From the 2023 Annual Information Statement onwards, all charities (except basic religious charities) are required to report on their related party transactions.
The concept of a ‘related party’ is used in corporate law and accounting standards and often includes the directors of a company and their spouse, relatives and other entities that the directors may control. Any financial benefit given to these related parties by the company requires specified approvals. Benefits can include purchases/sales, donations, loans, leases, guarantees, delivery of goods, resources or services and the provision of employees or volunteers.
Related parties are differently defined by the ACNC according to charity size.
There is a simplified definition for small charities. But for medium and large charities, the definition is aligned with the Australian Accounting Standards (AASB 124).
Small charities which do have reportable related party transactions in the reporting period must select one or more applicable types of related party transaction in the 2023 Annual Information Statement, namely;
- fees paid to a related party for providing goods or services to the charity;
- loans from/to a related party;
- salary/wages paid to a related party’s relative(s);
- transfer of charity property or assets to a related party;
- charity goods or services provided at a discount to a related party;
- significant use of charity property by a related party; and
- investment in a related party.
Medium and large charities are required to disclose ‘material’ related party transactions in the annual information statement and financial reports.
Information in a financial report is considered ‘material’ if omitting, mis-stating or obscuring it could reasonably be expected to influence someone using that information to make a decision and depends on the size, nature and circumstances of the transaction. So there is no ‘rule of thumb’ dollar value of such transactions.
To determine when and how to disclose related party transactions, medium and large charities should refer to AASB 124 Related Party Disclosuresor AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (paragraphs 189-203 and Appendix A).
All ACNC registered charities should ensure that they have maintained a register of conflicts of interest and related party transactions and also have appropriate supporting policies in place that are regularly formally drawn to the governing board and senior staff’s attention.
The ACNC has recently released guidance to assist charities to understand their new obligations and to provide charities with certainty about what transactions should be reported.