk the same accounting language. "Apples will be apples."
Has this Standard Chart of Accounts been endorsed by the government & community organisations? This Standard Chart of Accounts was developed by Queensland University of Technology, working jointly with Queensland Treasury and the five largest government funding departments, as well as community peak bodies and a group of finance officers from community organisations. It has been supported by all stakeholder groups, and Queensland government departments have committed themselves to changing their acquittal documents to use only the terms in this Standard Chart of Accounts. (Other Australian states have expressed interest in introducing a similar Chart of Accounts.)
Who will benefit? The Chart aims to help accounting staff, treasurers, and volunteer staff in community organisations. It will also help government funders who collect financial and performance information from many different community organisations.
What are the contents of the Standard Chart of Accounts? The Standard Chart of Accounts lists the accounts most likely to be required by community organisations under the classical headings of Assets, Liabilities, Equity/ Accumulated Funds, Income, Cost of Goods Sold, and Expenses. It standardises and explains each account category.
Why are accounts arranged in alphabetical order? There is a big debate about the advantages and disadvantages of alphabetical order versus order of categories. In the Standard Chart of Accounts, accounts are arranged alphabetically. In this way we avoid the problem that different departments have different categories. In the end, the alphabetical approach is the most acceptable to all.
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Part 1 Introduction & Chart of Accounts
What is the Data Dictionary in the Chart of Accounts? The Chart includes a data dictionary, which explains in simple, practical language, which items and activities are to be included under each heading.
Do we have to use all the accounts in the Chart of Accounts? "It's rather long!" Your organisation should select only those line items which are appropriate to your work. Please delete or ignore all those line items which do not apply to your work, or add other line items which you may need. For example, item 1-7140 in Assets, “Rental Property Furniture and Fittings”, would be used only by Department of Housingfunded organisations.
How should we record Cost Centres? The Chart suggests line items for a wide range of activities. Depending on your software, there are ways to code each revenue and expense to a particular “job” or “category” (e.g. grant), and can thereby keep a track of revenues and expenses relating to each grant, and a Balance Sheet and Profit & Loss Statement for each category.
Do we need to buy new computer software? This Standard Chart of Accounts is a generic template which can be applied to any computerised accounting software package.
Does the Chart comply with Australian Accounting Standards and IFRS? The Chart includes a column referring to current AASB Accounting Standards. Despite the fact that Australia has moved to "new" AASB Accounting Standards (i.e. IFRS Equivalents), there are only minor differences between AASB standards and IFRS equivalent standards.
When will we need to change over to this Standard Chart of Accounts? As government departments change their funding acquittals to align with this Chart of Accounts, then by adopting it as well, you will be able to prepare acquittal reports more easily. Most organisations will choose to convert to this Chart of Accounts at the beginning of a financial reporting period, e.g. 1 July 2006.
Is it mandatory to change to this Chart of Accounts? No, it is not mandatory. Some large organisations have sophisticated accounting systems; they may make adjustments in the light of this Chart of Accounts, but continue to use their own systems.
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Can we alter the definitions of account descriptions in the Chart of Accounts? You can make small changes in your financial records—but the further you move away from the Chart definitions, the less it will comply with government acquittal proformas.
Are organisations already using the Chart? A number of community organisations are already using the Standard Chart of Accounts, and have found the change-over to be a relatively straight-forward process. You can get further help by referring to the Chart of Accounts site: https://olt.qut.edu.au/BUS/DYO
What will our auditor think of the Standard Chart of Accounts? Feedback so far indicates that auditors heartily welcome the Standard Chart of Accounts because community organisations’ financial records will be easier to audit! However, it would be good to talk to your auditor before changing over.
Will the Chart be updated in the future? The Chart is a working document, and will be updated to include new regulations, accounting standards, and improvements from time to time.
Where can we find out more about the Chart of Accounts? Ask your community peak body about the Chart of Accounts. You can also find out more from the Developing Your Organisation website at QUT: https://olt.qut.edu.au/BUS/DYO
The Chart of Accounts (22 pages), including Data Dictionary, is included as an appendix at the end of this manual.
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Part 2 – PROCESSING TRANSACTIONS in GENERIC SOFTWARE 2.1
Getting Started
Other manuals in this series have been written for specific accounting software, e.g. MYOB and QuickBooks. This manual is generic, and hopefully will be of use to bookkeepers who are using different software programs. This chapter will allow you to get an overview of the functions which you can expect your current accounting software to include, and ways in which these capabilities can be put to good use within your organisation. We recommend that you consult your software provider and any help facilities and manuals that you have available to you to assist you in these matters if you are unsure of how to logically proceed. If you’re also new to bookkeeping in general, most of what you need to know will be covered in this part of the manual. 2.1.1.1 Loading the Software onto Your Computer Your accounting software will most probably arrive on a CDRom, unless you have downloaded it from the internet or purchased it on a set of floppy disks. You will need to follow the installation instructions carefully, and make sure that your computer has the correct system capabilities required by the software. You may also need to register or activate the software. Have your serial or other numbers ready, as well as whatever other information about your organisation is required.
2.1.1.2 Loading the Standard Chart of Accounts In this Generic Training Manual, as we don’t know which software you are using, your next step will be to input the QUT developed Standard Chart of Accounts, account by account, into a data file created using your accounting software. It is recommended that a new organisation data file be created, rather than just rearranging an existing one. This Standard Chart of Accounts data file is available from the website shown below:,
https://olt.qut.edu.au/bus/dyo
For those who use MYOB or QuickBooks, the above website provides the Standard Chart of Accounts data file not only with the account names and numbers already entered, but it also contains the necessary links set up between accounts, and the correct preferences set so as to make the processing of transactions easier and more efficient. The data file also has all of the relevant tax codes pre-set.
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Generic Manual: If you are using another accounting software package, there is another option: Follow the Chart of Accounts as shown in the Appendix of this manual, and carefully key in (as possible according to the constraints of your software) the account numbers, names and correct GST codes. It is quite likely that many of the account names will not be needed by your organisation – you could create the accounts and not use them (although this may change in the future), or simply leave out the accounts you don’t need. Be sure to set up the appropriate tax and account links where appropriate. Once you have created the Chart of Accounts in your accounting software, we can get started…
2.1.2
Loading Opening Balances
The very first thing that you need to do is enter your nonprofit organisation’s information, including your organisation’s name, address (either postal or street), the telephone and fax number, and any e-mail address. Also important is the organisation’s ABN (Australian Business Number). The next step is to enter opening account balances that appear on your most recent set of financial statements as at financial year-end. These may or may not have been audited at the time of inputting. Should these opening balances change once the audit report has been signed, you may need to go back and revise these figures. It is quite possible that your software will only allow you to enter opening balances with respect to asset, liability and equity accounts. It may not possible to enter opening balances in respect of revenue and expense accounts. If this is the case, we strongly recommend that the transition to this new chart of accounts occurs on the first day of the new financial year for your organisation. Alternatively, if you choose to convert to the new QUT Chart of Accounts during your current financial year, you will need to re-enter all transactions that have occurred from the beginning of the financial year to this point. Be aware – this will be very costly and time consuming. For more information on converting to the QUT Chart of Accounts during the financial year, refer to Section 2.1.2.2.
2.1.2.1 Conversion at the Beginning of the New Financial Year If you are choosing to convert to this Chart of Accounts at the start of your new financial year, you will first need to make sure that the data file is set up to start and end its reports for your particular financial year. We would recommend that although very little data has as yet been entered into your new data file, as a rule, ALWAYS do a backup before starting a new financial year, or a new payroll year. Once the correct start and end months for your financial year have been set, you will be able to enter your opening account balances.
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Starting with your main bank accounts, enter the balances for each account that match what you are currently using. Refer to the Data Dictionary in Part One if you are unsure of any of the account definitions.
TIP:
Enter the balances only as positive numbers. Do not, for example, enter liability opening balances as negative numbers. Enter negative amounts only if the account truly has a negative balance (for example, Accumulated Depreciation).
You will now be able to move on to the next step, that is, setting up GST codes.
2.1.2.2 Conversion during the Financial Year Alternatively, if you wish to convert to the new Chart of Accounts part way through the current financial year, you also need to re-enter all previous transactions that have occurred during the course of the year to this point. Be aware that this could be a lengthy and time consuming process – be sure to take this into account if you decide to convert to this new Chart of Accounts during your financial year. For example, if you are adopting this Chart of Accounts on 1 November 2005, with a Financial Year that starts in May, you will need to enter the opening balances for assets, liabilities and equity as at 30 April 2005, as well as all the transactions that have occurred between 1 May 2005 and 1 November 2005. This will be the case only if your accounting software does not allow you to enter opening Revenue and Expense balances. In some instances, if you do not process many transactions per month, this may not be difficult, but obviously the larger the organisation, the more transactions, and for this reason, it is advisable to adopt the Chart of Accounts at the start of your new financial year. To convert during your current financial year, simply follow the steps outlined in the section above, and keep in mind that you will need to re-enter all previous transactions before you can enter your most current.
2.1.3
Setting up GST Tax Codes
Before you begin to enter transactions, please be aware that there may be certain issues regarding the GST. There are some accounts where the tax codes vary between organisations. For example, most fundraising events are subject to GST. However, there is a special provision contained within the Goods and Services Tax Act (1999) as amended that allows for these events to be regarded as input-taxed (Section 40-160). If an organisation makes this election, the relevant revenue accounts should be coded ‘INP’. If you are uncertain as to the correct GST tax code to use, you should consult your accountant/auditor, or contact the Australian Taxation Office.
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2.1.4
Linking Accounts
It may be possible to link accounts within your software to either a function (determining where certain transaction processing will accrue – for example, Payroll or GST Liabilities), or to a card (or whatever your software uses to store information about customers, suppliers and employees). A ‘card’ can be defined as a mini-data file that stores relevant name, address and other details for each customer, supplier, organisation or employee that your organisation has, and will continue to have dealings with. Explore and make the most of these options if they exist.
2.1.5
Setting up Cards (Customers, Suppliers, Employees, etc).
The next step is to begin to set up a catalogue of cards, for all of the customers, suppliers, and employees that your organisation may have. It may also be possible to have accounts linked to their use, to make the processing of transactions quicker and more efficient – for example, a card set up for the electricity department can be linked to the relevant expense account – ensuring that all electricity invoices get coded to the correct account each time. To properly set up a card, it is best to have available all the information relating to the company or individual at hand, but if you do not, it should be possible to go back into any card and edit the information as necessary. Based on the invoice example on the following page, the card should at least contain the following information: • • • •
Correct name and address of the supplier; Other contact details that are available – telephone, fax, mobile telephone numbers; Supplier’s ABN; Any payment terms that have been agreed upon, and the correct name to put on cheque payments.
A Customer card can be set up in a similar manner, reflecting all the information necessary to post invoices or contact the customer if this should need to happen.
TIP:
If a supplier is likely to also become a customer, create two cards, one listing him or her as a Supplier, the other as a Customer.
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Bill’s Repair Shop Pty Ltd Repair Shop to the Stars!!
27 January 2005
Invoice No: 3672
TAX INVOICE ABN: 13 789 987 997 Sample Nonprofit Organisation Inc. A Small Town in QLD The Main Street Somewhere, QLD, 4691.
Being my professional fee for services rendered in respect of the following:
Repairs to Gas Lift Office Chair
AMOUNT OWING:
$ 200.00
TOTAL FEE ABOVE INCLUDES GST OF:
$
Nett:
18.18
Payment within 30 days from the date of this tax invoice.
Bill’s Repair Shop 33 Ashton Street, Somewhere QLD 4691 Telephone: (07) 3397 1983 Facsimile: (07) 3397 1982
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Before entering the card into the system, the Australian Business Number (ABN) also needs to be checked. The ABN is a unique 11-digit number, which must be displayed by the supplier on all invoices/tax invoices issued. If a supplier has not quoted their ABN on their invoice/tax invoice, you are required by law to withhold 48.5% of the total payment. You should also withhold payment if you think that the ABN quoted to you may be incorrect. If you are unsure, you can check the validity of an ABN by using the Australian Business Register website at: http://www.abr.business.gov.au.
2.2
Entering Transactions
You are now ready to start entering transactions. These can be divided into a variety of categories, as detailed below: (a)
Sales
Sales involve all sales that the organisation makes to the general public, local businesses, and others. At the nonprofit organisation level, “sales” could involve the sale of specific medical equipment, or books and items of a similar nature, but could also include advertising space in the organisation newsletter, or client fees and charges. Your organisation should provide an invoice to the purchaser, as well as a receipt of some kind when payment is made. In the case of government grants, these should be entered as “Sales” in your software. Grants are normally subject to GST. Hence, 1/11th of the gross amount of the grant needs to be remitted to the Australian Taxation Office on the Business Activity Statement. In some cases, the Government Department provides a tax invoice to the nonprofit organisation. This is referred to as a “recipient created tax invoice”. This means that the nonprofit organisation does not need to send the Government Department a tax invoice. If the Government Department does not issue the nonprofit organisation with a recipient created tax invoice, then the nonprofit organisation will be required to raise and send the Government Department a tax invoice for the GSTinclusive value of the grant received. Whichever way the tax invoice is achieved, it should still be entered into your software as a “sale” and coded to the relevant account (Account Numbers 4-1010 to 4-1000 in the Chart of Accounts). For more information on grants, refer to Section 3.1.1 of this manual.
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(b)
Purchases
Purchases include all items which involve the organisation paying money and receiving in return an item, or a service. These should always be accompanied by an invoice (more about these later) which will require payment in the future, or a receipt, to show that the item was paid for at the time of purchase. For more information, see Section 2.2.3. (c)
Banking
Banking includes the depositing of all cash and cheques made out to the organisation on a regular basis (daily, weekly, or in extreme cases, monthly). Banking also includes the spending of money for which no invoice was provided, or the paying of superannuation and GST to the ATO, and bank reconciliations based on the weekly or monthly bank statement from the participating bank. For more information, see Section 2.2.5. (d)
Payroll
Payroll looks after all the transactions involved with paying of salaries and wages to all staff that have either a permanent or casual nature. Payroll also keeps track of superannuation owing, annual and sick leave accrued, and any leave of any nature taken during the year. Payroll also calculates the appropriate amount of PAYG tax to be withheld and paid to the ATO on the Business Activity Statement (BAS). For more information, see Section 2.5.
2.2.1
Entering Sales Transactions
As previously mentioned, sales will include all goods and services, such as medical equipment, books, advertising space, etc, sold to a wide variety of members of the public and others. There are two ways to deal with sales. The first and preferable way is to issue a tax invoice from your organisation to the person or business to which the sale is being made. The tax invoice can probably be generated from within your software and printed onto the appropriate letterhead, or an invoice created in Word or similar document, the information of which is then recorded in your software – an electronic copy of the paper. The other method to deal with these sales is simply to take the money collected, and enter it into your software using a “banking - receive money” facility. Depending on how the money is generated, both of these methods are appropriate. Generally speaking, street donation collections are simply cash hand overs, sometimes to be issued with a receipt. It is simply not appropriate to issue each of these with a tax invoice, and so using the ‘Receive Money’ option is fine. However, for other sales, such as medical supplies, books or newsletter advertising, or when a local small business wants to put an advertisement in your organisation’s newsletter, a tax invoice must be issued.
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A tax invoice must have several items present to make it an acceptable and legal document. These are:
the words ‘Tax Invoice’ stated prominently; the organisation name or trading name, eg. ABC Limited; the organisation’s ABN. This is vitally important; the name of the recipient of the invoice eg. DEF Pty Ltd; the address or ABN of the recipient; the date of issue of the invoice; a brief description of the goods or services provided; the amount payable for the supply and the amount of GST payable shown separately OR; an all-inclusive price with the statement that the total price includes GST.
A dummy tax invoice was included at page 2-5 for you to use as a guide. You’ll notice from your reading through the Data Dictionary that Sales generate income (revenue) and so will be using Account codes from the Income section, that is, Accounts starting at # 4-0000. Once monies have been received in payment of an invoice entered into your software, be sure to record the receipt in such a way as to ensure that the payment is linked to the relevant open invoice – in this way, any Accounts Receivable account that has been set up will correctly reflect all outstanding amounts.
2.2.2
Entering Purchases and Expenses
Purchases made by your organisation will involve payment of all expenses for which the organisation receives a tax invoice. It will also include the purchase of office and other equipment, renting of offices or equipment, purchases of services (such as gas, telephone, electricity etc) and expenses such as licenses, dues and subscriptions. Purchases also include one-off payments to volunteer staff or any expense they may have incurred, and other persons who perform a service on an irregular basis. All purchases will come with either an ‘invoice’ or a ‘tax invoice’. An invoice is issued by an entity that is NOT registered for the GST, and a tax invoice is issued by an entity that is registered for the GST. Regardless of whether a supplier provides the organisation with an invoice or a tax invoice, it must still include the following details:
an Australian Business Number (ABN); and an Invoice Number.
The ABN is an eleven-digit number unique to the organisation. It is NOT the same as the Tax File Number (TFN) or Australian Company Number (ACN) in the case of companies. If the invoice or tax invoice does not have an ABN on it (and they can be hidden in very small writing, so spend a little time checking) then the organisation is required by law to withhold 48.5% of the gross amount, and remit this amount to the ATO on the next Business Activity Statement (BAS). This applies in all cases, unless:
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payment is for salaries and wages (if this is the case, your software’s Payroll should be handling this payment); payment is for less than $50; or payment is for an individual for a hobby, in which case you must acquire the appropriate approved declaration. A copy of this form has been included later in this manual. This could be a volunteer collecting money or working in the op shop, and being paid a fee of less than $50, or being reimbursed for travelling expenses or meals.
Once you have established that the piece of paper in front of you is indeed an invoice or tax invoice that either requires payment, or has been paid, enter the invoice details into your software using the appropriate module and account and tax codes. For more information on valid tax invoices, refer to the following ATO weblink:
Web link: http://www.ato.gov.au/content/downloads/gstnat12358022006.pdf
If you have further purchases to enter, follow the same procedure until they are all entered. If the invoices have yet to be paid, put them aside, to be dealt with at a later date. If they have been paid, the payments need to be processed through your software, in the following manner. 2.2.3
Making Payments
This next sequence of events assumes that the original tax invoice details have now been entered into your software. If they have not, do that now, and then proceed with these steps. Alternately, if you do not have the tax invoice, but have an idea of what the payment is for, use the ‘Spend Money’ option. However, it is recommended that all efforts be made to obtain an invoice in the future, and enter the correct information. The ‘Spend Money’ option is discussed at Section 2.2.5 ‘Banking’. Be sure to code the payment against the correct invoice – this will ensure that your Accounts Payable account shows the correct running balance. The next requirement will be the cheque number used to pay the invoice. If paid by Direct Debit via the Internet, simply put ‘EFT’ in the cheque number space, if this is possible. However, if paying by cheque, include the cheque number. The date of the payment is the date recorded on the cheque, cheque butt, or the date the internet transaction went though. If coding from a bank statement (in undesirable circumstances – this is not best practice bookkeeping) put the date on which the cheque was cleared. The amount is the amount being paid at that time. Your software may accept a part payment – the amount being paid should be credited against the total invoice amount. When the remaining monies outstanding are paid at a later date, only the amount still to be paid should show up. Generic Training Manual March 2006
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2.2.4
Banking
Banking features will generally include all functions that apply to the management of your bank accounts and the money in and out. 2.2.4.1 Spend Money Perhaps the most used and potentially important feature of most accounting software, ‘Spend Money’ (or ‘Write cheque’) is used to record monies spent for which no tax invoice has been received by the organisation, or for automatic monthly payments that the bank has debited directly from the organisation’s bank account. Bank and credit card fees can also be processed through here. Ideally, it is NOT for recording payments for which a tax invoice has been received. In this case, the tax invoice should have been entered into your software using the ‘Purchases’ and ‘Pay Bills’ options. If this section is not used, payments made by your organisation to a creditor (i.e. accounts payable) will not be reconciled against outstanding invoices, and will show up as still owing. To use this function, see Section 2.2.3 ‘Making Payments’. Providing these requirements have been satisfied, you may go ahead and Spend Money. If possible, enter the name of the person, group or entity to which the cheque or electronic payment is being made. Enter the cheque number, or if an electronic Internet Payment, simply put ‘EFT’. Add the date, amount paid, and any applicable note in the Memo field. Code the payment to the correct account code – in most cases an expense will begin with ‘6-.’ Determine whether the amount being paid will have GST included in it, and code accordingly. For further instructions regarding the GST, see Section 2.4.6 ‘Understanding GST Tax Codes’.
2.2.4.2 Receive Money This function is used to record interest earned in a bank account or term deposit, refunds from the Australian Taxation Office, or deposits of money from the proceeds of a street donation occasion. Ideally, this is NOT for recording receipts for which a tax invoice has been issued by your organisation. If a tax invoice has been issued, the sale should have been entered into your software using the ‘Sales’, ‘Receive Payments’ section. If this section is not used, amounts received by your organisation from a debtor (i.e. accounts receivable) will not be reconciled against outstanding invoices, and will show up as still owing. To use this function, see Section 2.2.2 ‘Receipt of Monies’. Enter the payer’s name. If this is your organisation, because you are depositing street donations, you can create a card simply called ‘Street Donations’. Alternately, you can leave this section blank, and fill in the details in a Memo area, if this is available.
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Next, enter the ‘Amount Received’, the ‘Payment Method’, and ‘Date’. Because this is revenue that is being received, the account code will begin with 4-. 2.2.4.3 Performing a Bank Reconciliation Bank reconciliations are legally required, and need to be done on a regular basis, as it is by means of a regular bank reconciliation that you are able to check that both the bank and your data file are showing the same, correct information. Ideally, a bank reconciliation should be performed on all cash accounts each time a bank statement arrives from the financial institution that your organisation deals with. Ideally, you should be receiving statements on a monthly basis, but more or less often is also possible. The accounts can usually be accessed through the ‘Banking’ module in your software, where you will be able to choose the account you wish to reconcile. A dollar value may appear, called the ‘New Statement Balance’ - this will almost certainly be different to that which has been calculated by your bank, simply because your software will be unaware of any bank fees and charges, interest earned or paid and automatic EFT payments that may have affected the bank account balance. Any ‘Bank Statement Date’ that is required should be the closing date on your paper bank statement. Start at the top of your paper bank statement, and work down the list, one item at a time, ticking the matching dollar values off the paper copy at the same time as you check them off on your software reconciliation screen. As you work through, you will come across items that have for some reason not been entered, usually in the form of cheques made out in payment, bank fees and charges, or interest and other monies deposited. Cheques can be input in the usual way, through ‘Purchases’ ‘Pay Bills’ (see Section 2.2.4), or ‘Banking’ ‘Spend Money’ (See Section 2.2.5.1). Deposits can be input using either ‘Sales’ ‘Receive Money’ (See Section 2.2.2) or ‘Banking’ ‘Receive Money’ (See Section 2.2.5.2) Any interest earned or bank fees charged should be input using the ‘Spend Money’ or ‘Receive Money’ features of your software, dated the same as the date that they appeared on the bank statement. Hopefully, by the time you have worked through your bank statement, checking off everything both on the paper copy and in your software account, you will have balances that match. If not, there are a number of things to check. • Make sure that the ‘New Statement Balance’ is correct. • Check that the Bank Statement date is correct – make sure that it is the ‘Closing Statement Date’ that you entered. • Check also that all previous reconciliations have been completed. • Check over the paper statement to make doubly sure that all figures are checked off. Lastly, go back through the information in your software, to make sure that all of them are correct. It is strongly advised that you get a report of all the transactions – attach this report to your bank statement so that they do not get separated during filing. Generic Training Manual March 2006
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2.2.5
Debtors and Creditors
2.2.5.1 Debtors (Accounts Receivable) Analysis ‘Debtors’ is the other name for Accounts Receivable. This represents all monies owed to your organisation by the public, businesses, etc. It is important to keep track of these amounts – take action on any amounts that have been outstanding for more than 90 days. To see exactly who owes what, and how old the various accounts are, it is quite likely that you will be able to produce a report of these, based on information input at earlier times. This report is usually called an ‘Accounts Receivable Ageing Summary (or Detail)’, or possibly a ‘Debtors Ageing Summary (or Detail)’.
2.2.5.2 Creditors (Accounts Payable) Analysis ‘Creditors’ is another name for Accounts Payable. This represents all monies that your organisation owes to suppliers, lenders and other businesses. It is important to keep track of these amounts – action should be taken on anything that has been outstanding for more than 90 days, unless there is a very good reason that payment has not been made. To see exactly what is owing, and how old the various accounts may be, it is quite likely that your software can produce a report, based on information input at earlier times. This is usually called an ‘Accounts Payable Ageing Summary (or Detail)’, or possibly a ‘Creditors Ageing Summary (or Detail)’.
2.3
Reports
2.3.1
Preparing the Profit and Loss Statement
The Profit and Loss Statement (also known as the ‘Statement of Financial Performance’) reports your organisation’s income and expenses for a specified period, with the option of choosing just one month, or several months at a time. It is a good idea to review this report regularly, to keep a track on how expenses and revenues are going. 2.3.2
Preparing the Balance Sheet
The Balance Sheet (also known as the ‘Statement of Financial Position’) reports your organisation’s assets, liabilities and equity as at a certain date. Unlike the Profit and Loss Statement, in the case of the Balance Sheet, you can often choose only one month to view at a time – however, the information is cumulative, so you should click on the latest month for which you have entered information. Like the Profit and Loss Statement, it is a good idea to review this report regularly, to make sure that accounts are reconciling correctly, that GST is accruing accurately, and that any liabilities are correct.
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2.3.3
Category, Job or Class Costing Reports
Many organisations receive grants from various sources, many of which require regular acquittals as per the grant agreement put in place at the time. It may well be possible for your software to provide special reports which assign additional categories, classes or jobs to these specialised transactions. By coding each revenue and expense item to a particular job, class or category (i.e. grant), it is possible to keep a track of revenues and expenses pertaining to each grant. From there, it may well be possible to create specialised Profit and Loss Statements and Balance Sheet reports, highlighting each of the categories, jobs or classes used, and netting off the expenses against revenues.
2.3.4
Comparing Actuals to Budgets and Variance Analysis
A very important feature of reporting is the preparation of an annual budget. It is strongly recommended that the organisation’s treasurer assists in preparing the annual budget, as the budget will help guide the organisation as to what its established revenues and expenses are, and thus the final profit for the period. These budgets are usually prepared in Excel, presented to the Board of Directors, signed off, and then approved by the management committee. At the end of the Financial Year, the accountant or bookkeeper will enter actual figures for the Financial Year, and comparisons will be made to the budget. The comparison of budgeted figures to actual results is a key feature in evaluating the financial performance of the organisation, identifying the need for corrective action and preparing next period’s budget. The comparison of actual to budgeted results is referred to as Performance Reporting. The difference between actual and budgeted figures is referred to as a variance. There are two types of variances: (a) (b)
favourable (expressed as a “F”); and unfavourable (expressed as a “U”).
In the case of revenues, a favourable variance is one in which actual revenue is greater than budgeted revenue. In the case of expenses, a favourable variance is one in which actual expenses are less than budgeted expenses. Conversely, an unfavourable variance is one in which actual revenue is less than budgeted revenue. In the case of expenses, an unfavourable variance is one in which actual expenses are more than budgeted expenses. Unfavourable variances are usually investigated to determine the cause and whether corrective action can be taken to improve the future performance. Managers will be asked to explain “Why?” and provide answers to these questions which may affect next period’s budgeted figures.
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It is the responsibility of the management committee to investigate material (significant) variances to identify areas of concern and take corrective actions if necessary. Shown next is an example of this. The figures for the sample organisation for a particular month are now available, and have been added to the budget figures so as to prepare a Gross Profit Performance Report.
Grants (State)
Performance Report Actual Budget 20,000 25,000
Expenses: Accounting Fees Insurance - General Printing & Stationery Salaries & Wages
Net Surplus
2,500 800 500 16,000 19,800 $
200 $
2,000 600 1,000 15,000 18,600 6,400 $
Variance 5,000 U
500 U 200 U 500 F 1,000 U 1,200 U 6,200 U
By looking at this, it is possible to see that there was a degree of overspending in some areas, and as a consequence, the profit is lower than originally anticipated. Management will need to review these figures carefully to see what changes are necessary and possible. 2.3.5 Graphs, Charts and Tables Having created your various reports, it is possible to turn them into a variety of charts, graphs and tables to make it easier for all concerned to grasp the relevant details quickly and easily. To do this, you will need to send your software report to Excel, if this is possible, or simply re-create the report on an Excel spreadsheet, and manipulate it from there using ‘Chart Wizard’. With the Excel workbook open in front of you, click on the icon at the very top of the screen that looks like a small bar chart – this will activate the Chart Wizard, allowing you to manipulate the information as required. The icon will look like this:
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This example shows the above report turned into two charts…
Performance Report - Expenses $16,000 $14,000 $12,000 $10,000 $8,000
Actual Budget
$6,000 $4,000 $2,000 $0 Accounting Fees
Insurance General
Printing & Stationery
Salaries & Wages
Performance Report - Revenue
$25,000
$20,000
$15,000
Actual Budget
$10,000
$5,000
$0 1 Actual v Budget
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2.4
GST and Tax Invoices
2.4.1
Introduction to the GST
The Goods and Services Tax (GST) commenced in Australia on 1 July 2000. The principal Act governing the operation of the GST is the Goods and Services Tax Act (1999) as amended. In addition to the Act, the Commissioner has issued a number of GST Rulings and GST Determinations outlining the Australian Taxation Office’s interpretation of the legislation. The major principles of the GST are:
the GST is a flat 10% broad-based tax on the private consumption of most goods and services in Australia;
the tax is charged and collected by registered entities at each stage in the production chain;
the GST is remitted by the registered entity to the ATO on a monthly or quarterly basis in a form entitled the “Business Activity Statement”;
each registered entity is entitled to claim a credit for any GST paid. This credit is known as an “input tax credit”; and
the tax is ultimately borne by the consumer.
Each registered entity is required to remit the net amount of GST collected to the Australian Taxation Office each month or quarter via the Business Activity Statement (BAS). This process is illustrated in Diagram 1 on the following page.
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Diagram 1: How the GST Works
Manufacturer makes and sells chocolate to a wholesaler for $100 + $10 GST = $110
GST payable Less: input tax credit
$10 0
Net amount owing
$10
GST payable
$20
Less: input tax credit
(10)
Net amount owing
$10
Retailer buys chocolate for $220.
GST payable
$30
Pays $20 GST. Sells to customer for $300 + $30 GST = $330
Less: input tax credit
(20)
Net amount owing
$10
Wholesaler buys chocolate for $110. Pays $10 GST. Sells to retailer for $200 + $20 GST = $220
ATO receives $10
ATO receives $10
ATO receives $10
= Customer pays $330 to the retailer to buy the chocolate. Pays $30 GST
2.4.2
ATO receives $30
Types of Supplies
There are three types of supplies for the purposes of the GST: (a) (b) (c)
Taxable supplies; GST-free supplies; and Input taxed supplies.
(a)
Taxable Supplies
Taxable supply is defined as the supply of goods, services, provision of advice or information, a grant, assignment or surrender of real property, a creation, grant, transfer, assignment, a financial supply and an entry into or release from, an obligation to do anything, to refrain from an act, or to tolerate an act or situation.
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Once a registered entity has made a taxable supply it is required to charge the 10% GST. The 10% GST is added to the ‘value’ of the supply. Hence, if the value of the supply is $100, the 10% GST must be added, giving a total of $110. In Australia, all prices are required to be shown GST-inclusive. Hence, to calculate the amount of GST that has been included in the price, you divide by 11. Put another way, the GST payable on a taxable supply is 1/11th of the price displayed.
(b)
GST-Free Supplies
A GST-free supply is one which does not attract the 10% GST. In other words, it means that the supplier is not required to charge the 10% GST. However, the registered entity can still claim back input tax credits on the inputs used to produce the GST-free supply. This effectively results in no GST being collected on the supply of GST-free goods and services. Examples of GST-free supplies include:
basic food; health; education; childcare; exports and other supplies for consumption outside Australia; religious services; non-commercial activities by charitable institutions; raffles and bingo conducted by charitable institutions; water and sewerage facilities; supplies of going concerns; transport and related matters; precious metals; supplies through inward duty free shops; grants of freehold and similar interests by governments; farm land; cars used by disabled persons; and international mail.
When coding a GST-free supply in GENERIC, you should use the code “FRE”. If an organisation has a GST-free supply, it may still claim back input tax credits on the inputs used to produce the GST-free supply. This effectively results in no GST being collected on the supply of GST-free goods and services. For more information on the GST concessions provided to the non-commercial activities of charitable institutions, refer to the following ATO fact sheet. For information specific to residential rent, refer to Section 3.6.
Web link: http://www.ato.gov.au/content/downloads/n7633.pdf
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(c)
Input Taxed Supplies
An input-taxed supply means that the registered entity (ie. the supplier) is not required to charge the 10% GST to the consumer. However, unlike a GST-free supply, the supplier is not able to claim an input tax credit on the inputs used to produce the inputtaxed supply. Examples of input-taxed supplies include:
financial supplies (such as loans, bank charges, account keeping fees and interest); residential rent; residential premises; precious metals; and school tuckshops and canteens.
When coding an input-taxed supply in GENERIC, you should use the code ‘INP’. A summary of the three types of GST supplies is shown in Table 1 below.
Table 1: Summary of the 3 Types of GST Supplies
Type of Supply
Charge the 10% GST?
Claim Back the Input Tax Credit?
Taxable
Yes
Yes
GST-Free
No
Yes
Input-Taxed
No
No
2.4.3
Registration for the GST
To be liable for GST or to claim input tax credits, an organisation must be registered. An entity is required to register for the GST if their annual turnover exceeds $50,000 per annum. In the case of nonprofit organisations, the registration threshold is set at $100,000 per year. An entity above these thresholds must register for the GST. However, an entity below these thresholds may voluntarily register for the GST. Entities may register by completing the appropriate form available from the ATO or by or registering on-line at http://www.abr.business.gov.au. When an entity registers for the GST, it will be issued with an Australian Business Number (ABN). The ABN is the same as the registration number for GST.
2.4.4
Attribution Basis (Cash v Accruals)
There are two methods of accounting for the GST:
cash method; and the non-cash method (the accruals method).
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An entity may elect to use the cash basis of accounting if one of the following conditions is met:
its annual turnover is less than $1,000,000; it uses the cash basis for income tax purposes; the Commissioner determines that the enterprise can use the cash basis; or the entity is a charitable, gift-deductible entity or government school.
Where an entity falls under one of the above conditions, it may elect to use either the cash or accruals basis of accounting. However, if an entity is not eligible to use the cash basis, it must use the accruals basis of accounting. Under the cash basis of accounting, the GST is payable in the tax period when the cash is received from the customer in respect of a taxable supply, not the date that the tax invoice is issued. An input tax credit for a creditable acquisition is claimed when the payment is made in cash, rather than the date that the tax invoice was issued. Under the accruals basis of accounting, GST is payable on a taxable supply in the tax period in which:
the entity received consideration for the supply; or when the tax invoice is issued to a customer,
whichever is the earlier. Similarly, under the accruals basis of accounting, an input tax credit can be claimed on a creditable acquisition in the tax period in which:
the entity provided consideration for the goods or services; or when the tax invoice has been received,
whichever is the earlier. An entity cannot claim an input tax credit unless it has a tax invoice for the purchase at the time of lodging the BAS.
2.4.5
Tax Periods (Monthly v Quarterly)
A tax period is a period for which an entity calculates its GST and lodges its return (known as the Business Activity Statement). An entity has a choice of whether it wants to lodge monthly or quarterly Business Activity Statements (BAS). The quarterly tax periods end on 31 March, 30 June, 30 September and 31 December. The monthly tax period ends on the last day of each month. An entity is required to use a monthly tax period if the entity's annual turnover is $20 million or more or the entity has a history of failing to comply with tax obligations. When lodging its Business Activity Statement, the entity calculates the amount of GST payable in respect of taxable supplies charged to customers. It also calculates the amount of the GST paid (ie. input tax credits). Generic Training Manual March 2006
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The difference between these two amounts is referred to as the “net amount”. The registered entity must remit the net amount to the ATO on the Business Activity Statement. Conversely, where an entity determines a negative net amount, this signifies a refund that the ATO owes the entity. The ATO must process the refund within 14 days of receipt of the BAS. For quarterly lodgers, the Business Activity Statement must be lodged within 28 days of the end of the relevant tax period. For example, the BAS for 31 March 2004 is due by 28 April 2004. In the case of the 31 December 2003 BAS, the lodgment date is 28 February 2004 rather than 28 January 2004. In the case of monthly lodgers, the BAS must be lodged within 21 days of the end of the relevant tax period.
2.4.6
Understanding GST Tax Codes
Although there are a variety of tax codes available, the frequently used ones are shown in the table below:
Table 2: General Coding System
General Code
Description of the General Code
CAP
Capital acquisitions tax code – used to record GST on assets purchased by the entity
FRE
GST-Free – used to record the entity’s GST-free sales
GNR
A supplier that is not registered for the GST
GST
GST tax code – used to record revenue or expenses on which the entity has collected or paid GST (eg. telephone expense)
INP
Input-taxed – used for bank charges and other financial supplies
N-T
No tax – not reported on the BAS – used to record transactions outside the GST system, such as cash transfers and donations
ABN
No ABN has been quoted on the invoice or tax invoice. Accordingly, the payer is required to deduct and remit 48.5% ABN withholding tax
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2.4.7
Tax Invoices
A registered entity which makes a taxable supply and charges the GST is required to issue a tax invoice. A supplier must issue a tax invoice within 28 days of the date of sale, if requested, for all supplies with a GST exclusive price exceeding $50 (i.e. $55 inclusive of GST). The Commissioner takes the view that the $50 test should be applied to the total of the tax invoice and not the value of each separate item (see GST Ruling GSTR 2000/17). This GST Ruling can be found at the following address:
Web link: http://law.ato.gov.au/pdf/gst00-17.pdf
According to Section 29-70 of the GST Act, a tax invoice must include:
the Australian Business Number (ABN) of the entity issuing it; the GST-inclusive price of the supply; the words "tax invoice" stated prominently; the date of issue of the tax invoice; the name of the supplier and the name of the recipient; the address or ABN of the recipient; a brief description of each thing supplied including the quantity; and be in a form approved by the Commissioner.
The precise requirements vary according to whether the amount payable is less than $1,000. Where the GST payable on the tax invoice is exactly 1/11th, the tax invoice may either show:
the total price inclusive of GST, with a statement confirming that the total amount payable includes GST; the amount of the supply plus the GST separately disclosed.
Where the GST is less than 1/11th (ie. where the supply consists of a taxable supply and a GST-free supply) the amount of GST payable must be separately disclosed.
2.4.8
Preparing the Business Activity Statement
The Business Activity Statement (BAS) is issued by the Australian Taxation Office. If your organisation has chosen a monthly tax period, this form will arrive every month. Conversely, if the organisation has chosen a quarterly tax period, the BAS will issue and arrive every 3 months. You should receive the BAS a week or so before the end of the relevant tax period. The BAS includes the amount of GST charged by your organisation (and subsequently) collected as well as the GST paid by your organisation on acquisitions. These two amounts are offset to be called the ‘net amount’. Generic Training Manual March 2006
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The BAS also includes information on PAYG withheld from salaries and wages for the relevant tax period and ABN Withholding tax where no ABN was quoted by the supplier. In the case of private sector entities, the BAS also requires payment of PAYG instalments. Essentially, this is a pre-payment of income tax for the current income year each quarter. A sample Business Activity Statement has been included later in this manual.
2.4.8.1 Setting up BAS Information Whilst your software may have a useful BAS function, you must still lodge the ATO’s hard copy BAS. It is not permissible to print off a BAS generated by an accounting software package and send this to the ATO, as each BAS issued by the ATO has its own unique bar code. However, most software packages can replicate the BAS so that all you need to do is transcribe the figures from your software-created BAS to the ATO-issued BAS for lodgement. Before preparing the BAS, the following steps need to be taken: 1.
All bank accounts must be reconciled.
2. Print the report called ‘GST [Detail – Cash]’ if this exists, assuming that your organisation is on the Cash method of accounting for GST purposes. (If your organisation is on the Accruals method of accounting for GST purposes, choose the ‘GST [Detail – Accruals]’ report instead.) This detail report will give you a listing of all transactions that have occurred for the relevant time period, generally grouped according to their tax code setting. For this reason, you will want to view all tax codes and GST both Collected and Paid (or Receivable and Payable – the wording can differ from package to package). The dates must be set to show all activity for the quarter in question – three months. Print the report that is generated, and check every entry to make sure that the correct tax codes have been used. When satisfied, use this information to either fill out your BAS, or to check the BAS information generated by your software package.
TIP:
Please note that gifts (donations) fall outside the scope of the GST Act. Hence, they should be coded to “N-T” or no-tax in your accounting package. Gifts (or donations) are not reported on the Business Activity Statement.
Your BAS or GST worksheet will certainly contain at least some of the following listed areas – use these definitions to help you to fill out the BAS satisfactorily. Ignore any fields that are not applicable. G1: Total Sales (including any GST) G1 is used to record the gross sales and any other income earned by your organisation. This figure includes any GST you have collected and includes any amounts shown at G2, G3 and G4. Generic Training Manual March 2006
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G2: Export Sales Export sales are not subject to GST, and should be shown here. G3: Other GST-Free Sales This field is used to record any sales that are GST-free. G4: Input Taxed Sales As previously mentioned, input taxed supplies include financial supplies such as bank fees, and residential rent and certain fundraising events conducted by charitable institutions. For more information on this, refer to Section 3.6 of this manual for further guidance. G5: G2 + G3 + G4 This field adds together G2, G3 and G4. G6: Total Sales Subject to GST [ie. G1 - G5] Your software should automatically calculate the total sales which have been subject to GST for the previous quarter. G6 equals G1 minus G5.(i.e. total sales exclusive of GST less sales not attracting GST) G7: Adjustments [if applicable] Adjustments may occur where there has been an overstatement or understatement of GST shown in a previous BAS. For example, you may have discovered that the GST was not declared in a previous BAS in respect of a grant. The amount of the GST collected relating to a previous quarter should be shown here. However, you should consult your accountant before including any amounts at G7. G8: Total Sales Subject to GST After Adjustments [ie. G6 + G7] This field adds together G6 and G7. G9: GST on Sales [G8 divided by eleven] At G9, if your software is able to do so, the amount of GST on sales will be automatically calculated. This will be 1/11th of the sales for the quarter. G10: Capital Purchases [Including any GST] Next, we move on to G10 – this field will show any Capital Purchases [Including any GST] – these are any non-current assets purchased during the reporting period, and should have a GST code of ‘CAP’. G11: Non-Capital Purchases [Including any GST] Here, you will need to show all other purchases your organisation has made for the period – including any that may have been GST FRE.
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G13: Purchases for Making Input Taxed Sales Once again, this section mainly applies to financial institutions and real estate management companies and is not expected to apply to nonprofit organisations. Hence, it should be left blank, unless your organisation is involved in real estate and fundraising. For more information on this, refer to Section 3.6 of this manual for further guidance. G14: Purchases Without GST in the Price This will record all purchases made which are not, for whatever reason, subject to GST – these could payments for work done for you by a contractor, who is not registered for the GST. In this case, you should not have recorded GST when processing this payment through your software. G15: Estimated Purchases for Private Use or Not Income Tax Deductible Once again, it is not expected that nonprofit organisations will be using this option. G16: G13 + G14 + G15 This field adds together G13, G14 and G15. G17 – Total Purchases Subject to GST [G12 - G16] Your software will automatically calculate the total purchases which have been subject to GST for the previous quarter. G18: Adjustments [if applicable] Once again, adjustments may occur where there has been an overstatement or understatement of GST claimed in respect of a previous quarter. For example, you may have discovered that the GST was not claimed in the previous BAS in respect of electricity paid. The amount of the GST paid relating to a previous quarter should be shown here. However, once again, you should consult your accountant before including any amounts at G18. G19: Total Purchases Subject to GST after Adjustments [G17 + G18] This field adds together G17 and G18. G20: GST on Purchases [G19 divided by 11] At G20, your software will automatically calculate the amount of GST on purchases. This will be 1/11th of the amounts spent on purchases and expenses during the previous quarter.
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When you have finished all the necessary calculations required to determine GST Payable and Receivable, fill out the BAS, being sure to include the contact details of the person responsible for this. On the back of the BAS, if your organisation is registered as a PAYG Withholder, you will find the fields which need to be filled out to show total wages, salaries and other payments, along with any amounts withheld from such. You will also be able to remit any amounts withheld for no ABN being quoted. After doing the necessary additions, transfer the relevant withheld amount to the field further down the BAS, to be added to any GST Payable amount that must be reported to the ATO. The bottom of the BAS is now divided into 4 relevant fields – that of GST Payable, PAYG Tax Withheld, and their combined total; GST Receivable, and then the final result after these have been netted off. This final result will be transferred to the relevant field, and the entire form submitted to the ATO, along with a payment cheque if this is relevant. Do not forget to make a copy of the completed BAS before you send this document away. Store this copy with any printouts from your software, and any working papers that you may have used or generated. This is vital if later potential problems are to be sorted easily and quickly.
TIP:
Remember that you should not lodge your software-generated BAS with the ATO. This is purely for your records. You need to transcribe the figures generated by your software to the original hard copy of the BAS sent by the ATO.
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WARNING FOR BOOKKEEPERS: Many bookkeepers provide BAS-related services including preparation of a client’s BAS. If you are a bookkeeper who provides BAS-related services to clients as part of a business, you need to be aware of the legal restrictions regarding who can charge a client for the provision of tax advice (including preparation of a BAS). Section 251L of the Income Tax Assessment Act 1936 (as amended) prevents any person from charging or receiving a fee for preparing or assisting a client with any income tax matters unless they are a registered tax agent. The ATO has advised that it an offence for bookkeepers to charge a fee for the preparation of a BAS if they are not a member of a recognised professional association or working under the direction of a registered tax agent. There are currently five professional bodies that qualify as professional associations. These five professional associations are listed on the ATO website. Hence, if a bookkeeper who prepares a nonprofit organisation’s BAS is not a registered tax agent or member of one of the five recognised professional associations, they must have the BAS checked and approved by a registered tax agent or a member of one of the five professional associations. More information on this topic can be found at the ATO’s website, being: http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/40604.htm.
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2.5
Employment Issues and Payroll
All payments to staff should be processed through the ‘Payroll’ option of your software package. This is the case regardless of whether the employee is employed on a full-time, part-time or casual basis. The only instance that a payment for labour would not be processed through the ‘Payroll’ section would be where the person provided an invoice (where not registered for the GST) or tax invoice (where they were registered for the GST) to your organisation for payment. This would be the situation in the case of independent suppliers and contractors. However, for employees, your software should be capable of calculating and keeping track of PAYG tax deducted, accrued annual leave, sick leave and superannuation entitlements. Table 3 below summarises the individual tax rates for the year ended 30 June 2005.
Table 3: Individual Tax Rates for 30 June 2005
Taxable Income
Tax Payable
$0 - $6,000
Nil
$6,001 - $21,600
Nil + 17% of excess over $6,000
$21,601 - $58,000
$2,652 + 30% of excess over $21,600
$58,001 - $70,000
$13,572 + 42% of excess over $58,000
$70,001 +
$18,612 + 47% of excess over $70,000
The rates for 30 June 2006 are as follows:
Table 4: Individual Tax Rates for 30 June 2006
Taxable Income
Tax Payable
$0 - $6,000
$Nil
$6,001 - $21,600
$Nil + 15% of excess over $6,000
$21,601 - $70,000
$2,340 + 30% of excess over $21,600
$70,001 - $125,000
$16,860 + 42% of excess over $70,000
$125,001 +
$39,960 + 47% of excess over $125,000
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These rates are available at the following web site:
Web link: http://www.ato.gov.au/individuals/content.asp?doc=/con tent/12333.htm
Should these rates change, you will need to download the new tax rates into your software, if this facility is available.
TIP:
Read the Tax File Declaration carefully when it has been submitted to you. It will contain information regarding HECS debts and so on, which will determine which tax option will be chosen when employee cards are being set up.
2.5.1
Australian Business Numbers and 48.5% ABN Withholding Tax
All businesses registered for the GST are issued with an ABN (or Australian Business Number). This is a unique 11-digit number which must be displayed by the supplier on all tax invoices issued. However, there are some entities (including individuals) who are required to have an ABN regardless of whether they are registered for the GST or not. According to the Act, any person carrying on an enterprise (this is usually a business) must quote their ABN in relation to goods or services supplied to another business. If the person does not quote an ABN on their invoice, the payer is required by law to deduct 48.5% of the amount shown on the invoice. This amount (referred to as ABN Withholding Tax) is remitted to the ATO on the next Business Activity Statement (BAS). The remaining amount (ie. 51.5%) is paid to the supplier. In other words, if an organisation receives an invoice from a supplier that is not registered for the GST, that supplier must still nevertheless have an ABN. If the invoice does not include an ABN, the organisation is required to deduct and remit 48.5% of the amount of the invoice to the ATO. However, the organisation does not need to deduct the 48.5% ABN Withholding Tax if:
the invoice is for $50 or less, excluding any GST; the supplier is an individual under 18 years of age, is not your employee, and the payment made to that person does not exceed $120 per week; the supply is input taxed under GST. As previously mentioned, this includes most financial supplies, supplies of residential rent, residential premises, some precious metals, and food supplies by school tuckshops; the supply is made in the supplier’s private capacity, or as their hobby; the payment is exempt income for the supplier (for example, the supplier is a nonprofit body);
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the payment is to a non-resident who is not carrying on a business in Australia or through an agent in Australia, or the supplier is not an enterprise because they have no reasonable expectation of profit or gain (however, for this to apply, the supplier must supply you with a written statement stating this).
If you are unsure, you should ask the supplier to provide you a written statement that the supply is excluded for one of the above reasons. The ATO has drafted a form entitled “Statement by a Supplier”. A copy of this form has been included later in this manual. This form must be maintained for a period of 5 years from the date of completion. Alternatively, you can see one at the following web link:
Web link: http://www.ato.gov.au/content/downloads/nat3346.pdf
If you do not receive this signed statement and if the supplier has not quoted their ABN on their invoice, you are required by law to withhold 48.5% of the total payment. Finally, you should also withhold if you doubt that the ABN quoted to you is correct. If you are unsure, you can check the validity of an ABN by using the Australian Business Register website at: http://www.abr.business.gov.au. If the organisation withholds 48.5% of the payment, it is required to complete a Payment Summary (similar to a PAYG Payment Summary issued to employees) and give it to the supplier at the same time you pay them the net amount (ie. 51.5%) or as soon as possible thereafter. The supplier will need this form to claim the withheld amount as a credit in their income tax return. A copy of the PAYG Payment Summary form has been included later in this manual. Note that for each invoice received from the supplier, one of these forms will have to be filled out each time a payment is made. Remember to also keep a copy of this statement in your files!
What to Do if There is No ABN When you enter a purchase from an invoice, you are normally required to assign this purchase to a supplier card. When the supplier card is filled out, you are required to enter the supplier’s ABN. If no ABN is entered, it is quite likely that your software may issue you with a warning message, alerting you to the fact that no ABN has been quoted. Here, you have a choice – you can either ignore this fact, or decide to withhold 48.5% from the amount finally paid to the supplier in question. Generic Training Manual March 2006
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To withhold, you will need to change the tax code currently being used for the purchase entry to the ‘No ABN/TFN’ tax code. This amount will automatically be withheld, and collected in the liability account entitled ‘ABN Withholding Tax Payable’ (Account # 2-1175). Having said all of this, in most cases, it will not be necessary to withhold as most suppliers will provide you with a valid ABN. Those who do not can be encouraged to do so – usually the threat of losing virtually half of their income works wonders!
2.5.2
Setting up Employee Cards
If your software is capable of setting up cards for your employees, by all means do this. These cards are a good place to record all relevant name and contact details, emergency contacts, and start and termination dates. It should also be possible to record any specific tax issues that may apply to the employee with regard to HECS or other matters. You should also use this card to record the employee’s choice of superannuation fund. Correct set-up of these cards will allow you to track tax, total wages, and any leave entitlements owing or taken.
2.5.3
Superannuation
In Australia, every employer (regardless of their taxation status) is required to pay an amount equivalent to 9% of each employee’s gross earnings. This is often referred to as the employer-sponsored superannuation contribution. However, if an employee earns less than $450 per month, the employer is not required to pay the 9% employer-sponsored superannuation contribution. The employer is required to keep a record of all superannuation contributions made for each employee and how they report their superannuation contributions to their employees. Prior to 30 June 2003, employers were required to have paid the superannuation into each employee’s superannuation fund by 30 June 2003 in order to claim a tax deduction for the 2003 financial year. If the superannuation was not paid into the employee’s fund by 28 July 2003, then the employer was subject to the Superannuation Guarantee Charge. This charge involves a combination of an administrative penalty, a shortfall penalty and interest calculated at a flat 10% of the shortfall. From 1 July 2003, employers now must make superannuation guarantee contributions into each employee’s superannuation fund each quarter. The amount must be paid into each employee’s superannuation fund within 28 days after the end of each quarter. Employers must also inform each employee in writing the amount and the name of the destination fund of superannuation contributions made on his or her behalf. An employer can be subject to penalties if this is not done within 30 days of making the final contribution for the quarter. For example, if the last contribution is made on 28 October, the report must be made by 27 November. The written report must include: Generic Training Manual March 2006
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the amount of contributions made; the name of the superannuation fund, and, if possible, their contact phone number; and if known, the employee’s account or membership number.
The advice can take one of the following forms:
a letter or memo to the employee signed and dated by the employer or other person authorised to sign on their behalf; an e-mail sending the written report – an option for employers who usually communicate with their employees via e-mail; a notification from the employer’s business software package – for example on a payslip, or a copy of a receipt for contributions from the superannuation fund.
Employers who do not meet their superannuation obligations by the 28th day of the month following the end of each quarter must lodge a Superannuation Guarantee Statement and pay the superannuation guarantee charge on the employee’s salary and wages to the ATO by the 14th day of the second month following the end of that quarter. These requirements are shown below in Table 5.
Table 5: Quarterly Superannuation Guarantee Due Dates from 1 January 2006
Superannuation Guarantee Quarter
Cut-off date for superannuation guarantee contributions
Due date for lodgement of a superannuation guarantee statement and payment of the SGC if contributions are not made on time
1 July – 30 September
28 October
28 November
1 October – 31 December
28 January
28 February
1 January – 31 March
28 April
28 May
1 April – 30 June
28 July
28 August
It is now possible for employees to choose which superannuation fund you, the employer, will contribute their superannuation entitlement to. To ensure that each employee’s entitlement is accruing to the correct fund in your software, it may possible to set up individual cards for the various Superannuation Funds, and link these to individual employees. You should consult your accountant for more information on superannuation or visit the ATO’s website at the following link:
Web link: http://www.ato.gov.au/print.asp?doc=/content/22619.htm
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2.5.3.1
What to Do to Track Superannuation
If you are able to set up your payroll card files to do so, your software will automatically calculate the amount of superannuation each employee is entitled to on a pay by pay basis. It will also automatically keep a record of the total accrued amount – in both an expense account, and a liability account, so that these amounts will show up on both the Profit and Loss Statement and the Balance Sheet, allowing you to have an accurate picture of the organisation’s financial position at any time. Your software should also be able to create reports for you that will give you specific details of each employee’s entitlement. Ensure that your software is accruing the employer superannuation contribution of 9%. Your accounting package should automatically default to that, but you should nevertheless double check that it has been set to 9%.
2.5.3.2 Printing a Superannuation Entitlements Report As previously mentioned, from 1 July 2003, employers now must make the 9% superannuation guarantee contribution into each employee’s superannuation fund each quarter. However, each employee may have a different superannuation fund. If you have set up individual cards for each superannuation fund that your organisation is contributing to, you should be able to generate a report that shows the amount accruing for each employee on a fund by fund basis.
TIP:
For the sake of record keeping, keep copies of these printouts safely. Do this for the sake of yourself, if you have to unravel something later on, and definitely do it for the sake of any bookkeepers coming after you who may be trying to follow a paper trail. Also be aware that once the new payroll year has started in your software, it may be impossible to extract any information for the previous financial years in the way of superannuation reports. Making sure to keep all of these reports now will potentially solve a lot of problems later on.
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Part 3: TRANSACTIONS UNIQUE TO NONPROFIT ORGANISATIONS
3.1
Introduction
This chapter discusses the accounting treatment of transactions unique to nonprofit organisations. Its aim is to assist the bookkeeper as to how these transactions should be recorded by nonprofits. It also briefly discusses the taxation and GST considerations of each issue. Specifically, the chapter addresses the following issues:
Accounting for grants; Accounting for donations and donated assets; Accounting for sponsorships and fundraising events; and Accounting for membership fees; Residential rent.
3.2
What is a Grant?
A grant is typically provided from one party (referred to as “the grantor”) to another party (referred to as “the grantee”) whereby the supply of a service is provided under the grant arrangement. The grant agreement usually specifies the various rights and obligations between the parties and the conditions attached to the service agreement. Often the grant agreement will provide that the grantee provide certain services to third parties, rather than the grantor. In the case of the Queensland Department of Communities, grants are usually provided to community organisations throughout Queensland to fund a range of service initiatives and programs that aim to strengthen family or community life, promote the dignity and independence of individuals or assist people in need. A service agreement is entered into between the Department and the nonprofit organisation which typically outlines the roles and responsibilities of each party and what services will be delivered by the nonprofit organisation. In return, the nonprofit organisation will usually be required under the service agreement to provide appropriate accounting records and periodic returns disclosing how the grant has been acquitted. Audited financial statements are usually also required to be provided to the Department at the end of the financial year. The Queensland Department of Communities has published a Standard Funding Agreement on its website given below. (The Web Link should work if you are using this Manual while on line. If you’re working from a printed copy of the Manual, you will need to connect to the Internet, then type in the web address given below the Web Link.)
Web Link : Department of Communities Standard Funding Agreement http://www.communities.qld.gov.au/department/funding/resources/documents/pdf /stdconditionsfund_com.pdf
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3.2.1
Is a Grant Subject to GST?
If a nonprofit organisation receives a grant, it is usually considered a taxable supply for GST purposes. Hence, 1/11th of the amount of the grant needs to be remitted to the Australian Taxation Office on the Business Activity Statement. In limited circumstances a grant from a charitable foundation will not be subject to GST. A copy of the grant format which the Australian Taxation Office will accept as not being subject to GST can be found at the Philanthropy Australia Web site at: http://www.philanthropy.org.au/advocacy/achievements.htm In the case of grants received from Government Departments, this will usually be subject to GST. In some cases, the Government Department provides a tax invoice to the nonprofit organisation. This is referred to as a “recipient created tax invoice”. This means that the nonprofit organisation does not need to send the Government Department a tax invoice. If the Government Department does not issue the nonprofit organisation with a recipient created tax invoice, then the nonprofit organisation will be required to raise and send the Government Department a tax invoice for the GSTinclusive value of the grant received. The ATO has also released a fact sheet entitled “Grants and GST: Recipient Created Tax Invoices” which discusses the criteria for recipient created tax invoices. This fact sheet can be downloaded from the ATO website at:
Web Link : Grants and GST: Recipient Created Tax Invoices http://www.ato.gov.au/businesses/content.asp?doc=/content/30403.htm
A grant is not a “gift” for taxation purposes. A grant contains specific conditions as to how that grantee is to spend the money. As such, it will not constitute a gift. This is confirmed in Section 9-10(2)(d) of the Goods and Services Tax Act (1999) as amended which states that a taxable supply includes “a grant, assignment or surrender of real property”. The ATO has issued a GST Ruling dealing with Grants entitled GSTR 2000/11 Grants of Financial Assistance. This document can be downloaded at: http://law.ato.gov.au/pdf/gst00-11.pdf. The ATO has also issued a booklet entitled “GST and Grants” which outlines the GST treatment of grants. This booklet can be downloaded from the ATO website at:
Web Link : GST and Grants http://www.ato.gov.au/content/downloads/nat7037-01.2005.pdf
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3.2.2
Accounting for Grants
As far as the nonprofit organisation is concerned, the main issue with accounting for grants is determining the point at which these grants are recognised as revenue in the Profit and Loss Statement. Generally, if a grant is received that relates exclusively to the current period, the grant is recorded as revenue in the Profit and Loss Statement. However, a particular problem arises where grants are received in advance of the period in which they are expected to be used. In other words, where the period of the grant spans more than one financial year. The issue is whether the total amount of the grant should be treated as revenue upon receipt or recognised progressively as revenue in the period in which the grant is expected to be used. If the latter is chosen, a subsequent issue is whether the grant should be classified as a liability. The answer to this question depends on whether the grant is reciprocal or nonreciprocal and whether the grant has been received by a for-profit or nonprofit organisation.
(i)
Reciprocal Transfer A reciprocal transfer is a transfer in which the entity receives assets (ie. money) or services and directly gives approximately equal value in exchange to the provider of the money. In other words, a reciprocal transfer is one in which the recipient is obliged to provide goods or services of approximately the same value back to the contributor. In the case of nonprofit organisations, such transactions are often described as membership fees, tickets to fundraising events, sale of fundraising goods such as chocolates or lollies etc.
(ii)
Non-Reciprocal Transfer A non-reciprocal transfer (or contribution) is a transfer in which the entity receives assets (ie. money) or services without directly giving approximately equal value back to the contributor. In other words, a non-reciprocal transfer is one in which the recipient is not obliged to provide goods or services of approximately the same value back to the contributor. In the case of nonprofit organisations, such contributions are often described as gifts or donations. The nonprofit organisation is not required to give back to the donor approximately the same value provided.
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According to paragraph 100 of Statement of Accounting Concepts SAC 4, grants are considered to be non-reciprocal transfers. This paragraph states: “Not-for-profit entities obtain assets or services to provide particular types of goods and services to consumers and beneficiaries, in accordance with their objectives. Contributions, whether restricted or unrestricted, to a not-for-profit entity are non-reciprocal transfers which are made to maintain or increase the entity's capacity to provide those goods and services.” Having confirmed that a grant is regarded as a non-reciprocal transfer, from an accounting viewpoint, the next question is whether the grant should be accounted for as revenue upon receipt or initially recognised as a liability and transferred to revenue over the period of the grant. The answer to this question depends on whether the entity is a for-profit or nonprofit entity.
(a)
Accounting for Grants in the Books of For-Profits Where a for-profit entity receives a government grant, AASB 120 Accounting for Government Grants and Disclosure of Government Assistance applies. This Accounting Standard requires that grants should be recognised as revenue in the Profit and Loss Statement over the period during which the grant relates. In other words, the initial amount of the grant should be shown as a current liability entitled “grants received in advance” in the Balance Sheet and transferred to the Profit and Loss Statement on a progressive basis as revenue over the period of the grant. On this basis, the standard regards the government grant as a reciprocal transfer.
(b)
Accounting for Grants in the Books of Nonprofits The definition of a “not-for-profit” entity is contained in paragraph Aus 6.2 of AASB 136 Impairment of Assets: “A not-for-profit entity is an entity whose principal objective is not the generation of profit.” Where a nonprofit entity receives a government grant, AASB 1004 Contributions applies, not AASB 120. Paragraph 8 of AASB 1004 confirms that the entire amount of the grant should be recognised as revenue in the Profit and Loss Statement in the year of receipt regardless of the period of the grant. In other words, the grant should not be recorded as a current liability entitled “grants received in advance”.
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Divergent Treatment As can be seen, the current way that for-profit organisations account for their grants is different from the way that nonprofit organisations are required to account for grants. Several nonprofit organisations have complained about this divergent treatment to the Australian Accounting Standards Board (AASB). The AASB is the government body that sets accounting standards in Australia. Based on these concerns, in February 2006, the AASB released a document entitled ED 147 Revenue from Non-Exchange Transactions. This document proposes to amend AASB 1004 Contributions to allow nonprofit organisations to record grants received in advance as a liability (similar to for-profit organisations). The grant would be progressively brought to account as revenue in the Profit and Loss Statement over the period of the grant. This amendment would bring the accounting treatment for grants for both for-profit organisations and not-for-profit organisations into line.
EXAMPLE: Assume that on 1 January 2006 a nonprofit organisation receives a recurring grant from the Department of Communities of $55,000 including GST. This grant is for a 12-month period. The nonprofit will be required to remit 1/11th of this amount to the ATO (ie. $5,000). This will be coded to the liability “Account 2-1150 GST Payable”. Assume that the financial year-end of the nonprofit organisation is 31 March. Despite the fact that only 3 months have passed from the date of the receipt of the grant to the end of the financial year, under AASB 1004 Contributions, the nonprofit organisation will record the entire $50,000 as revenue upon receipt of the grant (“Account 4-1040 State Grants – Recurring”). This is despite the fact that 9/12ths of the grant relates to the subsequent financial year. However, once AASB 1004 Contributions is amended, nonprofit organisations will recognise $12,500 as grant revenue (3/12ths x $50,000) in the Profit and Loss Statement and $37,500 (representing 9/12ths x $50,000 relating to the next financial year) as “Grants received in advance” in the Balance Sheet.
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TIP:
For nonprofit organisations, grants are recorded as revenue at the time the grant is received, regardless of the period to which the grant relates. Grants are subject to GST, hence, the nonprofit organisation must remit 1/11th of the gross amount of the grant to the ATO. In many cases, the Government Department will provide the nonprofit organisation with a recipient-created tax invoice. This means that the nonprofit organisation does not need to send the Government Department a tax invoice.
3.3
Accounting for Donations and Donated Assets
In some instances, a person may make a donation of cash, trading stock or property to a nonprofit organisation. To be a bona fide gift or donation, it must have the following characteristics:
there is a transfer of the beneficial interest in property; the transfer is made voluntarily; the transfer arises by way of benefaction; and no material benefit or advantage is received by the giver by way of return.
Generally, for a payment to be considered a gift, it must be unfettered, that is, there must be no obligation to do anything material in recognition of the gift and no expectation on the part of the donor to receive anything material in return for the donation (ie. no strings attached). Hence, the following are not usually considered gifts:
purchase of raffle or art union tickets; client contributions towards services or activities (eg. contribution towards a bus trip); purchase of an item such as a mug, key ring or pen which is not merely a token that promotes the community organisation or its activities. Such tokens which are commonly given in fundraising drives include lapel badges, bumper stickers, red noses, Legacy pins, daffodils on Daffodil Day and so on; the cost of attending a fundraising dinner, even if the cost exceeds the value of the dinner; sponsorships or advertising provided to the donor in exchange for the donation; memberships and registration fees; and payments where the person has an understanding with the recipient that the payment will be used to provide a benefit to the donor.
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On 20 July 2005, the Australian Taxation Office released Taxation Ruling TR 2005/13 Tax Deductible Gifts – What is a Gift? This taxation ruling supersedes several other taxation rulings and taxation determinations and represents the most comprehensive taxation ruling issued by the Australian Taxation Office on the subject of tax-deductible gifts. TR 2005/13 contains 230 paragraphs, 8I worked examples and spans 47 pages.
Web Link : Taxation Ruling TR 2005/13 What is a Gift? http://law.ato.gov.au/pdf/tr05-013.pdf
The donor will be able to claim a tax deduction for the gift made, provided it was made to a deductible gift recipient (DGR) that has been endorsed by the Commissioner of Taxation. The complete list of deductible gift recipients can be found by searching the name or ABN of the organisation at: http://www.abr.business.gov.au. There are two ways a person can make a donation to a nonprofit organisation: (a) (b)
monetary donations; and/or non-monetary donations.
The respective accounting treatment of each of these transactions is discussed below.
3.3.1
Monetary Donations
A person may make a monetary (ie. cash) donation to a nonprofit organisation. In this case, if the donation meets the criteria for a tax-deductible gift and your organisation is a DGR, the relevant cash at bank account is debited, and the revenue “Account 42010 Donations Received” credited. If the donation does not meet the criteria for a taxdeductible gift, then the “Account 4-2040 Non-Tax Deductible Gifts” is credited. All gifts should be deposited into a separate gift account. For more information on the requirements of a gift fund, please refer to the ATO Fact Sheet entitled “Gift Fund Requirements for Deductible Gift Recipients”:
Web Link : Gift Fund Requirements for Deductible Gift Recipients http://www.ato.gov.au/content/downloads/n3194-05-2005_w.pdf
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Reference should also be made to TR 2000/12 Deductible Gift Recipients – The Gift Fund Requirements. This tax ruling can be downloaded at: http://law.ato.gov.au/pdf/tr00-012.pdf Regardless of whether the donation is a tax-deductible gift or not for income tax purposes, a gift (or donation) is not considered a taxable supply for the purposes of the Goods and Services Tax Act (1999) as amended. As it is not considered a GST-Free supply or input-taxed supply, it falls outside the scope of the GST Act. Hence, they should be coded to “N-T” or no-tax in both MYOB and Quick Books. Gifts (or donations) are not reported on the Business Activity Statement.
3.3.2
Non-Monetary Donations
In some instances, a person may donate property or an asset (ie. make a nonmonetary donation) to a nonprofit organisation. For example, a person may donate a computer or a printer, equipment or furniture and fittings. Despite the fact that the donated item is non-monetary in nature, it must still be recorded in the accounting system. The accounting treatment of non-monetary donations depends on whether the fair value of the donated item is greater or less than $5,000. This amount is the threshold adopted in the QUT Model Chart of Account to determine whether an item should be recorded as an asset or expense.
(a)
Donated Asset Valued at Less Than $5,000
If a nonprofit organisation receives a donated asset that is valued by the nonprofit organisation at less than $5,000, the donated asset should be expensed to the Profit and Loss Statement for the estimated fair market value of the donated asset. There is no need for the nonprofit organisation to obtain a formal valuation of the item in question if it is less than $5,000. However, the item must be valued on a reasonable basis. For example, if a person donates a new Sony 51 cm television set to a nonprofit organisation, then a comparable price for this television set can be obtained by checking the price at a retail store (eg. Big W, Target, Myer, JB Hi Fi etc). Many stores have web pages, where it is possible to electronically search for the item. The difficulty lies where the item being donated is not new (ie. second-hand). In this case, an estimate needs to be made of the value of a second hand item that is donated. For example, a person may donate a second hand Sony 51 cm television set to a nonprofit organisation. In this case, consideration may be given to searching the item on E-Bay (http://www.ebay.com.au) and typing in the name of the relevant item.
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It is not essential that the donated item be measured precisely. As long as there has been a reasonable attempt to value the donated asset, the auditor should be satisfied . It is important that you keep a record of where you found the comparable item and price. For example, you should print out the webpage showing the comparable item and the price and keep this printout with your other asset information. Let us assume that the second-hand Sony 51 cm television set has been valued at $400. In this case, the expense “Account 6-0040 Asset Purchases < $5,000” will be debited and the revenue account entitled “4-2010 Donations Received’ credited (if it is a tax-deductible gift). If the item donated is not a tax-deductible gift, then the “Account 4-2040 Non-Tax Deductible Gifts” should be credited. In the case of donated non-monetary items, no input tax credit can be claimed, as no money was actually spent to acquire the item. Similarly, no GST is payable as there was no sale. Hence, the tax code to be used in both MYOB and Quick Books is N-T (No Tax).
(b)
Donated Asset Valued at More Than $5,000
If a nonprofit organisation receives a donated asset that is valued at more than $5,000, the donated asset should be recorded in the appropriate asset account in the Balance Sheet. This asset should also be added to the asset register. In many cases, where a donor makes a tax-deductible gift of property to a deductible gift recipient (DGR), in order to claim a tax-deduction in their income tax return, the donor is required to have purchased the property within 12 months from the date that the gift was made or be valued by the Commissioner at more than $5,000. A valuation certificate is required from the Australian Valuation Office (AVO).
Web Link : Australian Valuation Office http://www.avo.gov.au/
If the property is valued by the Australian Valuation Office, the donor will be notified of the value of the donated item by way of a valuation certificate. In some cases, the donor will provide the nonprofit organisation with a copy of the valuation certificate. This will provide the value of the asset to be recorded in the accounts. This time, let us assume that a person has donated a wide-screen plasma television to a nonprofit organisation, which has been valued by the Commissioner at $7,500. In this case, the asset “Account 1-7120 Plant and Equipment” will be debited and the revenue “Account 4-2010 Donations Received’ should be credited (if it is a taxdeductible gift). If the item donated is not a tax-deductible gift, then the “Account 42040 Non-Tax Deductible Gifts” should be credited.
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Once again, no input tax credit can be claimed by the nonprofit organisation on the $7,500 as no money was actually spent to acquire the plasma television. Similarly, no GST is payable as there was no sale. Hence, the tax code to be used in both MYOB and Quick Books is N-T (No Tax).
3.4
Accounting for Sponsorships and Fundraising Events
Many nonprofit organisations undertake a range of fundraising activities ranging from fetes, auctions, charity balls, lunches, dinners etc. In addition, a nonprofit organisation may also approach a corporate partner to be involved in sponsoring certain events or functions. In terms of the accounting treatment for fundraising events, the relevant cash at bank account is debited with the appropriate revenue account credited (4-2000 or 4-3000). Similarly, where sponsorships are obtained, the relevant cash at bank account is debited with the revenue “Account 4-4050 Sponsorships & Licensing Fees” credited. The GST treatment of sponsorships is relatively clear. Sponsorships are normally subject to GST, as they are provided in return for advertising services. Hence, ensure that the tax code is GST. When receiving monies from sponsorships, the nonprofit organisation must remit 1/11th of the gross amount received to the Australian Taxation Office on the next Business Activity Statement. Most fundraising events are subject to GST. Whilst genuine gifts (or donations) with “no strings attached” are not subject to GST, most other fundraising events constitute taxable supplies for GST purposes. Hence, they are subject to GST. In other words, a nonprofit organisation that charges $180 to attend a black tie charity fundraising dinner will be required to remit 1/11th of this amount to the ATO. Of course, the nonprofit organisation is entitled to claim back 1/11th of all costs associated with this event as an input tax credit. However, there is a special input taxed concession provided to charitable institutions in Division 40-F of the Goods and Services Tax Act (1999) as amended. According to Section 40-160, a charitable institution may elect for a fundraising event to be input taxed rather than be regarded as a taxable supply. This election is optional under the Act and applies to each fundraising event. The main advantage of nominating that the fundraising event be input taxed is that whilst no input tax credits are allowed in respect of outgoings associated with the fundraising event, no GST is required to be remitted on the proceeds received. A fundraising event is defined as one that is conducted for the purpose of fundraising and does not form any part of a series or regular run of similar events. Section 40165(1)(a) classifies a fundraising event as a fete, ball, gala, dinner, performance or similar event.
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The Commissioner of Taxation made a determination on 10 August 2001 cited as "Frequency of Fundraising Events Determination (No 1) 2001 that the frequency with which fundraising events may be held without forming part of a series or regular run of like or similar events is fifteen (15) fundraising events in any income year. Therefore, in any income year, a charity may hold up to:
15 fetes, 15 balls, 15 gala shows, 15 dinners, 15 performances, 15 charity auctions, 15 wine tastings and 15 fashion parades; 15 national flower days; and 15 golf days, 15 National Health Promotion Days.
Where a charitable institution makes an election to have their fundraising event input taxed, they are required to treat all supplies made in connection with it as input taxed. This applies to the ticket, charity auction that may be held on the night, as well as raffles (which would ordinarily be considered GST-free). By electing to treat the fundraising event as input taxed, the nonprofit organisation is not required to issue a tax invoice to each guest when the ticket is sent. Furthermore, there is no need to remit 1/11th of the proceeds from the auction or other activity conducted on the night. However, the nonprofit organisation is unable to claim back any input tax credits in respect of the event. According to the Australian Taxation Office, if a charitable institution elects to treat its fundraising events as input taxed, then the revenue and expenses for each event must be separately accounted for in the accounting system. In other words, if the input taxed election is made for a particular event, the ATO requires that all proceeds and costs associated with that particular event be separately accounted for. In order to satisfy these requirements, if an election is made to treat the fundraising event as input taxed, then the bookkeeper should set up a cost centre within either MYOB or Quick Books and job-cost all revenues and expenses associated with fundraising event to INP (input taxed). For more information on fundraising events and the election to treat all supplies as input taxed, refer to the following ATO publication entitled “GST and Fundraising Dinners or Similar Functions” at the following address:
Web Link : GST and Fundraising Dinners or Similar Functions http://www.ato.gov.au/content/downloads/nat7327122004.pdf
The decision to elect that a fundraising event be treated as input taxed should be made in discussion with the board, CEO and external accountant.
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3.5
Accounting for Membership Fees
Many nonprofit organisations are membership based. Hence, they charge membership fees to those persons who join the organisation as members. Typically, membership fees will be received by the nonprofit organisation on an annual basis. The member (or prospective member) typically completes a membership or registration form and submits this form with the nominated fee either via cheque, cash, EFT or by providing their credit card details. Usually, the nonprofit organisation will provide the membership application form requiring the applicant to complete a variety of details. The application itself may be accompanied by a tax invoice, provided the document contains all of the requirements for a tax invoice. Membership fees are regarded as a reciprocal transfer, because the nonprofit organisation is providing the member with benefits of approximately equal value in exchange for the money received. According to paragraph 11 of AASB 1004 Contributions: “Where clubs and professional associations charge fees in return for contributors being able to enjoy the use of facilities, receive publications or practise in a particular vocation for a defined period, an exchange transaction can be presumed and the fees would not be treated as contributions.” Whilst the member’s benefit may exceed the current financial year, most nonprofit organisations record the entire amount of membership fees received as revenue. Hence, when a member pays their membership fees, the relevant cash at bank account is debited for the amount of the membership fee, with the revenue “Account 43010 Contributions (Members)” credited. Some nonprofit organisations may elect to record the membership fees by apportioning the fees between the current period and future periods. For example, if the membership fees relate to one or more financial years, the portion that relates to the current financial year is regarded as revenue, with the amount relating to the future financial year regarded as a liability. For example, if on 1 January 2006, a member pays their membership fees of $120 for 12 months, by 31 March (3 months later), the nonprofit organisation may elect to show only $30 as revenue (3 months) with the remaining 9 months (or $90) shown as a current liability (“Account # 2-1230 Revenue Received in Advance”). Regardless of which method the nonprofit organisation adopts, membership fees are subject to GST. Hence, the tax code is GST.
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3.6
Residential Rent
In some cases, organisations funded by Department of Communities under the Supported Accommodation Assistance Program (SAAP) rent their properties from the Department of Housing under the Crisis Assistance Program (CAP). Properties can also be rented from the private market and in some cases also from the Department of Communities (in the latter case a peppercorn rent is charged). According to Section 40-35 of the Goods and Services Tax Act (1999) as amended, the supply of residential rent is input-taxed. This means that the landlord is unable to charge the GST to the tenant. Hence, the revenue account “4-5030 Rental Income” should be coded to INP (Input Taxed). However, being an input taxed supply, this means that all expenses associated with the rental property should also be coded to INP. Hence, the following accounts have been assigned the GST tax code INP: Account 6-0430 Account 6-0560 Account 6-0580 Account 6-0590
Insurance – Rental Properties Rates - Rental Properties Rent – Rental Properties Repairs & Maintenance – Rental Properties
The landlord is unable to claim back the GST on these items. In this case, the rental income would be coded to Item G4 Input Taxed Sales in the GST Calculation Worksheet for the Business Activity Statement. The associated rental expenses would be coded to G13 Purchases for Making Input Taxed Sales. However, there is a special GST-free concession provided to charitable institutions, charitable funds and gift-deductible entities contained in Section 38-250 of the GST Act. This section provides that where these entities charge a price for accommodation which is less than 75% of the GST-inclusive market value of a comparable unit of accommodation, the supply is regarded as GST-free, not input taxed. Coding the rental income as GST-free instead of input taxed does not mean that the landlord can charge the GST. There is still no GST on the rent. However, the benefit lies in the expenses associated with the rental property. Instead of being coded as INP, they can be coded as GST, meaning that the landlord can claim back the GST on all of these expenses. Bookkeepers should consult with their accountant or auditor to see if they are eligible to take advantage of the GST concession contained in Section 38-250 of the GST Act. If the concession applies, the bookkeeper should change the revenue account “4-5030 Rental Income” from INP to GST. Furthermore, the GST tax codes for all of the following expenses should be changed from INP to GST: Account 6-0430 Account 6-0580 Account 6-0590
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The expense “Account 6-0560 Rates – Rental Properties” can only ever be assigned the GST tax code N-T (never INP nor GST). In this case, the rental income would be coded to Item G3 GST-Free Sales in the GST Calculation Worksheet for the Business Activity Statement. The associated rental expenses would be coded to G11 Non-Capital Purchases. For more information on the rules relating to the non-commercial activities of charities, cost of supply and market value tests, refer to the following section of the Charities Consultative Committee Resolved Issues Document at:
Web Link : Market Value of Accommodation for the Purposes of Section 38-250
http://www.ato.gov.au/nonprofit/content.asp?doc=/content/16250.htm&page=4&pc =001/004/015/001/009&mnu=1310&mfp=001/004&st=&cy=1
The Resolved Issues Document contains a series of tables outlining the benchmark market values for accommodation that it will accept for cities and regional centres around Australia. The benchmark values are effective from 1 January 2006 and apply to supplies made from that date. The benchmark market values will be updated next to operate from 1 January 2007. This document provides benchmark market values for the following types of supplies:
short-term accommodation (Table 1); meals (Table 4); board and quarters (Table 5); long-term accommodation (Table 5); and employment services (Table 6).
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EXAMPLE: Assume that a charitable institution provides crisis accommodation to families in need. Rent of $60 per week is received by the charitable institution. As residential rent is input taxed, no GST is charged on the $60. The charitable institution is unable to claim back the GST on expenses associated with the rental property. The market value of comparable accommodation is $100 per week. As the charitable institution’s rent of $60 per week is less than 75% of $100 (ie. $75), the GST-free concession contained in Section 38-250 of the GST Act applies. In this case, the bookkeeper should change the GST tax code from INP to GSTFree. More importantly, as the rent received is now GST-free, the charitable institution can claim back all of the input tax credits in respect of the expenses associated with the rental property. These expense codes should be changed to GST.
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Part 4: GETTING READY FOR YEAR-END
4.1
Introduction
This part of the manual discusses the year-end accounting requirements that are particularly relevant for nonprofit bookkeepers and treasurers. Its aim is to provide an explanation of the steps required to assist the external accountant and auditor in preparing the financial statements, as well as provide a summary of the statutory regulations imposed under the Associations Incorporation Act (1981) and the Corporations Act (2001). Specifically, the chapter addresses the following issues:
4.2
the difference between management accounts and external financial statements; whether your organisation is a reporting entity or a non-reporting entity; the difference between general purpose financial reports and special purpose financial reports; external reporting and audit requirements of incorporated associations and companies limited by guarantee; checklist of documents to provide your external accountant or auditor with at year-end; a sample agenda for an Annual General Meeting; and a summary of the forms required to be prepared and lodged with the regulatory authorities for incorporated associations and companies limited by guarantee.
The Difference Between Management Accounts and External Financial Statements
So far, this manual has specifically dealt with the preparation of management accounts. Management accounts are typically prepared by a bookkeeper for internal reporting purposes. These accounts are usually prepared monthly and are specifically tailored to management’s needs. In most cases, management accounts are prepared using computerised software accounting packages, such as MYOB or QuickBooks. Some bookkeepers export the reports produced by MYOB or QuickBooks into electronic spreadsheets such as EXCEL for manipulation, comparison of actual results to budget and the preparation of charts and graphs etc. This comparison of actual to budgeted results should be done on a monthly or quarterly basis or more frequently (eg. in preparation for periodic financial reporting to funding providers. And, in the event that an organisation is in receipt of multiple grants, and has multiple periodic reporting obligations, the results being compared may need to be separated by identifiable cost centres for ease of reporting. This was specifically illustrated in Part 2. The Standard Chart of Accounts presented in Part 1 of this manual was specifically developed to assist bookkeepers prepare an account list for internal reporting purposes. The management accounts are usually passed onto the external accountant at the end of the financial year so that the external accountant can prepare the external financial statements. In most cases, these accounts are audited and presented to members at the Annual General Meeting.
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An annual financial report is required to be lodged with the Office of Fair Trading if your organisation is an incorporated association and with the Australian Securities and Investments Commission (ASIC) if your organisation is a company limited by guarantee. The primary purpose of the financial report is to provide information relevant to external users. The financial report usually consists of the following:
a Profit and Loss Statement; a Balance Sheet, and a Cash Flow Statement.
In some cases, an additional statement entitled a “Statement of Changes in Equity” is also prepared, showing the link between the Profit and Loss Statement and the Balance Sheet. The Profit and Loss Statement, Balance Sheet and Cash Flow Statement are collectively referred to as the “financial statements”. These financial statements must be prepared in accordance with accounting standards issued by the Australian Accounting Standards Board (AASB). Unlike management accounts which can be tailored to meet the specific needs of management, the format of external financial statements is generally similar in all organisations, as they must be prepared in accordance with the requirements contained in AASB accounting standards. The distinction between management accounts and external financial statements is summarised in Table 1 below.
Table 1: Distinction Between Management Accounts And External Financial Statements
Issue
Management Accounts
Financial Statements
Users
Users are within the organisation (i.e. management).
Users external to the organisation (i.e. shareholders, lenders, creditors, customers, regulatory agencies, funding bodies etc.).
Types of Reports
Special purpose financial reports (usually prepared by the bookkeeper using a computerised accounting package).
General purpose financial reports (usually prepared by the accountant in accordance with AASB Accounting Standards).
Format of Reports
Flexible. Tailored to meet the needs of management.
Generally standardised. Structure and content dictated by the contents of AASB Accounting Standards.
Frequency of Reports
As requested by management (usually prepared monthly).
Usually annually as per the requirements of the Associations Incorporation Act (1981) and the Corporations Act (2001).
External Verification
Management accounts are not usually audited.
External financial statements may be subject to audit by an independent auditor.
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4.3
The Notion of Differential Reporting
The Australian financial reporting framework is based on the notion of differential reporting. In other words, the type and extent of financial information required to be included in an entity’s financial report depends on whether an entity is classified as:
a reporting entity; or a non-reporting entity.
If an entity is regarded as a reporting entity, it must prepare a general purpose financial report. Conversely, if an entity is regarded as a non-reporting entity, it need only prepare a special purpose financial report. Diagram 1 below summarises the financial reporting obligations for both reporting and nonreporting entities.
Diagram 1: Financial Reporting Obligations of Reporting and Non-Reporting Entities
Is the entity a reporting entity?
Yes
No
Must prepare a general purpose financial report (GPFR)
Need only prepare a special purpose financial report (SPFR)
Financial report must be prepared and presented in accordance with all AASB Accounting Standards and UIG Consensus Views
Financial report must be prepared and presented in accordance with those AASB Accounting Standards and UIG Consensus Views in order to give a “true and fair” view
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4.3.1
What is a Reporting Entity?
Paragraph 40 of SAC 1 Definition of the Reporting Entity defines a reporting entity as: … all entities in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the allocation of scarce resources. Put simply, a reporting entity is one which has many (and varied) users of its financial statements who require this report to be prepared and published so that they can make informed decisions about the entity. Whilst management is entrusted with the responsibility for determining whether the entity is classified as a reporting entity or not, usually the external accountant/auditor will have significant input into this decision. The primary question to ask in determining whether an entity is a reporting entity or not is: “Who are the users of the reports?” The more users, the more likely the entity is to be a reporting entity. Further guidance is included in paragraphs 20 to 22 of SAC 1 to assist when deciding whether or not an entity is a reporting entity. (a)
Separation of management from economic interest (paragraph 20): The greater the spread of ownership/membership and the greater the extent of the separation between management and owners/members or others with an economic interest in the entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions. Paragraph 20 refers to the extent of separation of the management committee or board of directors from the members. A nonprofit organisation with a large membership base is more likely to be a reporting entity. This is because, each member is unlikely to be able to access the management accounts and other financial information. Conversely, a small nonprofit organisation where members can request monthly management accounts be sent to them and directly participate in the decisionmaking of the organisation is likely to be considered a non-reporting entity.
(b)
Economic or political importance/influence (paragraph 21): Economic or political importance/influence refers to the ability of an entity to make a significant impact on the welfare of external parties. The greater the economic or political importance of an entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions.
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Hence, a large community service delivery organisation is more likely to be a reporting entity than a small community service organisation.
(c)
Financial characteristics (paragraph 22): Financial characteristics that should be considered include the size (for example, value of sales or assets, or number of employees or customers) or indebtedness of an entity. In the case of non-business entities in particular, the amount of resources provided or allocated by governments or other parties to the activities conducted by the entities should be considered. The larger the size or the greater the indebtedness of resources allocated, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions. The larger the nonprofit organisation (measured in terms of revenue, assets, employees, members etc), the more likely they are to be considered reporting entities.
Application to Nonprofit Organisations: Under SAC 1, most nonprofit organisations would typically be regarded as reporting entities because there are many external users of their financial statements. Importantly, it is up to the Board of Directors (or management committee) of the organisation to determine whether an entity is regarded as a reporting entity or not. Some of the factors that may be used to determine whether a nonprofit organisation is a reporting entity or not include:
the number of members; the extent to which the members are involved in running the association, and how much this is left to the governing body; rights of access to books and records by members; extent of funding other than by members, and the information needs of external financiers (e.g. providers of grants, loans, etc.); extent of business activity and level of creditors; the size and nature of political or economic activity of the association; the size and number of donors; and number of employees and access of those people to financial information.
In summary, the most common determining factor will be the size and involvement of the membership and the level and nature of the activity conducted. The fewer the members, the greater the likelihood that the nonprofit organisation will be regarded as a non-reporting entity. However, the determining factor is more likely to be whether all members can obtain the financial information they require without examining general purpose financial reports.
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If the management committee is the only party that has access to the financial information, then the organisation is more likely to be a considered to be a reporting entity. Second, the decision-making of the nonprofit organisation also needs to be considered. If not all members of the organisation are able to be involved in the decision-making process, this will tend to indicate that the entity is more likely to be a reporting entity. Third, if the activities are limited, if they involve no external funding, involve only members and are operated with, for example, one bank account and one investment account, the nonprofit organisation is less likely to be a reporting entity.
EXAMPLE: Victims of Criminal Violence Inc. is a small nonprofit incorporated association whose objects are the provision of support, education and advocacy services to victims of criminal violence on the north side of Brisbane. It had gross revenue of $125,000 for the year ended 30 June 2003. It has only one full-time staff member and three volunteers who assist with counselling. 95% of its revenue comes from a government grant with 5% from fundraising activities. No monies are generated from donations or bequests as the entity is not a deductible gift recipient (DGR). The Association has only 12 members, 7 of whom form part of the management committee. Each member can request monthly management accounts be sent to them. The Association has no external borrowings. Under the funding agreement, the granting agency receives quarterly management accounts, budgeted cash flow information and the year end financial report. On this basis, the Victims of Criminal Violence will be regarded as a nonreporting entity.
4.3.2
What if the Organisation is Classified as a Reporting Entity?
If an entity (whether it be a company limited by guarantee, incorporated association, hospital foundation, etc) is regarded as a reporting entity, it will be required to prepare a general purpose financial report. In essence, a general purpose financial report is one that is in accordance with:
all AASB Accounting Standards; all Urgent Issues Group (UIG) Consensus Views; and all other authoritative pronouncements of the Australian Accounting Standards Board.
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As such, a general purpose financial report is very comprehensive, lengthy and more costly as the entity is complying with all accounting regulations.
4.3.3
What if the Organisation is Classified as a Non-Reporting Entity?
If the management regards the entity as a non-reporting entity, it may elect to prepare a special purpose financial report. For non-reporting entities, who prepare special purpose financial reports, there is no requirement to prepare the report in accordance with all AASB Accounting Standards and UIG Consensus Views. Instead, non-reporting entities who prepare special purpose financial reports are only required to apply those Accounting Standards and UIG Consensus Views which are considered necessary to present a "true and fair" view. This is usually less expensive as compliance with all AASB Accounting Standards and UIG Consensus Views is not required. The external accountant/auditor will provide guidance as to which AASB Accounting Standards and UIG Consensus Views the nonprofit organisation must comply with in order to give a “true and fair” view. Some guidance on this issue can be taken from an ASIC document released in July 2005. This document entitled “Reporting Requirements for Non-Reporting Entities" outlines the reporting obligations of non-reporting corporate entities. This document can be downloaded from the ASIC website at:
Web Link : ASIC Guide: Reporting Requirements for Non-Reporting Entities
ASIC confirms that it expects non-reporting entities to:
adopt the accrual basis of accounting as set out in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
comply with those AASB Accounting Standards and UIG Consensus Views which are deemed necessary by the Board of Directors to give a "true and fair" view of the operations and activities of the entity (particularly those accounting standards dealing with recognition and measurement);
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specifically apply the following accounting standards regardless of whether the entity is a reporting entity or not: -
AASB 101 Presentation of Financial Statements; AASB 107 Cash Flow Statements; AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors; and AASB 1048 Interpretation and Application of Standards.
comply with the disclosure requirements required under the Corporations Act (2001); and
specifically disclose in their accounting policy note (Note 1) that the financial statements are special purpose, the purpose for which they have been prepared and the extent to which Accounting Standards and UIG Consensus Views have or have not been adopted.
What is of over-riding significance is the fact that the financial statements provide a "true and fair" view.
Sample Note 1 Disclosures in Financial Reports Whether an entity has prepared a general purpose financial report or a special purpose financial report must be disclosed in Note 1 Statement of Significant Accounting Policies. The following is a sample Note 1 for a reporting entity that has prepared a general purpose financial report.
Note 1: Statement of Significant Accounting Policies This financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board and the requirements of the [Associations Incorporation Act (1981) or the Corporations Act (2001).] The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the Association in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.
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Conversely, the following is a sample Note 1 for a non-reporting entity that has prepared a special purpose financial report.
Note 1: Statement of Significant Accounting Policies This financial report is a special purpose financial report which has been prepared for the sole use by the Committee Members. In the opinion of the Committee Members, the Association is not a reporting entity, as defined in Statement of Accounting Concept SAC 1 Definition of the Reporting Entity, as the Committee Members do not believe that users exist who are unable to command the preparation of reports tailored so as to satisfy, specifically all of their information needs. The Association has applied Accounting Standard AASB 1025 Application of the Reporting Entity Concept and Other Amendments. However, the financial statements have been prepared in accordance with all Australian Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board and the requirements of the [Associations Incorporation Act (1981) or the Corporations Act (2001),] with the exception of the following: AASB 114: AASB 117: AASB 119: AASB 132: AASB 139:
Segment Reporting; Leases; Employee Benefits; Financial Instruments: Presentation; and Financial Instruments: Recognition and Measurement.
The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the Association in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.
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4.4
Financial Reporting Requirements of Companies Limited by Guarantee
Some nonprofit organisations are companies limited by guarantee. These organisations are regarded as public companies for the purposes of the Corporations Act (2001). Section 292(1) requires these companies to prepare a financial report at the end of each financial year. The financial report for a financial year (Section 295(1)) must include: (a) (b) (c)
the financial statements; the notes to the financial statements; and the Directors' Declaration.
Financial statements (Section 295(2)) are defined as: (i) (ii) (iii)
a profit and loss statement for the year; a balance sheet as at the end of the year; and a statement of cash flows for the year.
Furthermore, the Directors are required to make a declaration as part of the financial report (Section 295(4)), stating: (a)
whether the company’s financial statements comply with the AASB Accounting Standards;
(b)
whether the company’s financial statements give a "true and fair" view in accordance with Section 297. A “true and fair” view is regarded as having being achieved when the entity complies with AASB Accounting Standards; and
(c)
whether, in the Director’s opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.
There is no mention in the Corporations Act (2001) of the reporting entity concept. The reporting entity concept is an accounting concept, not a legal concept. Accordingly, a company limited by guarantee may be either a reporting entity or a non-reporting entity. Once again, this is a decision to be made by the Board of Directors in consultation with the external accountant. The auditor of the company will also be interested in the classification of the company as a non-reporting entity in forming an opinion under Section 307 of the Corporations Act (2001) and in particular, whether the entity’s financial report complies with AASB Accounting Standards.
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4.5
Financial Reporting Requirements of Incorporated Associations
The format and manner in which the annual financial statements of incorporated associations are regulated is not uniform in the various Australian states. In Queensland, the financial reporting requirements of incorporated associations are governed by the Associations Incorporation Act (1981). According to the Section 59(1) of the Act: The members of the management committee of an incorporated association must ensure the association, within 6 months of the close of the financial year prescribed, or more frequently if the rules of the incorporated association so provide: (a)
prepares a statement concerning the following particulars: (i) (ii) (iii)
the income and expenditure of the incorporated association during its last financial year; and the assets and liabilities of the incorporated association at the close of the said year; and all mortgages, charges and securities of any description affecting any of the property of the incorporated association at the close of the said year.
These financial statements are required to be audited and lodged with the Office of Fair Trading. However, like the Corporations Act (2001), the Associations Incorporation Act (1981) provides no specific mention as to which Accounting Standards must be complied with in the preparation of the financial statements. Once again, there is no mention in the Associations Incorporation Act (1981) of the reporting entity concept. Accordingly, an incorporated association may either be a reporting entity or a non-reporting entity. Once again, this is a decision to be made by the Management Committee in consultation with the external accountant and auditor. A copy of the Associations Incorporation Act (1981) can be found at the following address:
Web Link : Associations Incorporation Act (1981)
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4.6
Audit Requirements
An audit can be defined as an independent examination of an organisation’s financial records, transactions and supporting documents in order to express an opinion as to whether the financial statements comply with certain levels of quality, as specified in the Accounting Standards and present a “true and fair” view of the entity’s performance and financial position. An auditor is engaged to provide an independent opinion as to whether the accounts have been drawn up to give a “true and fair” view.
4.6.1
Audit of Companies Limited by Guarantee
As previously mentioned, companies limited by guarantee are regarded as public companies for the purposes of the Corporations Act (2001). According to Section 301 of the Corporations Act (2001), the accounts of a public company are subject to an annual audit. Sections 327A to 327C of the Corporations Act (2001) govern the appointment of auditors to public companies. According to Section 327A(1), the Board of Directors of a public company must appoint an auditor within one month after the day in which the company is registered. That auditor only holds office until the first Annual General Meeting (AGM). Consequently, at its first AGM, and at subsequent AGMs, where there is a vacancy, the company must appoint a registered company auditor (Section 327A(3)). The auditor holds office until: (a) (b) (c)
he/she dies; is removed or resigns; or ceases to be capable of acting as auditor.
Under the Corporations Act (2001), an auditor has a statutory duty to:
conduct an audit and form an audit opinion (Section 307); conduct an audit in accordance with the auditing standards (Section 307A); retain audit working papers for seven years (Section 307B); complete the auditor’s declaration (Section 307C); report to members on the annual report (Section 308); and report contraventions to ASIC (Section 311).
According to Section 307, an auditor must form an opinion about: (a)
whether the financial report is in accordance with this Act, including: (i) (ii)
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Section 296 (compliance with accounting standards); and Section 297 (true and fair view); and
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(aa)
if the financial report includes additional information under paragraph 295(3)(c) (information included to give true and fair view of financial position and performance) whether the inclusion of that additional information was necessary to give the true and fair view required by section 297; and
(b)
whether the auditor has been given all information, explanation and assistance necessary for the conduct of the audit; and
(c)
whether the company, registered scheme or disclosing entity has kept financial records sufficient to enable a financial report to be prepared and audited; and
(d)
whether the company, registered scheme or disclosing entity has kept other records and registers as required by this Act.
This audit opinion must be presented in an audit report. The audit report is covered by Section 308. This section requires the auditor to provide a report stating whether or not, in the auditor’s opinion, the financial report is properly drawn up:
in accordance with Australian Accounting Standards and other mandatory reporting requirements (Section 296); and so as to give a “true and fair” view of the matters with which they are required to deal (Section 297).
There are two types of audit opinions:
unqualified (no issues of significance were discovered by the auditor); and qualified (the auditor has discovered an issue of some significance).
A clean audit opinion is referred to as an unqualified audit opinion. A qualified audit opinion means that the auditor has found something which s/he disagrees with or something which is of concern. The auditor must explain the nature of the qualification in a separate paragraph in the audit report. A serious qualification is one where the auditor disagrees with the treatment or disclosure of an accounting transaction. The worst type of qualification is where the auditor is unable to express an opinion due to the severe uncertainty as to whether the entity will be able to continue as a going concern. This is referred to as an “inability to form an opinion”. If, in the auditor’s opinion, the financial statements are not drawn up in accordance with a particular Accounting Standard, the audit report must give particulars of the quantified financial effect thereof on the financial statements (Section 308(2)). A sample audit report for a public company with an unqualified opinion is presented below.
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INDEPENDENT AUDIT REPORT To the members of XYZ Limited:
Scope
The Financial Report and Directors' Responsibility The financial report comprises the Profit and Loss Statement, Balance Sheet and Statement of Cash Flows, accompanying notes to the financial statements, and the Directors’ Declaration for XYZ Limited for the year ended 30 June 2005. The Directors of the company are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the company and that it complies with Accounting Standards in Australia and the provisions of the Corporations Act (2001). This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.
Audit Approach We conducted an independent audit of the financial report in order to express an opinion on it to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act (2001) including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s financial position, and of their performance as represented by the results of their operations, changes in equity and cash flows.
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We formed our audit opinion on the basis of these procedures, which included:
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the Directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. We performed procedures to assess whether the substance of business transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the directors and management of the company. Independence We are independent of the company, and have met the independence requirements of Australian professional ethical pronouncements and the Corporations Act (2001). In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Audit Opinion In our opinion, the financial report of XYX Limited is in accordance with: (a)
the Corporations Act (2001), including: (i)
giving a true and fair view of the company’s financial position as at 30 June 2005 and of their performance for the year ended on that date; and
(ii)
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b)
other mandatory financial reporting requirements in Australia.
Name of Firm
Name of Partner
Date
Address
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4.6.2
Audit of Incorporated Associations
In Queensland, the audit requirements of incorporated associations are governed by the Associations Incorporation Act (1981). According to the Section 59(1) of the Act: The members of the management committee of an incorporated association must ensure the association, within 6 months of the close of the financial year prescribed, or more frequently if the rules of the incorporated association so provide: (b)
causes the financial affairs of the incorporated association to be audited by: (i) (ii) (iii)
(iv)
(c)
a person registered as an auditor under the Corporations Act (2001); or a member of CPA Australia or the Institute of Chartered Accountants in Australia; or a member of the National Institute of Accountants, other than an associate, who has satisfactorily completed an auditing component of a course of study in accountancy of at least 3 years’ duration at a tertiary level conducted by a prescribed University or other prescribed institution under Section 1280(2A) of the Corporations Act (2001); or a person who the chief executive considers has appropriate qualifications; and
presents the audited statement to the annual general meeting for adoption.
Unlike the Corporations Act (2001), an auditor does not need to be a registered company auditor. An auditor of an incorporated association need only be a member of one of the three professional accountancy bodies. Note that paragraph (iv) of Section 59(1)(b) above allows a person who the chief executive considers has appropriate qualifications to be appointed as auditor. This is becoming increasingly popular according to the Office of Fair Trading. The audit requirements are similar to those of a company limited by guarantee. The auditor is required to express an opinion as to whether the financial statements are properly drawn up:
in accordance with Australian Accounting Standards and other mandatory professional reporting requirements; and
so as to give a “true and fair” view of the results of its operations and its cash flows.
A sample audit report for an incorporated association with an unqualified opinion is presented below.
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INDEPENDENT AUDIT REPORT To the members of DEF Inc.
Scope
The Financial Report and Directors' Responsibility The financial report comprises the Profit and Loss Statement, Balance Sheet and Statement of Cash Flows, accompanying notes to the financial statements, and the Committee Members’ Declaration for DEF Inc. for the year ended 30 June 2005. The Committee Members of the association are responsible for preparing a financial report that gives a true and fair view of the financial position and performance of the association, in accordance with Accounting Standards in Australia and in accordance with the Associations Incorporation Act (1981). This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.
Audit Approach We conducted an independent audit of the financial report in order to express an opinion on it to the members of the association. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Associations Incorporation Act (1981) including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the association’s financial position, and of their performance as represented by the results of their operations, changes in equity and cash flows.
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We formed our audit opinion on the basis of these procedures, which included:
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the Committee Members.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. We performed procedures to assess whether the substance of transactions was accurately reflected in the financial report. These and our other procedures did not include consideration or judgement of the appropriateness or reasonableness of the business plans or strategies adopted by the Committee Members and management of the association. Independence We are independent of the association, and have met the independence requirements of Australian professional ethical pronouncements.
Audit Opinion In our opinion, the financial report of XYX Inc. presents a true and fair view in accordance with Accounting Standards in Australia and other mandatory professional reporting requirements, the financial position of DEF Inc. as at 30 June 2005 and the results of its operations and its cash flows for the year then ended.
Name of Firm
Name of Partner
Date
Address
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In the case of many nonprofit organisations, the auditor may find it difficult to verify cash receipts prior to their entry into the accounting system. For example, a nonprofit organisation may receive cash donations through the mail or undertake a series of fundraising events where cash is collected and banked without appropriate supporting documentation. For example, several nonprofits conduct fundraising events whereby they solicit cash donations on street corners or from door-to-door appeals. Cash proceeds from items such as cakes sold at fetes and carnivals and the proceeds from raffles conducted are virtually impossible to verify by the auditor because of lack of supporting documentation. Fundraisers and volunteers may also be geographically dispersed. For this reason, it is quite common for auditors to qualify the annual financial statements of nonprofit organisations (particularly small organisations) on these grounds. A sample audit opinion with this qualification is presented below.
Qualification: Cash donations are a significant source of revenue for DEF Inc. The association has determined that it is impracticable to establish control over the collection of cash donations prior to their entry into its financial records. Accordingly, as the evidence available to us regarding revenue from this source was limited, our audit procedures with respect to cash donations had to be restricted to the amounts recorded in the financial records. We therefore are unable to express an opinion whether cash donations the association obtained are complete.
Qualified Audit Opinion: In our opinion, except for the effects on the financial report of such adjustments (if any) as might have been required had the limitation on our audit procedures referred to in the qualification paragraph not existed, the financial the financial report of XYX Inc. presents a true and fair view in accordance with Accounting Standards in Australia and other mandatory professional reporting requirements, the financial position of DEF Inc. as at 30 June 2005 and the results of its operations and its cash flows for the year then ended. Name of Firm
Name of Partner
Date
Address
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4.7
When Does the Annual Report have to be Sent to Members?
4.7.1
Companies Limited by Guarantee
According to Section 314 of the Corporations Act (2001), the annual report of a public company limited by guarantee consists of the following documents:
the financial report (subject to audit); the director’s report; and the auditor’s report.
A summary of the components of an annual report for a company limited by guarantee is shown in Diagram 2 below. Diagram 3 presented later in this chapter illustrates the components of an annual report for an incorporated association.
Diagram 2: What is included in an Annual Report for a Company Limited by Guarantee?
Director’s Report
+
Financial Report
Director’s Declaration
+
Financial Statements
+
Notes to the Accounts
Profit & Loss Statement
+
Balance Sheet
+
Cash Flow Statement
Also referred to as the Statement of Financial Performance or Income Statement
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Also referred to as the Statement of Financial Position
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+
Auditor’s Report
Also referred to as the Statement of Cash Flows
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According to Section 315(1) a public company must send the annual report to its members by the earlier of: (a) (b)
21 days before the AGM after the end of the financial year; or four months after the end of the financial year
whichever is the earlier. According to Section 250N(2), a public company’s annual general meeting must be held at least once in each calendar year and within five months after the end of its financial year.
EXAMPLE: Assume that XYZ Limited (a company limited by guarantee) has a financial year ended 30 June. It has just prepared its financial report for the year ended 30 June 2005. According to Section 250N(2), XYZ Limited must conduct its Annual General Meeting no later than 30 November 2005 (i.e. within five months after the end of the financial year). Assuming that XYZ limited holds its AGM on 12 November 2005, it is required to send the annual report to its members by the earlier of: (a) (b)
21 days before the AGM after the end of the financial year (22 October 2005); or 4 months after the end of the financial year (30 October 2005).
Hence, XYZ Limited must send its annual report to the members by 22 October 2005.
In the case of public companies, Section 314 of the Corporations Act (2001) permits these organisations to send their members either a full annual report or a concise annual report. A concise annual report is an abbreviated version of the full annual report. It consists of a Profit and Loss Statement, a Balance Sheet, a Cash Flow Statement as well as the director’s report, a statement by the auditor that the financial report has been audited (including whether the concise financial report complies with accounting standards) and a copy of the audit qualification (if relevant). The concise financial report must also contain a discussion and analysis by management on the principal factors affecting the organisations financial performance, financial position and financing and investing activities.
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Finally, the concise financial report of a public company must also contain a statement confirming that it is a concise financial report and that the full financial report and auditor's report will be sent to the member free of charge if the member asks for them.
4.7.2
Incorporated Associations
According to Section 59(1) of the Associations Incorporation Act (1981), the annual report of an incorporated association must be prepared within six months after the end of the financial year or more frequently if the rules of the incorporated association so provide. Under the Associations Incorporation Act (1981), there is no requirement for the association to send the annual report to members before the AGM. However, this may be provided for in the association’s rules. According to Section 55, an incorporated association must hold its first general meeting within 18 months after the day the association is incorporated provided it is incorporated within six months before the date of the financial year. Section 56 provides that the association must hold subsequent AGMs: (a) (b)
at least once each year; and within six months after the end of the associations previous financial year.
As the timing of both events is the same, the incorporated association will have complied with the requirements of the Act provided the audited accounts are presented to members at the AGM no later than six months after the end of the association’s financial year.
EXAMPLE: Assume that DEF Inc. (an incorporated association) has a financial year ended 30 June. It has just prepared its financial report for the year ended 30 June 2005. According to Section 59(1)(a), DEF Inc. must conduct have its financial report prepared before 30 December 2005 (i.e. within six months after the end of the financial year). The audited accounts must be presented at the AGM, which must also be conducted within six months after the end of the financial year.
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4.8 What Should I Give the External Accountant or Auditor? As previously mentioned, the bookkeeper is usually entrusted with the responsibility of preparing monthly management accounts. At the end of the nonprofit organisation’s financial year, the annual financial statements are prepared. These financial statements are usually required to be audited and presented to members at the Annual General Meeting. The following checklist is designed to summarise the forms and documents that the bookkeeper should provide the external accountant or auditor with at year-end:
Table 2 Checklist of Forms and Documents to be Provided to the External Accountant/Auditor at Year-End Item
Document
Yes
1
Print out of the Profit and Loss Statement for the 12 months
2
Print out of the Balance Sheet at year-end
3
Print out of the Trial Balance at year-end
4
Bank statements for the entire 12 months for all bank accounts maintained
5
Monthly bank reconciliations
6
Petty cash vouchers and petty cash summary
7
List of investments at year end including supporting evidence (eg. share certificates, term deposits detailing amount invested, maturity date and interest rate)
8
Schedule of accounts receivable at year-end (aged debtors print out)
9
Details of any prepayments made during the financial year
10
Details of stock on hand at the end of the financial year (eg. stocktake records) as well as details of any stock write-offs during the financial year
11
Fixed asset register (including details of any assets purchased during the financial year)
12
Depreciation schedule
13
Schedule of accounts payable at year-end (aged creditors analysis)
14
Details of employees, including number of employees at year-end, their salary and details of annual leave and long service leave entitlements
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No
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Table 2 (Continued) Checklist of Forms and Documents to be Provided to the External Accountant/Auditor at Year-End Item
Document
Yes
15
Copies of loan contracts, lease agreements or hire purchase agreements entered into by the nonprofit organisation
16
Details of tied funds or restricted funds (in the case of DGRs)
17
Details of all non-monetary donations and supporting documentation as to their market value
18
Names of Board/ Committee Members and the number of board meeting held during the financial year (including details of board attendance) as well as details of appointment/resignation of committee members/directors during the financial year
19
Minutes of Meeting of Management Committee/Directors during the financial year
20
Register of Members
21
Details of amounts paid to committee members/directors during the financial year
22
Copies of any resolutions passed during the financial year (including amendments to the Constitution/rules)
23
Investment statements (eg. dividend statements, managed fund distribution statements etc.)
24
Details of any grants received during the financial year (provide copies of supporting documentation)
25
Copies of the gift receipts for significant donations made by donors during the financial year
26
Copies of each BAS/IAS lodged with the Australian Taxation Office during the financial year showing the amount of GST paid and received as well as PAYG withholding tax
27
Copies of the all PAYG Payment Summaries provided to each employee as well as the annual PAYG Reconciliation Statement showing the gross wages paid to employees during the financial year as well as PAYG withholding tax deducted
28
Permits for raffles, bingos and art unions
29
Details of any other legal correspondence relating to the organisation such as legal claims etc.
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No
N/A
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TIP:
Given the number of documents that need to be passed over to the external accountant/auditor, it is strongly recommended that the bookkeeper place this information in a lever arch folder. Dividers (or tabs) can be inserted into the folder with each section marked. It is also useful to place a copy of last year’s audited financial statements at the front. Remember that it has been one year since the external accountant/auditor has seen your accounts. This will serve as a useful reminder and re-acquaint them with your financial statements. Remember, anything you can do to make the task easier and simpler and for the auditor should result in significant time and cost reductions for the auditor. Hopefully, this will ultimately be passed onto the nonprofit organisation in the form of a reduced audit fee.
4.9
Audit Engagement Letter
When an auditor is engaged to conduct an audit, they will usually provide the nonprofit organisation with an engagement letter. The purpose of the engagement letter is to formally document the terms of the audit engagement (preferably before the commencement of the audit). The engagement letter ensures there is a clear understanding by the association’s management committee and the auditor of the extent of the auditor’s duties and responsibilities and is designed to avoid uncertainty and misunderstandings with respect to the engagement. The engagement letter also documents and confirms the acceptance of the appointment as well as the objective and scope of the engagement. It also highlights the extent of the auditor’s responsibilities to the entity and the form of any reports. The Auditing and Assurances Standards Board (AUSAB) has issued AUS 204 Terms of Audit Engagements which provides a standard engagement letter for use by auditors. A copy of a sample audit engagement letter (adapted for an incorporated association) is reproduced on the following pages.
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To the Chairman/President DEF Inc.
Dear …………………….. Thank you for the opportunity of acting as external auditors for DEF Inc. The purpose of this engagement letter is to outline the nature and scope of our appointment, including the role and responsibilities of both parties. The letter concludes with an estimate of our professional fees and terms of payment.
Scope You have requested that we audit the financial report of DEF Inc. as of and for the year ending 30 June 2005. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted pursuant to the Associations Incorporation Act (1981) with the objective of expressing an opinion on the financial report as presented by the management committee. We will conduct our audit in accordance with Australian Auditing Standards to provide reasonable assurance as to whether the financial report is free of material misstatement. Our procedures will include examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures will be undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements as well as the requirements of the Associations Incorporation Act (1981) so as to present a view which is consistent with our understanding of DEF Inc.’s financial position, the results of its operations and its cash flows. The work undertaken by us to form an opinion is permeated by judgement, in particular regarding the nature, timing and extent of the audit procedures for gathering of audit evidence and the drawing of conclusions based on the audit evidence gathered. In addition, there are inherent limitations in any audit, and these include the use of testing, the inherent limitations of any internal control structure, the possibility of collusion to commit fraud, and the fact that most audit evidence is persuasive rather than conclusive. As a result, our audit can only provide reasonable (not absolute) assurance that the financial report is free of material misstatement. In addition to our report on the financial report, we expect to provide you with a separate letter concerning any material weaknesses in the internal control structure that come to our notice.
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Our audit procedures are designed to gather sufficient appropriate audit evidence to form an opinion on the financial report. Unless otherwise agreed with you, we assume no responsibility to design audit procedures to identify matters that may be appropriate to report to you. However, if we encounter matters during the course of our audit that we believe should be brought to your attention for consideration or further action, we will communicate these matters to you. If no such matters come to our attention, we will report accordingly. You should not assume that any matters reported to you, or that a report that there are no matters to be communicated, indicates that there are no additional matters, or matters that you should be aware of in meeting your responsibilities. We remind you that the responsibility for the preparation of the financial report, including adequate disclosure, is that of the governing body of the DEF Inc. This includes the maintenance of adequate accounting records and internal control structure, the selection and application of accounting policies, and the safeguarding of the assets of DEF Inc. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit.
Presentation of Audited Financial Report on the Internet It is our understanding that DEF Inc. intends to publish a hard copy of the audited financial report and audit report for members, and to electronically present the audited financial report and audit report on its internet web site. When information is presented electronically on a web site, the security and controls over information on the web site should be addressed by DEF Inc. to maintain the integrity of the data presented. The examination of the controls over the electronic presentation of audited financial information on the entity’s web site is beyond the scope of the audit of the financial report. Responsibility for the electronic presentation of the financial report on the entity’s web site is that of the governing body of DEF Inc.
Quality Control The conduct of our audit in accordance with Australian Auditing Standards means that information acquired by us in the course of our audit is subject to strict confidentiality requirements. Information will not be disclosed by us to other parties except as required or allowed for by law or professional standards, or with your express consent. Our audit files may, however, be subject to review as part of the quality control review program of CPA Australia and/or The Institute of Chartered Accountants in Australia which monitors compliance with professional standards by its members.
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We advise you that by signing this letter you acknowledge that, if requested, our audit files relating to this audit will be made available under this program. Should this occur, we will advise you. The same strict confidentiality requirements apply under this program as apply to us as your auditor. Fees We look forward to full co-operation with your staff and we trust that they will make available to us whatever records, documentation and other information are requested in connection with our audit. Our fees, which will be billed as work progresses, are based on the time required by the individuals assigned to the engagement plus out-of-pocket expenses. Individual hourly rates vary according to the degree of responsibility involved and the experience and skill required. Other This letter will be effective for future years unless we advise you of its amendment or replacement, or the engagement is terminated. Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our audit of the financial report.
Yours faithfully, (signed)
……………………................................. Name and Title Date
Acknowledged on behalf of DEF Inc. by (signed) ……………………...........….................. Name and Title Date
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Regardless of whether an auditor uses the sample engagement letter contained in the appendix of AUS 204, the engagement letter highlights: (a) (b) (c)
(d) (e) (f)
the objective of the audit; the responsibility of the management committee for the preparation of the financial statements and maintenance of internal controls; the scope of the audit, including reference to applicable legislation, regulations and the pronouncements of CPA Australia and The Institute of Chartered Accountants in Australia; the form of any reports or other communication of results of the engagement; the responsibility of the auditor in forming an opinion on the financial statements and their limitation with regard to the detection of fraud; and unrestricted access to whatever records, documentation and other information requested in connection with the audit.
The auditor also generally documents: (a) (b) (c)
(d) (e)
arrangements regarding the planning of the audit; expectation of receiving from management written confirmation concerning representations that may be made in connection with the audit; a request for the entity to confirm the terms of the engagement and acknowledge receipt of the documented terms by signing the engagement letter (or other written agreement); a description of any other letters or reports the auditor expects to issue to the entity; and the basis on which fees are computed and any billing arrangements.
Where relevant, the following points may also be included: (a) (b) (c) (d) (e)
(f)
(g)
arrangements concerning the involvement of other auditors and experts in some aspects of the audit; arrangements concerning the involvement of the audit committee, internal auditors and other entity staff; arrangements to be made with the predecessor auditor, if any, in the case of an initial audit; any restriction of the auditor’s liability when such possibility exists, for example, where the auditor’s liability is limited under relevant legislation; that the auditor does not assume any responsibility for reliance on the audited financial report (or other audited subject matter) if it is used or disseminated other than for the stated purpose for which it was intended (for example, when the audited financial report is released to third parties without the auditor’s consent); clarification of the entity’s responsibility for control issues relevant to the presentation of electronic information, where the entity’s audited financial report (or other audited subject matter) is presented on an internet web site; and a reference to any further agreements between the auditor and the entity.
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4.10
Management Representation Letter
At the conclusion of the audit, the auditor usually provides the management committee or board of directors with a letter to be put on the organisation’s letterhead and signed by the Chairman. This is referred to as the “Management Representation Letter”. The purpose of the management representation letter is to formally acknowledge that the auditor may have relied upon representation (oral discussions, written statements) by management during the course of the audit. Furthermore, the management representation letter formally acknowledges that the management committee or board of directors is responsible for the preparation of the financial statements and the maintenance of adequate accounting records and internal controls. Although representation letters are signed by management, they are normally prepared by the auditor and submitted to the management for signing. A copy of a sample management representation letter (adapted for an incorporated association) is reproduced on the following pages.
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(on DEF Inc. Letterhead) To the Auditor Address
Dear ………………….. This representation letter is provided in connection with your audit of the financial report of DEF Inc. for the year ended 30 June 2005. We confirm to the best or our knowledge and belief, the following representations made to you during your examination: 1.
We acknowledge our responsibility for ensuring that the financial report has been prepared in accordance with Accounting Standards and UIG Consensus Views and the Associations Incorporation Act (1981) and confirm that the financial report is free of material misstatements, including omissions.
2.
We have made available to you:
3.
(a)
all financial records and related data, other information, explanations and assistance necessary for the conduct of the audit; and
(b)
minutes of all meetings of Committee Members.
There have been no: (a)
fraud, error, or non-compliance with laws and regulations involving management or employees who have a significant role in the internal control structure;
(b)
fraud, error, or non-compliance with laws and regulations that could have a material effect on the financial report;
(c)
communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report.
4.
We have established and maintained an adequate internal control structure to facilitate the preparation of a reliable financial report, and adequate financial records have been maintained. There are no material transactions that have not been properly recorded in the accounting records underlying the financial report.
5.
We have no plans or intentions that may materially effect the carrying values, or classification, of assets and liabilities.
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6.
We have considered the requirements of AASB 136 Impairment of Assets when assessing the carrying value of non-current assets and in ensuring that no non-current assets are stated in excess of their recoverable amount.
7.
The following have been properly recorded or disclosed in the financial report: (a)
related party transactions and related amounts receivable or payable, including sales, purchases, loans, transfers, leasing arrangements and guarantees (written or oral);
(b)
arrangements involving restrictions on cash balances, compensating balances and line-of-credit or similar arrangements;
(c)
agreements to repurchase assets previously sold;
(d)
material liabilities or contingent liabilities or assets including those arising under derivative financial instruments;
(e)
unasserted claims or assessments that our lawyer has advised us are probable of assertion;
(f)
losses arising from the fulfilment of, or an inability to fulfil, any sale commitments or as a result of purchase commitments for inventory quantities in excess of normal requirements or at prices in excess of prevailing market prices.
8.
There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial report or as a basis for recording an expense.
9.
The Association has satisfactory title to all assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. Allowances for depreciation have been adjusted for all important items of property, plant and equipment that have been abandoned or are otherwise unusable.
9.
The Association has complied with all aspects of contractual agreements that would have a material effect on the financial report in the event of noncompliance.
10.
There were no material commitments for construction or acquisition of property, plant and equipment or to acquire other non-current assets, such as investments or intangibles, other than those disclosed in the financial report.
11.
We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value.
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12.
No events have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial report.
We understand that your examination was made in accordance with Australian Auditing Standards and was, therefore, designed primarily for the purpose of expressing an opinion on the financial report of the Association taken as a whole, and that your tests of the financial records and other auditing procedures were limited to those which you considered necessary for that purpose.
Yours faithfully, (signed)
……………………................................. Name and Title
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4.11
Preparing the Annual Report
Once the financial report has been prepared and the audit report attached, the annual report should be prepared. Diagram 3 below illustrates the components of the annual report for an Incorporated Association.
Diagram 3: What is included in an Annual Report for an Incorporated Association
Committee Member’s Report
+
Financial Report
Committee Member’s Declaration
+
Financial Statements
+
Notes to the Accounts
Profit & Loss Statement
+
Balance Sheet
+
Cash Flow Statement
Also referred to as the Statement of Financial Performance or Income Statement
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+
Auditor’s Report
Also referred to as the Statement of Cash Flows
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The annual report should be adapted to the requirements of each nonprofit organisation. There is no “one size, fits all” approach. For small organisations, a simple annual report will suffice. However, larger nonprofit organisations may choose to use the annual report as a fundraising/marketing tool.
In May 2003, the Institute of Chartered Accountants in Australia (ICAA) released a report entitled “A Review of Not-For-Profit Financial and Annual Reporting” revealing their findings of a review of 22 annual reports of nonprofit organisations.
The ICAA’s findings revealed that nonprofit organisations need to adopt a tailored financial reporting framework that better reflects the activities they undertake. The report stated: “Whilst meeting the requirements imposed by Federal and State legislation the ICAA review found the reports of most not-for-profit organisations did not satisfy the needs of two of their key stakeholder groups, the donor and the funding provider”. “Annual and Financial reports need to explain what the NFP is trying to do, how it is going about it, whether it has achieved its objectives during the year and its plans for the future. It should also help the reader understand the organisational structure and activities of the nonprofit organisation.” The complete ICAA Report can be downloaded from the following website:
Web Link : Review of Not-For-Profit Financial and Annual Reporting
Following this review, the ICAA developed a “Checklist” to assist nonprofit organisations prepare their annual report in line with legislative requirements and public expectation for information and transparency. The checklist is divided into five components: Part 1:
What we are trying to do? – It is recommended that the annual report outline the organisations objectives in more detail than simply stating their mission statement.
Part 2:
How are we going about doing it? – It is recommended that the annual report provide a clear statement how the nonprofit organisation will obtain funding so as to meet their objectives and how they will work with other organisations in achieving those objectives.
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Part 3:
What we have achieved during the year? – It is recommended that the annual report summarise their financial results during the financial year, including an analysis of key trends. Key performance indicators (KPI’s) should also be identified and reported measuring the effectiveness of the nonprofit organisation’s activities during the year. The ICAA report recommends greater use of statistical information (including pictorial representations, such as tables and charts).
Part 4:
Explaining our plans for the future – It is recommended that the annual report outline expected future plans and in particular plans for future fundraising and any proposed new activities, events or programs that may have a material effect on the nonprofit organisation’s financial position and cash flows.
Part 5:
Understanding our organisational structure and activities – It is recommended that the annual report explain the legal form of the organisation, the composition of the board and committees, including corporate governance processes as well as providing an explanation of the organisational structure and decision making processes.
A complete copy of the ICAA’s Checkist on Improving Nonprofit Reporting can be downloaded from the following website:
Web Link : ICAA Checklist on Improving Nonprofits Annual Reports
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4.12 Preparing for the Annual General Meeting As previously mentioned in the case of a company limited by guarantee, according to Section 250N(2) of the Corporations Act (2001), a public company’s annual general meeting must be held at least once in each calendar year and within five months after the end of its financial year. In the case of an incorporated association, according to Section 56 of the Associations Incorporation Act (1981), the annual general meeting must be held at least once each year and within six months after the end of its financial year or more frequently if the rules of the incorporated association so provide. Typically, the financial report and the auditor’s report are presented at the AGM for presentation to members. The accounts are then usually adopted (signed) by the Management Committee. Once the accounts have been signed, they are typically passed over to the auditor who provides the audit report for inclusion in the financial report. For more information on the requirements on the requirements of the Annual General Meeting (including the provision of appropriate notices of meetings), refer to the Developing Your Own (DYO) website at the following address:
Web Link : DYO Notice of Meetings
Subject to the rules of the incorporated association, a typical agenda for an AGM is as follows:
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AGENDA FOR DEF Inc.
1.
Welcome and Apologies
2.
Minutes of Previous Meeting (Minutes of the AGM for the previous financial year)
3.
Business Arising from the Minutes
4.
President’s Report
5.
Treasurer’s Report
6.
Presentation of the Financial Report of the Association to the Members
7.
Election of Office Bearers and Committee Members
8.
Appointment of Auditor
9.
General Business
10.
Date of the Next Meeting
11.
Close of Meeting
4.13
Forms to be Lodged
The following section discusses the lodgement deadlines with the relevant statutory authorities and the relevant forms to be lodged, together with the appropriate lodgement fee.
4.13.1 Companies Limited by Guarantee According to Section 319 of the Corporations Act (2001), the annual report of a company limited by guarantee must be lodged with ASIC within four months after the end of the entity’s financial year.
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EXAMPLE: Assume that XYZ Limited (a company limited by guarantee) has a financial year ended 30 June. It has just prepared its financial report for the year ended 30 June 2005. According to Section 319, XYZ Limited must lodge its annual report with ASIC no later than 30 October 2005 (ie. no later than four months after the end of the 2005 financial year).
In addition to lodging its annual report with ASIC, all companies are sent a Company Statement. From 1 July 2003, ASIC abolished annual returns. Instead, each company is sent a Company Statement based on its review date. The review date is the anniversary of the company’s incorporation date. The Company Statement summarises: 1. 2. 3. 4. 5.
the registered office of the company; the principal place of business; the officeholders (directors and company secretary); the company share structure (i.e. number of shares); and the members (i.e. shareholders) of the company.
If there are no changes to the details contained on the Form 484, the form does not need to be sent back to ASIC. Alternatively, if any changes are required, they must be made on the ASIC Form 484 Change to Company Details and returned to ASIC within 28 days. The form 484 is divided into three parts: Part A: Part B: Part C:
Change of address, change of name (officeholders or members) and change of ultimate holding company; Appointment and retirement of officeholders; and Issuance or cancellation of shares and change to share structure.
If there any changes, these changes only need to be made on the relevant Section (i.e. A, B or C). For example, if a new director has been appointed, only Section B1 needs to be completed. There is no need to send back Sections A and C of the Form 484. The Company Statement contains the company’s Corporate Key on the top right hand corner of the front page. This is a unique number for each company and changes every 12 months. ASIC will not process the Form 484 unless the corporate key has been entered. Regardless of whether there are any changes or not, the company is still required to pay an annual review fee. The fee is due and payable two months after the company’s review date. If the form is lodged late, a late lodgement fee applies.
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The Form 484 (if there are any changes) and annual review fee is required to be sent to ASIC at the following address: Australian Securities and Investments Commission Locked Bag 5000 Gippsland Mail Centre, VIC, 3841. Note that there is no GST charged on the annual review fee. The Form 484 can also be downloaded from the ASIC website at the following address:
Web Link : ASIC Form 484 Change to Company Details
The fees for commonly lodged documents can be downloaded from the ASIC website at the following address:
Web Link : Fees for Commonly Lodged ASIC Documents
4.13.2 Incorporated Associations According to Section 59(4) of the Associations Incorporation Act (1981), the annual report of an incorporated association must be lodged with the Office of Fair Trading within one month after the Annual General Meeting of the Association.
EXAMPLE: Assume that DEF Inc. (an incorporated association) has a financial year ended 30 June. It has just prepared its financial report for the year ended 30 June 2005. The AGM is held on 12 December 2005. According to Section 59(4), DEF Inc. must lodge its annual report with the Office of Fair Trading no later than 12 January 2006.
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In addition to lodging its annual report with the Office of Fair Trading, the Association must also complete a Form 12 Annual Return of Association. This form must be lodged with the Office of Fair Trading within one month after adoption of the accounts at the Annual General Meeting. The Form 12 is a pre-printed form and cannot be printed off the Office of Fair Trading website. It is prepared by the Office of Fair Trading and is sent to the Association’s postal address by mail. The Form 12 summarises: 1. 2. 3. 4. 5.
the address of the association; the date of the AGM; the names and addresses of the office bearers (president, secretary and treasurer); the association’s financial details (ie. bank account details); and the auditor’s details.
The Form 12 and the appropriate lodgement fee is required to be sent to the Office of Fair Trading at the following address: Office of Fair Trading GPO Box 3111 Brisbane, QLD, 4001. Note that there is no GST charged on the annual review fee. If the form is lodged late, a late lodgement fee applies. If the Association has collected monies from the public under the Collections Act 1966 (Qld), it will also be required to lodge a Form 20 Annual Return for Charity or Sanction. Other forms relating to incorporated associations can be downloaded from Office of Fair Trading website at the following address:
Web Link : Office of Fair Trading Forms for Incorporated Associations
The Developing Your Organisation (DYO) website contains a list of the most common mistakes made when completing Office of Fair Trading forms. This can be accessed at the following address:
Web Link : List of Common Mistakes Made when Completing Forms
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The fees for commonly lodged documents can be downloaded from the Office of Fair Trading website at the following address:
Web Link : Fees for Lodging Document with the Office of Fair Trading
Finally, a reminder that whenever there is a change of office bearers (or public officer in the case of a company limited by guarantee), the Australian Taxation Office form “Change of Registration Details” must also be completed and lodged with the ATO. This is particularly relevant where new office bearers are appointed at the Annual General Meeting. A copy of this form can be downloaded from the following website:
Web Link : ATO Form: Change of Registration Details
4.14
Conclusion
This part of the manual has explained a number of processes and documents which are required to be completed by nonprofit organisations at the end of a financial year. These include answers to the following questions:
what is the difference between management accounts and external financial statements? what is the difference between a reporting entity or a non-reporting entity? what is the difference between general purpose financial reports and special purpose financial reports? what are the external reporting and audit requirements of incorporated associations and companies limited by guarantee?
This section also provides:
a checklist of documents to provide your external accountant or auditor with at yearend; a sample agenda for an Annual General Meeting; and a summary of the forms required to be prepared and lodged with the regulatory authorities for incorporated associations and companies limited by guarantee.
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Part 5: GLOSSARY OF TERMS
ABN Withholding Tax
The amount withheld from a supplier who provides either an invoice or tax invoice where the elevendigit Australian Business Number (ABN) has not been quoted. The entity is required to deduct and remit 48.5% of the gross amount of the invoice to the ATO on the next Business Activity Statement (BAS).
Account Levels
The Accounts List (or Chart of Accounts) in MYOB has four account levels available for each type of it’s accounts. The highest level is Level 1 and the lowest is Level 4. Each level is summarised in the level above it by one or more header accounts.
Accounts
Records of financial transactions relating to or associated with a business.
Accounting Equation
An algebraic expression of the equality of assets to liabilities and members equity. It is expressed as: Assets = Liabilities + Equity.
Accounts List
Otherwise referred to as the Chart of Accounts. This is a list of general ledger accounts. It is an option under Accounts command centre by which you can view, create new, edit, or delete accounts. You can also enter new opening balances, establish budgets and enter historical information for accounts.
Accounts Payable
Otherwise known as trade creditors. This account represents amounts owed by the business to suppliers for the goods and services purchased on credit. Usually shown as a current liability in the Balance Sheet.
Accounts Receivable
Otherwise known as trade debtors. This represents amounts owed by customers for goods or services sold on credit. Usually shown as a current asset in the Balance Sheet.
Accounting Period
A period of time covered by a set of financial statements.
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Accounting Principles
Rules which guide in the measurement, classification and interpretation of financial information
Accrual Basis of Accounting
The method of recording transactions which reports revenues in the period in which they are earned rather than received, and expenses in the period in which they are incurred rather than paid.
Accumulated Depreciation
The amount of depreciation that has been recorded and accumulated on a non-current asset since it was acquired. It is usually recorded in a contra account.
Aged Debtors Analysis
Also referred to as an Aged Receivables Summary in MYOB. The process of classifying accounts receivable on the basis of length of time that they have been outstanding.
Aged Creditors Analysis
Also referred to as an Aged Payables Summary in MYOB. The process of classifying accounts payable on the basis of length of time that they have remained unpaid.
Annual Report
An annual document summarising information about the operations and financial position of an organisation for the financial year.
Assets
Future economic benefits controlled by the entity as a result of past transactions.
Attribution
Attribution rules determine which tax periods your GST payable and GST receivable are attributed to. An entity can choose one of two attribution methods of accounting for the GST: the cash method and the non-cash (or accruals) method.
Audit
A review of the annual accounts, usually carried out by an independent person or firm of accountants.
Australian Business Number
Otherwise referred to as the ABN. A unique elevendigit number given to each business entity which has registered for the goods and services tax (GST).
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Bad Debts
Otherwise known as uncollectable debts. amount of accounts receivable that management committee have concluded uncollectable. Usually written off in the Profit Loss Statement.
Balance Sheet
Otherwise known as the Statement of Financial Position. The Balance Sheet shows the entity’s assets, liabilities and member’s equity at the end of the end of the reporting period.
Bank Reconciliation
A statement showing the difference between bank account balances and the cash at bank balance shown in the Balance Sheet.
Budget
A detailed estimate of the planned income and expenses for the next financial period expressed monthly.
Business Activity Statement
Otherwise referred to as the BAS. A pre-printed document issued by the ATO either monthly or quarterly which summarises the amounts of GST payable and receivable and a range of other taxes including PAYG Withholding and ABN Withholding Tax.
Cash Basis of Accounting
The method of recording transactions which reports revenues in the period in which the cash is received and expenses in the period in which the cash has been paid.
Contra Account
An account that is deducted from a related account. For example, Motor Vehicles at cost and Less: Accumulated Depreciation.
Cost Centre
A program or organisation which has all its costs and income grouped together in order to measure and monitor performance.
Creditor
See Accounts Payable.
Current Assets
Cash and other types of assets of the entity that would reasonably be expected to be converted to cash, sold or consumed by the business entity within twelve months after the end of the last financial year of the entity.
Current Liabilities
Obligations of the entity that are reasonably expected to be settled or paid within twelve months after the end of the last financial year of the entity.
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Debtor
See Accounts Receivable.
Deficit
Otherwise known as a net loss. The excess of total expenses over total revenues for the entity over the reporting period.
Depreciation
The allocation of the cost of an asset over its estimated useful life. Depreciation recognises that an asset is subject to wear and tear over its useful life. All non-current assets are depreciated, except land.
Depreciation Schedule
A schedule (usually an EXCEL spreadsheet) showing the amount of depreciation for each asset.
Equity
The amount of member’s funds. Calculated as the difference between total assets and total liabilities. In the case of a club, often referred to as Members Equity.
Expenses
A loss or outgoing incurred by the entity during the reporting period.
Financial Statements
Comprises the Profit and Loss Statement, Balance Sheet, Statement of Cash Flows and Detailed Notes to the Accounts.
Fringe Benefits Tax
Fringe benefit tax (FBT) is a tax payable by the employer on the total value of fringe (or non-cash) benefits provided to employees or their associates during the FBT year. The FBT year starts on 1 April and ends on 31 March.
Fixed Asset Register
A schedule (usually an EXCEL spreadsheet) showing each asset that is owned by the entity.
Fund
An account set up to show monies received for specific purposes.
Goods and Services Tax
GST is a broad-based tax of 10% on the supply of most goods, services and anything else consumed in Australia, and the importation of goods into Australia.
GST-Free Supply
A GST-free supply is one in which the supplier is not required to charge the 10% GST to the customer. However, the supplier can claim back the GST paid on any purchases made in making the supply.
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GST Payable
The amount of GST collected by the entity from the sale of goods and services to customers.
GST Receivable
Also known as an input tax credit. The amount of GST paid by the entity on the acquisition of goods and services from suppliers.
Input Tax
The GST paid or payable on the inputs to your business, i.e. acquisitions of goods and services in the course of operating the business.
Input Tax Credits
An input tax credit is what you claim to get back the GST you pay in the price of goods and services you purchase for your business or enterprise. You will need to have a tax invoice to claim an input tax credit (except for purchases for $50 or less).
Input Taxed Supply
An input-taxed supply is one where the supplier is not required to charge the 10% GST to the customer. However, unlike a GST-free supply, the supplier is not able to claim an input tax credit on the inputs used to produce the input-taxed supply.
In-Kind
Services or goods provided to the club without a cost involved.
Internal Controls
Methods and procedures collectively adopted by an entity to safeguard its assets and to ensure that the financial information is accurate and reliable.
Inventory
Goods or property acquired by the entity for the purposes of resale within the ordinary course of business. Includes food, drinks and merchandise.
Invoice
A document issued by a supplier who is not registered for the GST. This document must still have an ABN, otherwise the payer is required to withhold 48.5% of the gross amount and remit to the ATO on the next BAS.
Investments
Assets held by the entity for investment purposes, rather than for use in the normal activities of the entity.
Liabilities
Future sacrifices of economic benefits that an entity is presently obliged to make to other external entities as a result of past transactions.
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Liquidity
The ability of an entity to satisfy its short-term financial obligations.
Net Loss
See Deficit.
Net Profit
See Surplus.
Net Amount
The net amount of GST that must be paid to the ATO on the next BAS. Calculated as the difference between GST Payable and GST Receivable.
Non-Current Assets
Assets other than current assets. Assets of the entity which would not be expected to be converted to cash, sold or consumed by the business entity within twelve months after the end of the last financial year of the entity.
Non-Current Liabilities
Liabilities other than current liabilities. Obligations of the entity that do not require payment within twelve months after the end of the last financial year of the entity.
Pay As You Go Instalments
PAYG instalments is a system for paying income tax on the entity’s profit progressively over the financial year. This amount is based on the sales of the relevant quarter multiplied by a predetermined instalment rate advised by the ATO. Not applicable for entities that are exempt from income tax exempt (eg. clubs).
Pay As You Go Withholding
PAYG withholding is the amount withheld in respect of payments made to employees in the form of salaries and wages, commission, bonuses or allowances and directors’ fees. payments for a supply (goods or services) to another business that does not quote an ABN, and certain dividend, interest and royalty payments.
Prepayment
A payment in advance for goods or services that will be consumed by the entity in the next reporting period. For example, prepaid insurance and prepaid advertising. Usually shown as a current asset in the Balance Sheet.
Profit & Loss Statement
A financial report listing the revenues, expenses and net profit/surplus or net loss/deficit of an entity for the reporting period.
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Reconciliation
Ensuring two or more balances agree, often used in reference to checking bank balances with the accounting system.
Reducing Balance
The reducing balance method involves applying a percentage rate initially to the original cost of the item, but subsequently to the written down value at the commencement of each year thereafter. The reducing balance depreciation rate is calculated as dividing 150% by the useful life of the item.
Reserves
Amounts set aside to provide future programs or to act as a buffer against changing circumstances.
Revaluation
The increase or decrease in the value of a noncurrent asset. Often the result of comparing its book value with its market value. This increase or decrease is booked to the Asset Revaluation Reserve.
Revenues
Income derived by the entity from the sale of goods or services during the reporting period.
Statement of Cash Flows
A financial statement which reports the cash inflows and outflows of an entity during the financial year. These cash inflows and outflows are classified into operating, investing and financing activities.
Straight-Line
The straight-line depreciation method involves applying a percentage rate to the original cost of the item and continuing on the same basis each year until fully written off. The straight-line depreciation rate is calculated as dividing 100% by the effective life of the item.
Supply
Supply is a very broad term and includes the supply of services, provision of advice or information, a grant, assignment or surrender of real property, a creation, grant, transfer, assignment, a financial supply and an entry into or release from, an obligation to do anything, to refrain from an act, or to tolerate an act or situation. Not all supplies are taxable.
Surplus
Otherwise known as a net loss. The excess of total revenues over total expenses for the entity over the reporting period.
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Part 5: Glossary of Terms
Taxable Supply
A taxable supply is one where the supplier is required to charge the 10% GST to the customer. However, the supplier can claim back the GST paid on any purchases made in making the supply.
Tax Invoice
A document issued by a supplier who is registered for the GST. This document should have the supplier’s ABN and the amount of GST included in the supply.
Tax Period
A tax period is a period for which an entity calculates its GST and lodges its BAS. A tax period is either quarterly or monthly depending on the entity’s annual turnover. Quarterly tax periods of three months end on 30 September, 31 December, 31 March and 30 June. Monthly tax periods end on the last day of each calendar month. The BAS must be lodged within 28 days after the end of the relevant tax period..
Transaction
A financial event which results in an entry in the accounts.
Trial Balance
A statement listing all of the accounts in the general ledger and their respective debit and credit balances. A trial balance is prepared to verify the equality of debits and credits made to the accounts.
Useful Life
The estimated period of time (usually expressed in years) that a non-current asset is expected to be used by the entity. This is used in determining the amount of depreciation of non-current assets.
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Part 5: Glossary of Terms
Part 6:
SAMPLE FORMS AND DOCUMENTS
The forms and sample documents contained in this part of the manual are as follows:
Computer-Generated Printouts
6.1
Profit and Loss Statement (Alpha);
6.2
Balance Sheet (Alpha);
6.3
Category Profit & Loss Statement;
6.4
Category Balance Sheet;
6.5
Aged Receivables – Summary (Clearwater);
6.6
Aged Payables – Summary (Clearwater);
6.7
Quarterly Business Activity Statement (BAS) Front and Back;
6.8
PAYG – Payment Summary;
6.9
PAYG Summary – Withholding where ABN Not Quoted.
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Part 6: Sample Documents
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Part 6.1 - Profit & Loss Statement
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Part 6: Sample Documents
6-2
Part 6.2 - Balance Sheet
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Part 6.3 - Category Profit & Loss Statement
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Part 6.4 - Category Balance Sheet
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Part 6.5 - Aged Receivables Summary
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Part 6.6 - Aged Payables Summary
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6.7
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Business Activity Statement (Front Sheet)
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6.7
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Business Activity Statement (Back Sheet)
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Part 6.8 - PAYG Payment Summary
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Part 6.9 - Payment Summary (No ABN)
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Part 7: USEFUL WEBSITES FOR TREASURERS AND BOOKKEEPERS The internet is an excellent source of information for treasurers and bookkeepers to access and obtain the most up to date information in this area. Some of the most useful web sites are:
1.
Develop Your Organisation (DYO) https://olt.qut.edu.au/bus/DYO/ A Developing Your Organisation manual was first published in 1994 by the Queensland Government Department of Families for use by the Department’s funded organisations and its resource officers. The Centre of Philanthropy and Nonprofit Studies (CPNS) at the Queensland University of Technology was funded by the Department of Communities in 2005 to revise and expand the publication. CPNS also maintains a website called DYO to provide material beyond its funding agreement with the Department as a public service.
2.
Centre of Philanthropy and Nonprofit Studies (QUT) http://cpns.bus.qut.edu.au The Centre of Philanthropy and Nonprofit Studies sits within the Faculty of Business at the Queensland University of Technology (Gardens Point campus). It contains information about nonprofits, including statistics on the sector, research publications, upcoming seminars and workshops. Interested parties are able to subscribe free-of-charge to a variety of nonprofit email alert services. Contains lots of information in the areas of nonprofit accounting, taxation and GST.
3
Queensland Community Organisations Online Resources (QCOOR) http://www.qld.gov.au/qcoor/ This website will give you access to information and resources that can help you operate your community organisation effectively and efficiently. Search for services: find a service that can help your community organisation meet people's needs. Funding information: links to state and federal government bodies that provide funds and grants to community groups.
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Quality service delivery: information about the Standards for Community Services in Queensland and other resources to help your community organisation deliver quality services. Business tools: help for the day-to-day management and administration of your community organisation. Reporting information: resources to help your organisation meet reporting obligations for government and other funding sources. Contacts and resources: contact details and resources to support collaborative practices and sharing of information.
4.
Associations Incorporations Act (1981) http://www.legislation.qld.gov.au/LEGISLTN/CURRENT/A/AssocIncorpA81.pdf http://www.legislation.qld.gov.au/LEGISLTN/CURRENT/A/AssocIncorpR99.pdf This is a direct link to the Associations Incorporation Act (1981) as amended. Treasurers are able to access information about the Act such as the laws relating to the election of office bearers, accounting and audit requirements and timing of the Annual General Meeting (AGM) by using the electronic search facility. The accompanying Regulations (1999) are also attached.
5.
Australian Bookkeepers Network http://www.austbook.net/Home/home.htm This is a useful website for bookkeepers. Includes information and resources relevant to bookkeepers, including fact sheets, discussion forums and news alerts. Bookkeepers are also able to subscribe free-of-charge to two bi-monthly e-mail publications: Bookies Bulletin and Bookkeepers Knowledge Base.
6.
Australian Business Register http://www.abr.business.gov.au. Used to check the validity of a supplier’s Australian Business Number (ABN) as well as accessing information about the entity’s GST status.
7.
Australian Securities and Investments Commission http://www.asic.gov.au ASIC regulates the affairs of the 1.3 million companies incorporated in Australia under the Corporations Act (2001). This site is useful for any entity that is a public company limited by guarantee. Contains copies of all ASIC forms in PDF format. Also contains a very useful business names and companies search facility.
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8.
Australian Taxation Office http://www.ato.gov.au. A very useful website that contains information about tax rates, employer’s PAYG withholding obligations, GST, FBT, superannuation and income tax matters. The website has numerous fact sheets in both HTML and PDF formats. Contains copies of relevant income tax and GST forms.
9.
Australian Taxation Office (Nonprofit Section) http://ato.gov.au/nonprofit/default.asp This part of the ATO website is specifically devoted to the taxation affairs of nonprofit organisations. It includes information, fact sheets and forms covering a variety of tax-related topics relevant to nonprofit organisations, including ABN, GST, gifts and fundraising, PAYG, superannuation and information about the endorsement procedures for both ITEC’s and DGR’s. The website also contains a free-of-charge Nonprofit News Service whereby the ATO sends out e-mail alerts advising of new additions to the website and recent events and taxation changes affecting nonprofit organisations.
10.
Australian Valuers Institute http://www.valuersinstitute.com.au For those rugby clubs that wish to revalue their land and buildings from cost to market (fair) value, this website contains information about the valuation process and a list of registered valuers who are able to undertake the necessary valuation.
11.
Charities Consultative Committee - Resolved Issues Document http://www.ato.gov.au/nonprofit/content.asp?doc=/content/16250.htm&pc=001/004/ 043/001&mnu=5111&mfp=001/004&st=&cy=1 In May 1999, the Federal government announced the establishment of the Charities Consultative Committee. The purpose of this committee is to assist the nonprofit sector understand its obligations under the Goods and Services Tax Act (1999) as amended. The committee comprises representatives from the major charitable organisations and peak bodies in Australia and have released a paper entitled “The Resolved Issues Document” which provides clarification of a variety of GST issues affecting charities and nonprofit organisations, such as fundraising, donations and grants.
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12.
E-Bay http://www.ebay.com.au The largest website in Australia used by people for buying and selling new and second-hand goods. Recommended website for valuing assets and other items donated to the club.
13.
GST Ruling GSTR 2000/11 Grants of Financial Assistance http://law.ato.gov.au/pdf/gst00-11.pdf This GST ruling deals with the GST consequences of grants. The ruling distinguishes between a gift (or donation) and a grant and outlines the circumstances in which GST is payable in respect of grants.
14.
GST Ruling 2003/14 The GST Implications of Transactions Between Members of a Barter Scheme Conducted by a Trade Exchange http://law.ato.gov.au/pdf/gst03-14.pdf This GST ruling deals with the GST implications of bartering transactions. The ruling confirms that GST is payable in respect of bartering as a taxable supply has been provided in exchange for payment.
15.
Office of Fair Trading http://www.fairtrading.qld.gov.au The Office of Fair Trading is the regulator of incorporated associations in Queensland under the Associations Incorporations Act (1981) as amended. Most rugby clubs are incorporated associations. This site is useful for any rugby club that is an incorporated association. Contains copies of all Office of Fair Trading forms in PDF format and useful facts sheets for incorporated associations. Also contains a useful business names search facility.
16.
Office of Fair Trading (Model Rules of an Incorporated Association) http://www.legislation.qld.gov.au/LEGISLTN/CURRENT/A/AssocIncorpR99.pdf This website contains a Model Set of Rules for an Incorporated Association in the state of Queensland. The Model Rules comply with the requirements of the Associations Incorporations Act (1981) as amended and the Associations Incorporations Regulations (1999).
17.
Queensland Office of Gaming Regulation http://www.qogr.qld.gov.au/
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The Queensland Office of Gaming Regulation regulates all gambling regulation in the state of Queensland. This encompasses the regulation of casinos, charitable gambling, gaming machines, interactive gambling, keno, lotteries, and wagering. The website contains information about these requirements as well as fact sheets, application forms and a schedule of fees.
18.
Taxation Ruling TR 2000/18 http://law.ato.gov.au/pdf/tr0018c7.pdf This Taxation Ruling outlines the Commissioner of Taxation’s estimates as to the effective (useful) lives of commonly used assets. The Taxation Ruling publishes the assets in alphabetical order (from A to Z). The electronic search facility “Control F” is particularly useful in searching for assets. The Commissioner constantly updates this Taxation Ruling, so make sure you have the most up-to-date version. This is the latest publicly available version which applies to financial years ending on or after 1 July 2004.
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Part 8:
INDEX Topic
Page
Topic
Page
Accounts Payable (Creditors)
2-12
Data Dictionary (Chart of Accounts insert)
Accounts Receivable (Debtors)
2-12
Annual Reports
4-34
Assets Liabilities Equity/Accumulated Funds Income Cost of Goods Sold Expenses
Company Limited by Guarantee Incorporated Association Preparing for AGM Preparing the Annual Report Australian Business Numbers ABN Withholding tax What to do if no ABN Audit Requirements Annual Report to Members Audit Engagement Letter Companies Limited by Guarantee Incorporated Associations Management Representation Letter Qualification
4-34 4-22 4-37 4-34
Debtors and Creditors
2-29
Debtors Creditors
2-12 2-12
2-29 2-30
Differential Reporting
4-3
4-12
Donations & Donated Assets
3-6
Monetary Non-Monetary < $5,000 Non-Monetary > $5,000
3-7 3-8 3-9
4-20 4-25 4-12 4-16 4-30 4-19
Balance Sheet
2-12
Banking
2-10 Bank Fees Bank Reconciliation Electronic Deposits Interest Earned Receive Money Spend Money
2-11 2-11 2-10 2-10 2-10 2-10
Business Activity Statement (BAS)
2-22
Preparing BAS Worksheet Setting up BAS Information
2-4
Category/Job Costing Reports
2-13
Checklist of Forms and Documents For Auditor
4-23
Companies Limited by Guarantee
4-10
2-60
External Accountant or Auditor
4-23
Employment Issues and Payroll
2-28
Entering Transactions
2-31 2-31 2-32 2-33 2-33 2-42
Banking Entering Purchases & Expenses Entering Sales Transactions Making Payments Receipt of Monies
2-54 2-48 2-43 2-52 2-46
External Financial Statements
4-1
Forms Lodged at Year-End
4-38
Company Limited by Guarantee Incorporated Association
4-38 4-40
Getting Started
Converting to new Chart of Accounts
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Electronic Bank Deposits
Setting up Employee Cards Superannuation Superannuation Dates Superannuation Entitlements Rep Tracking Superannuation
2-22 2-23
Cards
At beginning of new fin year During financial year
1 6 8 9 14 15
Converting at beginning of new year Converting during financial year Linking Accounts Opening Balances
2-2 2-3
2-2 2-3 2-3 2-2
Part 8: Index 8-1
INDEX Topic
Glossary of Terms Graphs, Charts & Tables Grants Accounting for Grants Grants in books of non-profits Grants in books of for-profits GST Treatment Reciprocal Transfers Non-Reciprocal Transfers GST
Page
Topic
Page
Receive Money
2-10
Reporting Entity
4-4
Reports
2-71
7-1 2-14 3-1 Annual Reports Balance Sheet Comparing Actuals to Budgets Graphs, Charts and Tables Profit & Loss Statement Category Job or Costing Reports
3-3 3-4 3-4 3-2 3-3 3-3
4-20 2-12 2-13 2-14 2-12 2-10
Residential Rent
3-13
Spend Money
2-10
Sales
2-7
Sponsorships & Fundraising Events
3-10
Superannuation
2-31
2-16 Attribution Basis Business Activity Statement GST-Free Supplies How the GST Works Input-Taxed Supplies Registration Tax Codes Tax Invoices Tax Periods Taxable Supplies
2-19 2-22 2-18 2-17 2-19 2-19 2-21 2-16 2-20 2-17
Incorporated Associations
4-11
Input Taxed Supplies
2-19
Job Costing
2-13
Linking Accounts
2-3
Management Accounts and External Financial Statements
4-1
Membership Fees
3-12
Due Dates Printing Entitlement Report Tracking Superannuation Supplies GST-Free Supplies Input Taxed Supplies Taxable Supplies Tax Codes Tax Invoices GST Sample Tax Invoice
2-32 2-33 2-33 2-17 2-18 2-19 2-17 2-21 2-8 2-22 2-5
Non-reporting Entity
4-7
Tax Periods
2-20
Opening Balances
2-2
Tax Rates
2-28
Profit & Loss Statement
2-12
Purchases
2-8
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ABN Withholding Individual
2-29 2-28
Taxable Supplies
2-17
Variance Analysis
2-13
Part 8: Index 8-2
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Part 8: Index 8-3
