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					        AUSTRALIAN NOT FOR PROFIT NETWORK INC                                      ED 116 sub 9
                                             ABN 23 955 064 152
                                104 Auburn Road Hawthorn Victoria 3122

                              Telephone: 03 9818 8166 Fax: 03 9818 8144
__________________________________________________________
____

                                                                                       30 September 2003

The Chairman
Australian Accounting Standards Board
PO Box 204
Collins St West Vic 8007


Dear Chairman

                                          Convergence
                                  Comments on ED 116 - Inventories

The members of the Australian comprise accounting firms throughout Australia who specialise in the not for
profit sector. Between them they employ approximately over 50 qualified accountants who are engaged in
providing professional advice and auditing services to over 600 charitable, religious and nonprofit
associations in Australia.

Members of the network are actively involved in the reform of statutory regulation, accounting standards
and governance in the not for profit sector.

We express our appreciation to your Board for taking the extra time and effort to highlight proposed
changes to Australian accounting standards which might result following the release of the current
Convergence exposure drafts. The shading of relevant paragraphs has been of great assistance to us in our
evaluation of the exposure drafts thus far.


We enclose our comments on Exposure Draft 116 and hope they may be useful in your deliberations.


Yours faithfully




Kimberly Smith
Chairman
Exposure Draft ED 116                    Request for Comment on IAS 2 and IPSAS 12

AASB 102 INVENTORIES
______________________________________________________________________


Specific Matters for Comment

Specific matters upon which the Board has invited comments in relation to ED 116:

(a) whether the proposed requirements for including additional material applicable to not-
for-profit entities are appropriate and workable;

      Response: Yes, we support the inclusion of the proposed additional material
      and consider them to be both appropriate and workable.


(b) whether any of the features of AASB 1019 identified as different from IAS 2 in the
comparison in this Preface should be included in the proposed Australian equivalent of
IAS 2, and if so, which features;

      Response: Yes, we support the inclusion of the proposed additional material
      and consider them to be both appropriate and workable.
      support the view that the additional guidance provided by AASB 1019 on the
      other matters raised in the Preface should be retained.

      If such inclusions are unacceptable to the IASB, then we would like to see
      the AASB provide guidance notes to IAS 2.


(c) any regulatory issues or other issues arising in the Australian environment that may
affect the implementation of the proposals, particularly any issues relating to:
    (i) not-for-profit entities;
    (ii) public sector entities;

      Response: No comment. We are not aware of any such regulatory issues.


(d) whether the proposals are in the best interests of the Australian economy; and

      Response: No comment.

(e) whether the proposed format of the “new” series of Australian Standards is
appropriate and workable.

      Response: The proposed AASB 102 appears to be appropriate and workable
      in relation to the not-for-profit sector. The additional guidance provided by
      AASB 1019 would enhance and assist the preparers of NFP financial reports.




Australian Not for Profit Network Inc.
DETAILED RESPONSES


NFP1 – Scope
In respect of not-for-profit entities, this standard does not apply to work in progress of
services to be provided for no or nominal consideration directly in return from the
recipients.


NFP2 – Definition
Not-for-profit entity is an entity whose principal objective is not the generation of profit. A
not-for-profit entity can be a single entity or a group of entities comprising the parent
entity and each of the entities that it controls.

NFP3 – Definition
In respect of not-for-profit entities, current replacement cost is the cost the entity would
incur to acquire the asset on the reporting date.

NFP4 – Definition
In respect of not-for-profit entities, inventories held for distribution are assets:
    (a) held for distribution at no or nominal consideration in the ordinary course of
    operations;
    (b) in the process of production for distribution at no or nominal consideration in the
    ordinary course of operations; or
    (c) in the form of materials or supplies to be consumed in the production process or
    in the rendering of services at no or nominal consideration.


NFP5
In respect of not-for-profit entities, inventories held for distribution shall be measured at
the lower of cost and current replacement cost.

      Response: We support the addition of this paragraph, although we note that
      ‘net realisable value’ could be a realistic measurement for goods held by
      charity “opportunity shops”. However, our enquiries indicate that –
            (a) most opportunity shops operated by churches and community
            groups do not report the value of their inventories in their financial
            reports;
            (b) a few large charity retail outlets use net realisable value in their
            financial reporting.


NFP6
A not-for-profit entity may hold inventories whose future economic benefits or service
potential are not directly related to their ability to generate net cash inflows. These types
of inventories may arise when a government has determined to distribute certain goods
at no charge or for a nominal amount. In these cases, the future economic benefits or
service potential of the inventory for financial reporting purposes is reflected by the
amount the entity would need to pay to acquire the economic benefits or service
potential if this was necessary to achieve the objectives of the entity. Where the


Australian Not for Profit Network Inc.
economic benefits or service potential cannot be acquired in the market, an estimate of
replacement cost will need to be made. If the purpose for which the inventory is held
changes, then the inventory is valued using the provisions of paragraph 6. Examples of
inventories held for distribution include strategic stockpiles of various reserves, such as
energy reserves (for example, oil) for use in emergency or other situations (for example,
natural disasters or other civil defence emergencies). These stockpiles are recognised
as inventories for the purposes of this Standard and treated accordingly.

      Response: We support the addition of this paragraph. It will be particularly
      helpful for large welfare and overseas aid agencies.


NFP7
For inventories held for distribution by not-for-profit entities, the carrying amount shall be
recognised as an expense when the goods are distributed or when the services are
rendered. The amount of any write-down of inventories and all losses of inventories
shall be recognised as an expense in the period the write-down or loss occurs. The
amount of any reversal of any write-down of inventories shall be recognised as a
reduction in the amount of inventories recognised as an expense in the period in which
the reversal occurs.

      Response: We support the addition of this paragraph.



                                                                       Kimberly Smith FCA
                                                      Australian Not for Profit Network Inc.




                              Australian Not for Profit Network Inc.
 The Australian Not for Profit Network is a network of seven accounting firms which specialise
 in the area of not for profit accounting. Between them they provide professional advice and
 auditing services to more charitable, religious and nonprofit associations than any other group
 of accountants in Australia. Members of the network are actively involved in the reform of
 statutory regulation, accounting standards and governance in the not for profit sector.
                                            National Office
                                 Australian Not for Profit Network Inc.
                              104 Auburn Road, Hawthorn Victoria 3122
                                 email: anfpn@kimberlysmith.com.au




Australian Not for Profit Network Inc.

				
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