About the reporting standards
About the reporting standards and when you have to prepare financial statements.
All registered charities must complete annual reporting to Charities Services. This includes filling out an annual return and attaching financial statements. Prior to the reporting standards being introduced, there were no minimum standards on the content or the quality of those financial statements. The latest reporting standards came into effect on 1 April 2015 and registered charities need to prepare financial statements in line with these standards.
The reporting standards are set by the External Reporting Board (XRB), the independent Crown Entity responsible for developing and issuing accounting standards. With over 27,000 registered charities in New Zealand, of all different shapes and sizes, four different reporting tiers have been developed to allow smaller charities to prepare financial statements on a simplified basis. Larger charities will be required to use a set of accounting standards.
Charities Services expects that about 95% of registered charities will qualify to use the simplified standards. These charities have the option of using specially designed templates and guidance notes.
Refer to the Charities Services resource ‘Which tier will I use?’ for more information.
What are financial statements and performance reports?
Financial statements provide information about your activities, transactions and balances. They include a statement of financial performance (profit or loss) which shows revenue and expenses, and a statement of financial position (balance sheet) which lists all the assets and liabilities. Tier 1 and 2 charities attach their financial statements to their annual return.
Performance reports refer to the financial statements that Tier 3 and 4 charities attach to their annual return. They contain financial AND non-financial information such as mission or purpose and what the charity does. It is likely that Tier 1 and 2 charities will also have to produce performance reports in the future.
People interested in your financial statements read them so they can make informed decisions. These people include the governance group, members, funders, and donors. It is important that these statements fairly present the activities, transactions and balances and give the whole story of your charity.
What is reported on?
To tell the whole story, reports need to include information about all the different parts of your charity.
You may only have a few activities or services you provide, which will make it easy to identify all the different parts to include in your reporting. For others it might not be as straightforward, as they may have many activities or services which operate independently from each other. All these different parts of your charity must be reported on, as they all enjoy the benefits of being a registered charity.
The different parts of a charity could include:
- Activities – charities are often involved in many activities for which finances may be recorded separately, for example a special fundraising event.
- Trading operations – goods or services a charity sells to generate income, for example, an opportunity shop.
- Branches – to provide services in different locations, for example a Christchurch charity might have branches in Timaru and Ashburton.
- Bank accounts – different accounts may be established to keep money for different purposes separate, for example, a savings account keeps donations separate from a charity’s day-to-day cheque account.
The term ‘Reporting Entity’ is used by XRB to describe all the parts that must be reported on. If your charity’s situation is complex, refer to the XRB explanatory guide, EG A8: The Reporting Entity(external link), for further guidance on identifying all the parts which must be reported on.
You may also need to include information about other organisations you have a ‘control relationship’ with those organisations. ‘Control’ for financial reporting purposes is when an entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity. Power, exposure/rights to benefits and the ability to use this power must exist for a control relationship to exist. Refer to the Charities Services resource ‘Financial reporting and control relationships’ for more information.