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Proposed new financial reporting standards for not-for-profits: how will they affect registered charities?
Updated February 2013
In the future, charities will be required to complete their annual financial reports to a specified standard. This information sheet gives an overview to help you understand what is being proposed and how your charity may be affected.
Information on this topic is developing rapidly. We will update information as it comes to hand and recommend you check back regularly for updates.
The External Reporting Board, (known as XRB), is an independent Crown Entity responsible for the development and issuing of accounting, auditing and assurance standards in New Zealand.
The XRB has confirmed that as a result of the Financial Reporting Bill introduced in 2012, a new accounting standards framework will be introduced for not-for-profit organisations.
This means there will be changes to the way charities will be required to present their financial reports.
Your charity will need to be ready so that it can comply with the new standards when they become law.
You may also want to provide a submission on the proposals.
This information sheet gives an overview to help you understand what is being proposed and how your charity may be affected.
What will change for charities?
After 1 April 2015, New Zealand charities will be required to complete their annual financial reports to new specified standards.
You will then file that financial report as part of your Annual Return to Charities Services
What are the proposed changes?
The XRB has issued a general ‘Accounting Standards Framework’ based on a tiered structure that will require different accounting standards for each tier. Charities will be required to fulfil the reporting standards for the tier their charity fits into.
Four proposed expenditure tiers:
Tier 1 over $30m
Tier 2 between $2m - $30m
Tier 3 under $2m (accrual)
Tier 4 Where law allows
Operational Payments under $40,000 (cash)
95% of all registered charities in New Zealand have expenditure of less than $2m and approximately half of those have expenditure less than $500,000. This means that most charities on the Charities Register, will fit into Tier 3 or Tier 4.
What are the benefits to charities?
Establishing financial reporting standards will help ensure that when charities provide information to stakeholders such as governing boards, trustees, members, volunteers or beneficiaries; that the financial statements are understandable, comparable and accessible.
Once you have this information it will help for other activities such as funding or sponsorship applications.
Over time it will improve ‘whole of sector’ knowledge, credibility and confidence, so that everyone can benefit.
How will the proposed changes affect your registered charity?
Tier 3 and Tier 4 charities can comply with the new requirements by choosing one of two options:
- Completing a template that will be provided called, ‘Simple Format Reports’. They will include non-financial as well as financial information.
- Developing your own report tailored for your organisation – but it must meet the criteria of the new standard (we recommend this is only done if you have an accountancy background or seek professional advice).
About ‘Simple Format Reports’
The XRB has developed draft Simple Format Report templates which are designed to be simple and straightforward to complete.
The XRB are actively seeking feedback from charities on the proposed financial reporting standards.
Final templates are planned to be available for use by the end of 2013.
A Simple Format Report will collect financial and non-financial information required by the new financial reporting standard for Tier 3 and Tier 4 not-for-profits.
Non-financial reporting helps create a fuller picture of your organisation. It might include information such as the main source of your cash and resources, the main method used to raise funds and the use of/reliance upon volunteers.
When will the new standards come into force?
Based on the current timeline, charities will have to prepare accounts that comply with the new standards for the financial year commencing 1 April 2015.
You can choose to use the new Simple Format Report standards immediately after they have been issued (likely to be the end of 2013), if you wish. After the date of the law change though, you must use them - or a higher level standard.
Will these changes affect Annual Returns?
- Charities Services wants to ensure that any additional compliance is minimised for registered charities.
- Charities Services is currently investigating the options for changing the online Annual Return to reflect the new proposed XRB requirements. We will keep you updated on this.
Do charities get to have a say?
Yes, both XRB and Charities Services are seeking immediate feedback from across the sector on the Simple Format Report standard and template.
It’s important that any change to future reporting requirements are easy to understand and comply with and work well for charities of all sizes.
You can find work in progress reports on the drafts on the XRB website www.xrb.govt.nz.
Send your feedback and submissions by Friday 28 June 2013, to the Chief Executive, External Reporting Board, PO Box 11250, Manners Street Central, Wellington 6142, or email firstname.lastname@example.org.
- Currently, most charities are not required to meet any particular standard of financial reporting.
- Proposed changes resulting from a legislative change are likely to come into effect on 1 April 2015.
- Charities will be required to complete their annual financial reports following a specified format.
- Four different levels of report have been proposed.
- Most charities on the Charities Register will qualify to complete one of the lowest level or ‘Simple Format’ reports.
- The External Reporting Board will provide a Simple Format Report template, using ‘non-accounting’ language.
- You don’t have to use the template ‒ you can create your own report, but it must meet the criteria. It’s recommended only those with an accountancy background, or those who have sought professional advice do this.
ED - Exposure Draft Document
NFP - Not-for-Profit
PBE - Public Benefit Entity
RDR - Reduced Disclosure Regime
SFR - Simple Format Reporting
XRB - External Reporting Board
Detailed information is available on the External Reporting Board’s website at www.xrb.govt.nz
For more information about the Charities Register or registration under the Charities Act, please browse www.charities.govt.nz or call our free information line – 0508 242 748.