New reporting standards glossary
An alphabetical list of words relating to the new reporting standards.
Under accrual-based accounting, revenue and expenses are recorded when they are earned or incurred, rather than when cash is received or paid (for example, if your charity has had confirmation that it will receive a grant, but it has not yet been paid, you would still record this as revenue). Accrual-based accounting is typical in organisations with a significant number of transactions, recorded using accounting software, often with the help of an accountant. Accrual-based accounting allows for concepts such as depreciation and bad debts.
The date to which a performance report is prepared. It is usually an end of the month date (for example 31 March 20xx).
Under cash-based accounting, transactions are recorded at the time that cash is received or paid, rather than when earned or incurred. Cash-based accounting is typical in organisations where transactions tend to be small in number and size, and relatively uncomplicated. A cash book, which could be paper based or in an excel workbook, is usually used in cash-based accounting to record transactions.
The power to govern the financial and operating policies of another entity so as to benefit from its activities.
An entity is an organisation which may take any number of forms, including but not limited to, registered charity, company, incorporated association, unincorporated association or trust.
‘Expenses’ for the purposes of the standards are the expenses of an organisation’s day-to-day activities. Expenses do not include capital expenses (such as the purchase of motor vehicles, land, buildings etc.). Go to Which tier will I use? for more information.
Registered charities need to consider the relationships they have with other entities as this could affect which reporting tier they use. Reporting must give a full picture of a charity’s activities, performance and financial position.
There are three types of relationships which must be included in reporting: control, joint control, and significant influence.
A period usually of twelve months ending on the entity’s balance date.
Not-for-profit public benefit entity. Most registered charities are NFP PBEs as they provide a public benefit.
Any payments, other than capital payments, made by the entity during the financial year. Operating payments do not include accrual-based accounting concepts such as depreciation or money that you owe. The Tier 4 criteria are based on operating payments to reflect cash-based accounting.
What a charity is seeking to achieve in terms of its impact on society.
The goods or services that a charity delivered during the year.
This is the new name for financial statements (for Tier 3 and Tier 4 charities) as they will include non-financial information once the new reporting standards come into effect. A performance report is a set of statements which collectively tell a charity’s story over the financial year.
In the future it is expected that Tier 1 and Tier 2 charities will also have to provide non-financial information. The External Reporting Board are working on adding this to the standards.
We expect that very few charities have public accountability, and those charities that do will be aware of it. Institutions with public accountability include banks, credit unions, insurance providers, securities brokers/dealers, mutual funds and investment banks.
If people give you cash or assets that you hold for them, and this is one of your charity’s main activities, you may have public accountability and therefore be required to report under Tier 1.
Public Benefit Entity Simple Format Reporting – Accrual (Not-for-Profit) (PBE SFR-A (NFP))
This is the technical term for Tier 3.
Public Benefit Entity Simple Format Reporting – Cash (Not-for-Profit) (PBE SFR-C (NFP))
This is the technical term for Tier 4.
A registered charity is a reporting entity. Some charities set up different entities to carry out their different activities (for example, a second hand shop, or a trust to manage properties). For the purposes of financial reporting, these things would be considered part of the ‘reporting entity’ and the charity would need to include information about them in their performance report.
Simple format report.
Statement of cash flows
A statement that shows the movements between the cash balances at the beginning and the end of the year. It is divided into two categories: operating, and investing and financing.
Statement of financial performance
A statement that shows a charity’s revenue and expenses, to establish its surplus or deficit for the financial year. This statement is sometimes called the income statement or operating statement.
Statement of financial position
A statement that reports a picture of a charity’s position by listing what is owns and what it owes at the balance date. This statement is sometimes called the balance sheet.
Statement of Service Performance
This is the non-financial aspect of reporting that is required for Tier 3 and Tier 4 charities under the new standards. The Statement of Service Performance provides information on the outputs delivered by a charity during the financial year, and the outcomes those outputs contribute to. It is particularly useful in the not-for-profit sector when the focus is on achieving outcomes, rather than making a profit.
A tiered framework is being introduced through the new reporting standards to recognise charities by their relative size. The tier that a charity reports under is determined by the annual expenses or operating payments of its previous two financial years, and whether it has public accountability. Go to Which tier will I use? for more information.
The External Reporting Board is the independent Crown Entity responsible for developing and issuing accounting standards.