F2. Financial Definitions
The financial definitions in this section are to be used by all signatory organisations in the preparation of their financial reports. Treatment must be in accordance with the relevant accounting standard. If you are in doubt, please consult your accountant or auditor for clarification of the appropriate accounting treatment for your organisation.
F.2.1 Income Statement - Definitions
The definitions in paragraph F.2.1 are to be used by all signatory organisations in the preparation of their Income Statements in conjunction with the Australian Accounting Standards. For those which are not specified here refer to the definitions found in the National Standard Chart of Accounts (NSCOA).
Income statements - Revenue
- Donations and Gifts – Monetary: Donations and gifts are benefits received free of charge (or without providing consideration in return) and include all donations and gifts actually received. Where donations and gifts form the major category of income, organisations are advised to provide further detail of the composition of these. For example: restricted or unrestricted as to purpose, relating to international or domestic programs, or by major fundraising activity.
- Donations and Gifts – Non-monetary: this heading covers the disclosure of goods and services received in kind. The inclusion of a figure here should be where fair value can be reasonably determined, taking into account materiality considerations and then be guided by the below points on specific areas of note. Any figure recorded under this heading should match a corresponding expenditure heading named ‘Non-monetary expenditure’.
- Donated assets (excluding buildings) are recognised as income when the asset is received. The amount recorded should be equivalent to the fair value of the donated asset. The fair value is ‘the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction’ (AASB 116). Both usability and marketability are joint considerations in determining fair value.
- Donated buildings are not recorded as income and should be recorded directly as an asset in the Balance Sheet (please see the definition for Property, Plant and Equipment).
- The disclosure of volunteer services in financial statements is optional, also:
- Whether, and if so how, an organisation discloses volunteer services in their Financial Statements will depend on their unique circumstances and interests, taking into account their ability to calculate the value of volunteer services, materiality considerations, the implications for their FTE and the view of their auditors.
- If agencies choose to disclose the value of volunteer services in their Financial statements, then they can choose whether to include this value as both Non-Monetary Revenue and Expense items in the Income Statement OR as a disclosure in the Notes to their Accounts; and
- In order to be included in the face of the Income Statement, the organisation’s auditors will need to be satisfied that the values have been determined in an appropriate manner and that documentation is available to support the calculations made.
- The Department of Foreign Affairs and Trade publishes job descriptions and relative rates of pay for help in valuing volunteer services. This is provided specifically for accredited organisations operating under the Recognised Development Expenditure (RDE) guidelines. However it may also assist other organisations as a reference. Please see RDE Worksheet Explanatory Notes
- Bequests and Legacies: financial support in the form of gifts or donations received through wills.
- Grants – Department of Foreign Affairs and Trade (DFAT): Grants sourced directly from DFAT (including the agency formerly known as AusAID).
- Grants - Other Australian: Grants sourced from all other Australian Institutions, including other Australian Commonwealth Government departments or agencies other than DFAT, State Government departments, and other Australian organisations such as philanthropic organisations and Corporate entities.
- Grants - Other overseas: all grants sourced from non-Australian institutions, including international affiliates, multilateral institutions and other non-Australian organisations.
- Investment Income: includes all income from interest, dividends, rent and other income earned on investment assets.
- Revenue for International Political or Religious Adherence Promotion Programs: if organisations have material amounts of funds in any of these areas, they should itemise on separate lines to enhance donor understanding.
- Includes income received for the purpose of supporting a political party, promoting a candidate or organisation affiliated to a political party, or to promote a particular religious adherence.
- Refer to the definitions in Principle B.1.5 of the Code & Good Practice Toolkit guidance for more detail in this area.
- Other income: organisations with large Domestic Programs may choose to disclose separately or as part of other relevant categories.
- Includes any income not included in the other categories and could include gross income from any retail and commercial activities and raffles as well as income from foreign exchange transactions. If this income constitutes more than 10% of total revenue, organisations are encouraged to disclose this separately in the Income Statement.
Income Statement - Expenses
- International Aid and Development Programs Expenditure: expenditure incurred to perform international aid and development activities, - i.e. activities undertaken to reduce poverty and address global justice issues via direct engagement through community projects, humanitarian relief and/or community education and public policy campaigns.
- International projects - Funds to international programs: Funds to international programs must be limited to funds and gifts in kind actually remitted overseas to aid and development projects, plus the cost of remitting those gifts.
- These costs may include (but are not limited to):
- Salaries of program staff or volunteers costs working overseas, which might be paid from Australia,
- The cost of acquiring property, plant and equipment in Australia which is then sent overseas, for example the cost of a computer and transportation costs in getting this computer equipment overseas,
- Costs of programs implemented by international partners,
- Administration costs of overseas field offices or program partners, and
- Program expenditure (not management fees) funded via international secretariats.
Organisations are encouraged to show details of their international programs either by program or by country. These details may be disclosed either in the Income Statement or in notes in the form of a supplementary report or set of graphics.
- International projects - Program support costs: includes the direct cost of project management spent in Australia, including project design, monitoring and evaluation and project management. It includes the training and professional development of Australian based staff and volunteers involved in the effective management of international projects.
- It may also include the salaries of program support staff paid in Australia.
- International projects - Community Education: includes all costs related to informing and educating the Australian community of, and inviting their active involvement in, global justice, development and humanitarian issues. This includes the cost of producing and distributing materials, the cost of conducting educational and public policy campaigns, and the cost of personnel involved in these activities.
- Educational materials and campaigns often include the opportunity for the community to provide financial or other support to the organisation.
If educational and campaign activities include an element of fundraising, the following requirements must be followed:
- An amount proportionate to the fundraising elements involved must be charged to Fundraising Costs. For example, a one page fundraising request in a 20-page campaign newsletter will charge 5% of the total newsletter costs to Fundraising Costs.
- The method for allocating the proportion of fundraising cost must be documented and be able to be produced to support the decision and is suggested to be included by way of a note to the accounts.
These requirements ensure that all costs associated with fundraising activities are disclosed at the highest level of transparency.
International projects Fundraising costs – Public (includes all costs related to the purpose of raising revenue from the public. Items include:
- the production and mailing of fundraising materials,
- the cost of promotional or marketing campaigns,
- the costs of establishing and maintaining public donor databases,
- funds paid to third parties to provide fundraising services,
- Donation related bank fees; and
- The cost of personnel involved in preparing and conducting marketing and fundraising campaigns.
International projects fundraising costs - Government, multilateral and private sector: includes the costs of personnel and related expenses involved in the preparation of funding submissions for, and reporting against grants and other contracts from government, multilateral organisations, corporate and philanthropic organisations.
International projects Accountability and Administration costs: signatory organisations are encouraged to use footnotes to explain any distinctions or category variations. Includes costs (not able to be allocated to a program activity) associated with the overall operational capability of the organisation. These costs include (but are not limited to):
- audit and accounting services
- legal fees
- memberships and subscriptions
- management costs of international secretariat functions
- office accommodation expenses (rent, maintenance, depreciation, utilities, etc.)
- bank charges (not donation related)
- general staff training.
Note: depreciation and costs of goods sold for merchandising activities can be separately disclosed and agencies are encouraged to do so when these items represent more than 10% of the expenditure in this category.
- Non-Monetary Expenses: the expenditure to offset the value of gifts of goods and services received in kind, as well as any volunteer services (please refer to Non-Monetary Income definition for details relating to volunteer services) that are recognised in the financial statements.
- Expenses for International Political or Religious Adherence Promotion Programs: if organisations have material amounts of funds in any of these areas, they should itemise on separate lines to enhance donor understanding.
Includes expenditure made for the purpose of supporting a political party, promoting a candidate or organisation affiliated to a political party, or to promote a particular religious adherence.
Refer to the definitions in B.1.5 of the Good Practice Toolkit guidance for more detail in this area.
- Domestic Programs Expenditure (including monetary and non-monetary): includes expenditure on programs that are directed towards beneficiaries within Australia. If this is a material category for signatory organisations, they are encouraged to choose the level of detail to report on under this heading and to use headings that are simple and clearly explain their operations.
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F.2.2 Balance Sheet Definitions
The definitions listed below are to be used by all signatory organisations in the preparation of their Balance Sheets in conjunction with the Australian Accounting Standards.
Balance Sheet - Assets
- Current Assets: assets that are expected to be realised within twelve months from the reporting date or within one operating cycle, whichever is the shorter. Current assets include:
- Cash and cash equivalents: cash and cash equivalents can be split into Restricted (allocated for a specific purpose) and unrestricted funds and if in a negative position may be referred to as a bank overdraft.
- Cash includes cash at bank and cash on hand e.g. petty cash, cash floats and undeposited funds. Cash equivalents are highly liquid investments which are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.
- Trade and other receivables: the amount of receivables still owing by customers (debtors) to the organisation at the end of the operating cycle which are expected to be collected in the next twelve months.
- Inventory: items held for sale or expected to be consumed in the process of delivery of services in the next twelve months. Includes fundraising stock, trading stock, publications for sale and emergency response stocks. Inventories may be purchased or received by way of donation.
- Assets held for sale: other current assets which are not inventory items but may be due to be sold in the next twelve months.
- Other financial assets: includes investments, deposits and bonds for services and non-cash exchanged credits, which are expected to be redeemed in the next twelve months.
- Non-current assets: assets that are not expected to be realised within twelve months from the reporting date or within one operating cycle, whichever is the shorter. Non-current assets include:
- Trade and other receivables: the amount of receivables still owing by customers (debtors) to the organisation at the end of the operating cycle which are not expected to be collected in the next twelve months.
- Other financial assets: includes long-term investments, deposits and bonds for services and non-cash exchanged credits which are not expected to be redeemed in the next twelve months.
- Property, plant and equipment: tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to have a life beyond the next twelve months. Includes freehold and leasehold land (the land is shown at either cost or at its re-valued amount), buildings and building improvements. Includes value of movable plant and equipment owned or leased recorded at cost.
- In the case of donated assets, these are recorded at the time of acquisition at fair value.
- Intangibles: this amount represents intangibles purchased (not internally generated) e.g. goodwill, distribution rights, intellectual property, licences, patents, trademarks.
Balance Sheet - Liabilities
Current liabilities: liabilities that are due to be settled within twelve months from the reporting date, or within one operating cycle, whichever is the shorter, or the entity does not have an unconditional right to defer settlement for at least twelve months from the reporting date. Current liabilities include:
- Trade and other payables: this item shows the total payable owing to creditors at the end of the operating cycle within the next twelve months (not including bank loans).
- Borrowings: all loans owed by the organisation to banks and other sources that are payable within the next twelve months.
- Current tax liabilities: amount of taxes payable to taxation authorities for Goods and Services Tax, Pay As You Go tax, Income Tax, Fringe Benefits Tax and Australian Business Number withholding tax.
- Other financial liabilities: includes other amounts payable to external parties due and payable within the next twelve months.
- Provisions: liabilities of uncertain timing or amount. Can include provisions for employee entitlements like annual leave and provisions for maintenance, etc.
- Other: other current liabilities not specifically included in previous accounts.
Non-current liabilities: Liabilities not classified as current. These include:
- Borrowings: all loans owed by the organisation to banks and other sources that are not payable within the next twelve months.
- Other financial liabilities: includes other amounts payable to external parties that are not payable within the next twelve months.
- Provisions: liabilities of uncertain timing or amount that are not payable within the next twelve months. Can include provisions for employee entitlements like long-service leave.
- Other: other non-current liabilities that are not specifically included in previous accounts.
Balance Sheet – Equity
- Reserves: reserves can be split into Restricted (allocated for a specific purpose) and Unrestricted funds
- Any reserve established by the organisation (such as the capital profits reserve, building maintenance reserve, IT reserve etc.). A reserve is essentially any amount of money specifically set aside by the governing body for future purposes.
- Reserves should include any restatements of assets as recorded by an asset revaluation reserve. An asset revaluation reserve is generated when an organisation decides to revalue certain non-current assets, such as land and buildings.
- Retained Earnings: this account represents the accumulated surpluses or deficits of the organisation over the years it has been operating.
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