NFP COVID-19 | May
1 May 2020 | Minutes to read: 5

NFP COVID-19 | May

By William Buck

Institute of Internal Auditors helpful tools

The Institute of Internal Auditors helpful tools:

  • Procurement Integrity (Probity) whitepaper – published 2nd April 2020
    • This whitepaper discusses the importance for organisations to have a formal approach to transparency and accountability in the procurement process, and to outline how this can be achieved.

  • 20 Critical Questions – What to ask yourself during a pandemic lockdown

  • 20 Critical Questions – What directors should ask of business continuity, and

  • 20 Critical Questions – What directors should ask of compliance.

Charity changes in a COVID-19 world

Many charities’ operations are affected by COVID-19 and may mean that some or all of them need to be modified or even temporarily halted. 

The Australian Charities and Not-for-profits Commission has stressed the importance of charities keeping stakeholders informed about what they are doing and why. Regular communication about charities’ changed activities should be a priority.  

The Commission has stressed that if charities’ activities change, they need to match their charitable purpose – what the charities were set up to achieve.  

Charities need to consider financial moves that might include: 

  • Consider using financial reserves 
  • Assessing their eligibility for federal, state, and territory stimulus packages 
  • Considering any other financial assistance available (for example, business-relief packages from banks and financial institutions) 
  • Assessing future cash flows and completing a forecast – or adjusting their forecasts – in light of current events 
  • Speaking to funders about the effects of cancelling or delaying activities that are part of funding agreements 
  • Knowing fixed costs and when they will need to be paid.  Not committing to any more expenditure if possible, and 
  • Reviewing existing liabilities (for example, exploring options with banks and financial institutions, including deferring loan repayments)

Responsible persons should speak to their charity’s accountant and auditor in preparation of budgets, forecasts and financial statements. 

A charity that has decided to cancel or postpone a fundraising event might need to decide what to do with money already committed (for example, through ticket sales or other purchases).   

Questions needing answers might include: 

  • Will the money be refunded – either immediately or in time? 
  • Will the charity hold the money until the fundraiser is rescheduled?
  • Will the charity commit the money towards a future event or effort?

The ACNC emphasises that transparency is paramount.  

It is important a charity communicates clearly with supporters and other stakeholders on why it made the decision as well as measures it has in place to ensure that funds are properly refunded or used in line with donors’ original intent and the charity’s charitable purpose. 

Compliance in a COVID-19 world

In recognition of unique challenges brought about by COVID-19, the ACNC has ruled out investigating certain breaches of governance and external-conduct standards from 25 March until 25 September.  

This approach is explained below. 

Standard  Circumstance  Conditions on which action will not be taken 
Governance Standard 1 and External Conduct Standard 1 – A charity cannot operate outside its charitable purposes  A charity seeks to operate outside its purposes.  Activities align with the charity’s purpose or purposes on a broad interpretation or are incidental or ancillary to its charitable purpose or purposes.  

If a charity takes on activities in response to COVID-19 that do not clearly align with its charitable purpose or purposes, it must: 

  • Reasonably show that its members would approve of the activity, and  
  • Document how it believes the new activities align with its charitable purpose or purposes, or are incidental or ancillary to its charitable purpose or purposes.  
Governance Standard 5 – The charity requires responsible people to ensure it does not operate while insolvent  The charity incurs debts such that it becomes insolvent.  The commissioner’s approach will follow amendments made to the Corporations Act 2001 by the Coronavirus Economic Response Package Omnibus Act 2020, except that it will apply to all charities and not just those that operate as companies limited by guarantee. 

The debt is incurred in the ordinary course of business, during the relevant period and before the appointment of an administrator or liquidator.  

The charity must ensure that its responsible people are aware of the issue and have an achievable aim to return to viability when the crisis has passed.  The charity must inform its members and the ACNC if it is trading while insolvent. 

External Conduct Standard 1 – A charity is required to obtain and keep records for its operations outside Australia  The charity is unable to obtain reporting from its overseas operations or partners.  The charity should: 

  • Record the reasons it is unable to obtain reporting, and 
  • Obtain reporting as soon as practicable. 


The commission believes that this short-term position is appropriate to allow charities to operate effectively and to enhance public trust and confidence in the NFP sector. 

If the ACNC identifies significant breaches that harm the public interest, even if they involve activities related to COVID-19, the commission might still investigate and take regulatory action.  

COVID-19 financial reporting considerations

COVID-19 poses significant business risks that need to be effectively managed – a top priority. 

Unfortunately, major financial reporting and auditing consequences will follow the virus’s economic impact and social distancing. Boards and CFOs need to understand and deal with them. Such measures are unlikely to be set and forget. 

Financial reporting issues that immediately come to mind are the uncertainties associated with the going concern basis of accounting, trigged impairment indicators for non-financial assets, impairment of financial assets under the expected-credit-loss model, changes to estimates and judgements, increased provisions, and more disclosures required in financial reports and statements. 

These will require extra attention in times of constrained resources and the unavailability of staff.  

As processes change due to strategies such as working from home, internal controls may be weakened, increasing the risks of non-compliance with laws, regulations, and fraud. 

Act now to minimise your risks.

Revisit going concern 

AASB 101 Presentation of Financial Statements is the reference on the going-concern basis of accounting and will require much more consideration in the COVID-19 environment.  

The rules are: 

  • When preparing financial statements, management must make an assessment of an entity’s ability to continue as a going concern 
  • Financial statements are prepared on a going concern basis unless management either intends to liquidate the entity, to cease trading, or has no realistic alternative but to do so 
  • When management is aware of material uncertainties about events and conditions that may cast significant doubt on an entity’s ability to continue as a going concern, the entity must disclose those uncertainties, and 
  • When an entity does not prepare financial statements on a going-concern basis, it must disclose it, together with the basis on which it prepared the financial statements and the reason why the entity is not seen to be a going concern

In assessing whether the going-concern basis is appropriate, management takes into account all available information about the future, which is at least (but not limited to) 12 months from the end of the reporting period.  

The degree of consideration depends on the facts.  

When an entity has had a history of profitable operations and ready access to financial resources, management may reach a conclusion that the going-concern basis is appropriate without detailed analysis. 

In other cases, management may need to consider a wide range of factors, including current and expected profitability, debt-repayment schedules, and potential sources of replacement financing before it can satisfy itself that the going-concern basis is appropriate. 

In the current environment, management will need to make more detailed assessments of going concern suitability.  

Disclosures in financial statements will have to be more extensive, including management plans to address uncertainties about going concern thrown up by COVID-19.  

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