No true and fair view required if using the cash basis?
Recent survey evidence[i] shows that there are great many associations that report using the cash basis. Many of these associations are charities. And many of these charities are yet to submit their 2014 Annual Information Statement to the Australian Charities and Not-for-profits Commission (ACNC)[ii].
If they used the cash basis ‘in the past’ they can use the cash basis for 2014[iii].
The ACNC says that this cash information ‘does not need to comply with the accrual accounting requirements of Australian Accounting Standards.’ There is only a choice between cash and accrual, so that follows. But it goes on to say that, as a consequence, the information ‘does not need to present a true and fair view.’[iv]
No true and fair view?
The cash basis, a basis that results in the presentation of a single statement, a Statement of Cash Receipts and Payments, is, in accounting language, an ‘applicable financial reporting framework’. These are of two types: a fair presentation framework and a compliance framework[v]. And it is this choice that determines whether or not a true and fair view is required, not cash or accrual.
This is a choice that you, the charity makes. And then that choice is assessed by your auditor.
A fair presentation framework requires not only compliance with the requirements of the framework, but also one of two acknowledgments: an acknowledgement (explicit or implicit) that, in order to achieve fair presentation, extra disclosures may be required; or an explicit acknowledgment that, in very rare circumstances, it may be necessary to depart from the framework[vi].
If this is the type of framework applicable then the auditor’s opinion will include one of the following phrases (which the profession sees as being equal): ‘presents fairly’ or ‘gives a true and fair view’[vii].
That a fair presentation framework is far from unexpected by the accounting standard setters is shown by the following entry in their table showing the applicability of ASA 805 to a Statement of Cash Receipts and Payments:[viii]
Entity and Information Type: Small company – statement of cash receipts and payments, with related notes
Framework: Cash basis of accounting
Form of opinion: “Presents fairly in all material respects”
So, I’m sorry, but it would be unwise to rely on the ACNC’s statement that cash accounting means there’s no need for a true and fair view. You may need to get some professional accounting advice.
[i] AASB Research Report No. 1, Application of the Reporting Entity Concept and Lodgement of Special Purpose Financial Statements, www.aasb.gov.au.
[ii] (ACNC) ‘Commissioner’s Column – 4 February 2015’ page, www.acnc.gov.au, accessed 7.02.2015.
[iii] ‘Transitional reporting arrangements’ page, www.acnc.gov.au, accessed 7.02.2015
[iv] ‘Transitional reporting arrangements’ page, www.acnc.gov.au, accessed 7.02.2015
[v] Auditing Standard ASA 200, paragraph 13, www.auasb.gov.au.
[vi] Auditing Standard ASA 200, paragraph 13, www.auasb.gov.au.
[vii] Explanatory Guide: Auditor’s Reports, AUASB, February 2010, page 15-16.
[viii] Explanatory Guide: Auditor’s Reports, AUASB, February 2010, page 20.