Supporting Practices
7.1 The organisation’s governing documents and policies relevant to its
governance are available to stakeholders
7.2 The board oversees appropriate reporting to stakeholders about the
organisation’s performance and financial position
7.3 Transactions between related parties, if any, are disclosed to stakeholders
7.4 Directors’ remuneration and other benefits, if any, are disclosed to
stakeholders
7.5 Members have the opportunity to ask questions about how the organisation
is run and to hold the board to account for their decisions
The board has ultimate authority for the organisation
and as such has ultimate accountability for its activities
and performance. This means they must present a fair
representation of the organisation’s activity and take
responsibility for the consequences of their actions and their
and the organisation’s performance.
What is accountability?
Accountability exists in a relationship between two parties
where one has expectations of the other, and the other is
obliged to provide information about how they have met
these expectations or face the consequences of failing to
do so.
There are two components of accountability:
- Answerability – which means providing information and
justification for how one’s actions align with expectations;
and
- Enforcement – which means being subject to, and accepting
the consequences of, failing to meet these expectations.
Because accountability in an organisation will involve
multiple parties, it is important there is clarity about who is
accountable to whom and how. The way this accountability
is achieved will generally be set out in an organisation’s
governing documents, such as its constitution, and any laws
that apply to it. For example, an NFP may be required to
provide an annual financial report to its regulator and the
penalty for failing to do this may be a fine.
It is important that the documents and policies that enable
accountability are made available to relevant stakeholders.
Subject to necessary confidentiality, usually this is done by
providing such information on the organisation’s website, but
it should be available on request at a minimum.
For accountability to be achieved, there must be transparency.
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What is transparency?
Organisations are transparent when they enable others
to see and understand how they operate in an honest
way. To achieve transparency, an organisation must
provide information about its activities and governance to
stakeholders that is accurate, complete and made available in
a timely way.
Transparency enables accountability.
This does not mean all information should be made publicly
available. There are certain types of information that may
not be provided publicly such as private information (such as
client records) and ‘commercial in confidence’ material (such
as tender submissions).
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To whom are boards accountable?
The board is entrusted by its members to govern on their
behalf. As a result, the primary accountability of boards is to
their members.
There are several ways that boards can demonstrate
accountability to their members. For example, by answering
members’ questions at general meetings and holding open
and fair elections for board members. One of the ways boards
are held accountable is through upholding their duties which
are discussed in Principle 2: Board roles and responsibilities.
Boards may also be accountable to other sources including:
- Regulators, police and the courts;
- Government and non-government accreditation bodies;
- Clients and customers;
- Financial institutions such as banks;
- Funders and government departments through funding and
service agreements; and
- Other individuals and organisations through contracts for
service or employment.
It is important that boards understand to whom they are
accountable and that they are satisfied they are meeting any
obligations they have to them.
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Annual reporting
One of the ways an organisation can demonstrate
accountability to stakeholders is through publishing an
annual report. An annual report is a document that includes
governance and performance information about the
organisation in a certain reporting period such as:
- Information about the organisation’s purpose, vision, values
and strategic goals;
- Statements from the organisation’s leaders such as its CEO
and chair;
- Profiles of directors and information about the
organisational structure;
- Information about key organisational resources (such as
staff and volunteers); and
- Information about the organisation’s activities within
the reporting period, including key statistics and
performance data.
Annual reports are also a valuable way for organisations
to connect with their stakeholders. Many organisations
use their annual reports as a way of demonstrating their
achievements during the year to help stakeholders,
particularly donors and volunteers, to understand how their
contributions assisted in achieving the organisation’s goals.
An organisation’s governing documents
and any laws that apply to it may set out
requirements in relation to publishing
annual reports such as what it must include,
to whom it must be provided and within
what timeframe.
Annual reports are also a valuable way for organisations
to connect with their stakeholders. Many organisations
use their annual reports as a way of demonstrating their
achievements during the year to help stakeholders,
particularly donors and volunteers, to understand how their
contributions assisted in achieving the organisation’s goals.
An annual report may contain the organisation’s financial
report or an extract.
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Financial reporting
Many NFP organisations are required to produce a financial
report and provide this to their members, funders or to
lodge it on a public register.
An organisation’s governing documents
and any laws that apply to it may set out
requirements around the presentation of
financial reports including what form they
take and to whom they must be provided
and within what timeframe.
Many organisations are required to prepare their financial
reports in accordance with Australian Accounting
Standards. These standards are developed, issued and
maintained by the Australian Accounting Standards Board
(AASB) and set out the rules for the preparation and
presentation financial statements.
To determine whether an organisation is required to apply
with Australian Accounting Standards, directors will
need to assess whether their organisation is a ‘reporting
entity’. The definition of a reporting entity is set out under
Australian Accounting Standards.
STATEMENT OF ACCOUNTING CONCEPT 1:
DEFINITION OF REPORTING ENTITY
Reporting entities are all entities (including economic
entities) in respect of which it is reasonable to expect
the existence of users dependent on general purpose
financial reports for information which will be useful
to them for making and evaluating decisions about
the allocation of scarce resources.
STATEMENT OF ACCOUNTING CONCEPT 1:
DEFINITION OF REPORTING ENTITY
“General purpose financial report” is a financial
report intended to meet the information needs
common to users who are unable to command the
preparation of reports tailored so as to satisfy,
specifically, all of their information needs.
Generally, if people use and rely on an organisation’s
financial statements to help them make decisions (for
example, about how to spend money) and they can’t
command the organisation to provide this information, it
will be considered a reporting entity.
Reporting entities must produce ‘general purpose financial
reports’. The definition of general purpose financial reports
is set out under Australian Accounting Standards.
General purpose financial reports must comply with all
Australian Accounting Standards.
Organisations that are not reporting entities may choose
to produce ‘special purpose financial reports’. These are
a type of financial report that do not have to comply
with all Australian Accounting Standards and which are
prepared for the benefit of particular users. However, the
users of these reports may require that they comply with
certain Australian Accounting Standards. For example,
organisations that are registered charities must comply
with six minimum accounting standards.
It may be necessary for a financial report to be audited or
reviewed depending on the requirements of regulators,
funding providers or the organisation’s governing
documents and any laws that apply to it.
An organisation’s governing documents
and any laws that apply to it may set out
requirements around who must approve the
organisation’s financial reports. Often this
will be the directors.
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General meetings
Many organisations hold an annual general meeting (AGM)
which provides an opportunity for members and other
stakeholders to gather, hear about the
organisation’s activities and finances for the previous year,
and ask questions.
AGMs also provide an opportunity to undertake important
governance activities that can only be done at general
meetings of members such as electing board members and
making changes to an organisation’s governing documents.
Generally, these activities will be undertaken through a
vote of the members and it is important to make sure that
any relevant procedures in relation to voting are followed.
Sometimes it is necessary to gather members more often
than once a year and so the board may call an additional
meeting of members. These meetings are sometimes called
special general meetings (SGM). An SGM might be called to
deal with an item of business that cannot wait for an AGM
such as authorising a merger or winding up the organisation.
It is important to follow any procedures relevant to holding
an SGM which will generally be set out in an organisation’s
governing documents and any laws that apply to it.
An organisation’s governing documents
and any laws that apply to it may set out
requirements around holding AGMs such
as regarding notice periods, the content of
the notice, who has to be invited and any
business that needs to be discussed.
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Disclosing related party transactions
It is not uncommon for NFP organisations, particularly
smaller NFPs, to undertake transactions with people who
are closely related to it. For example, a director might offer
a discounted service to the organisation or their child might
buy a used car from it. These transactions are called ‘related
party transactions’.
Because related party transactions occur between the
organisation and someone closely associated with it,
they must be carefully managed so that they meet any
obligations under the law, including any requirements to
disclose them.
Organisations that are required to lodge
general purpose financial statements must
comply with the Australian Accounting
Standard on related party transactions
(AASB 124: Related Party Disclosures).
Regardless of whether an organisation is required to lodge
general purpose financial statements, it is a good idea to
disclose related party transactions to promote transparency.
The definition of ‘related parties’ is set out in AASB 124
Related Party Disclosures and includes people such as the
directors, the CEO, and other senior staff. It also includes the
members of these peoples’ close family that have control,
joint control or significant influence over the organisation.
AASB 124 Related Party Disclosures also defines ‘related
party transactions’:
RELATED PARTY TRANSACTIONS
A transfer of resources, services or obligations
between a reporting entity and a related party,
regardless of whether a price is charged.
Related party transactions may include:
- Purchases or sales of goods or property;
- Donations made or received;
- Rendering or receiving of services; and
- Receiving or providing loans.
It is a good idea to develop a policy on related party
transactions that sets out how they will be disclosed and
managed. These policies also help promote transparency,
and the proper and accountable use of resources.
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Disclosing remuneration and other benefits
Most directors in the NFP sector are not paid (remunerated)
for their work as a director. However, where directors do
receive remuneration for their work, it is a good idea that
this remuneration is disclosed to stakeholders.
Where remuneration is paid, there are several ways disclosure
can be made, the most straightforward of which is to list
directors by name and report their respective remuneration.
The example below demonstrates how this can be done for
a fictional organisation:
Figure 8: Example director remuneration disclosure

This disclosure should include any other benefits that
directors receive as payment for their work. For example,
if directors are given cars as part of their payment, the cost
of this benefit should be included in the disclosure.
An organisation’s governing documents may also set out
requirements around the payment of directors such as
requiring the approval of members. It is a good idea to
develop a policy on how remuneration is determined and
approved.
NFPs that are required to comply with AASB 124: Related
Party Transactions must disclose an aggregate figure for
the remuneration of ‘key management personnel’ in their
annual financial report.
The definition of key management personnel is set out
under AASB 124: Related Party Transactions:
KEY MANAGEMENT PERSONNEL
Those persons having authority and responsibility
for planning, directing and controlling the activities
of the entity, directly or indirectly, including any
director (whether executive or otherwise) of that
entity
This definition includes directors and will also generally
include the CEO and other senior staff such as the chief
financial officer and the chief operating officer.
The example below demonstrates how this can be done for
a fictional organisation:
Figure 9: Example key management
personnel remuneration disclosure

Organisations that are not required to produce general
purpose financial reports may still choose to disclose the
remuneration of their key management personnel on a
voluntary basis.
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Questions for Directors
- Is the board satisfied that the organisation's resources are protected from misuse?
- Is there an agreed definition of success for this organisation?
- How well is financial and non-financial performance evaluated?
- Do financial performance targets contribute to long-term organisational sustainability?
- How does the board use performance information in its decision making?
Case Studies
HelpfulCare
HelpfulCare provides an annual report to its members
that sets out in detail how the organisation worked
throughout the year and how it performed against
its strategic objectives. The annual report includes an
extract of their financial report and a full version of
this is available on their website.
To keep their stakeholders informed about their
activity, HelpfulCare uses a number of communications
tools such as a magazine, email bulletins, a blog and
social media.
Each year, HelpfulCare holds an AGM to which they
invite their members and key stakeholders. At the
AGM, directors and senior staff provide presentations
on the key achievements for the year and invite
questions from members.
The directors of HelpfulCare are each paid a small
honorarium for their service and this is disclosed
in their annual report. Directors receive $100 per
meeting to cover the cost of their travel and expenses.
The annual report also lists any related party
transactions made during the year.
The Friendlies
Keeping their membership actively engaged is a
key focus for the Friendlies. They do this through
producing a monthly email newsletter where they
focus on their recent activities and share stories about
how their work has made a difference.
Members are also invited to attend quarterly ‘town
hall’ meetings where they can hear verbal reports of
the Friendlies’ recent activities and ask any questions
about their operations. Once a year, the town hall
meeting includes an annual general meeting which
includes the presentation of financial statements.
The Friendlies do not have a website and only
use social media and email to engage with their
membership. As a result, their governing documents
are not available online, but they provide these
documents to members on request and a copy is given
to all new members.
The Friendlies do not pay their directors and this is
widely known by stakeholders. They maintain a policy
on related party transactions that requires directors to
disclose any such transactions at one of their town
hall meetings.