New Zealanders are good at giving—providing financial support to charities and organisations whose work they support. We also like to have some idea, however, about how the money is used.
Registered charities have long been required to account for the money they receive. Currently they must file annual returns with DIA Charities, including a copy of their most recent annual accounts. This publicly available information gives donors some certainty about the activities of the organisations they support and how their money is being spent.
The rules for financial reporting and assurance, however, are about to change.
- The Financial Reporting Bill, currently before the Commerce committee, introduces a new framework for financial reporting that will affect government departments and other public entities, and the not-for-profit sector. Significantly for this sector, the Bill could affect not just charities but also other not-for-profit organisations.
- The External Reporting Board are seeking submissions on new accounting standards to support the implementation of the Bill;
- The Ministry of Business, Innovation and Employment seeking submissions on a proposals paper on assurance requirements to large and medium-sized registered charities.
The Financial Reporting Bill is very long. In a nutshell it creates a set of financial reporting standards that are consistent and that will apply to all organisations with “public accountability”. This includes those organisations that are “owned by taxpayers”, such as government departments and local authorities, and also those receiving donations and bequests directly from the public.
The main idea behind the Bill is to ensure information about an organisation with “public accountability” is available, in a consistent format, to those who are unable to demand that information.
Generally the Bill is supported by organisations representing the not-for-profit sector. Both Social Development Partners and ANGOA have made submissions to select committee. In their submission ANGOA suggested that the requirement of consistent reporting for all organisations will improve the standard of financial reporting generally.
Both organisations, however, also share some concerns about the Bill. They recognise that the Bill will increase the costs of compliance for some organisations, and the lack of certainty about which organisations will be captured by the new requirements.
The Bill fails to provide a definition of ‘not-for-profit’ entities (‘non-profit entities’ is the term actually used by the Bill). It is thought that while the new reporting standards will definitely apply to registered charities, they may not capture organisations receiving significant public through, for example, pub charities, but who are not registered charities. If this is the case the Bill will fail to provide the level of public accountability apparently being sought.
A third concern is that currently the Bill will apply to organisations whose annual operating payments are over $40,000. It is believed that this threshold is too low, and that requiring such small organisations to comply with the reporting standards places too great a burden on small groups.
The Commerce committee is due to report back on the Bill at the end of May.
At the same time as the Financial Reporting Bill (FRB) is progressing through Parliament the External Reporting Board (XRB) has been working on new accounting standards frameworks to support the implementation of the Bill. The XRB is currently seeking submissions on its“Exposure Drafts (ED) package” for Simple Format Reporting (SFR) for not-for profit entities (NFPs). (This subject is Rife With Acronyms (RWA).)
The previous paragraph may be enough to make you think you need a lie-down, but bear with us. This is an important issue. It is not likely to go away but it is likely to affect your organisation.
Don’t be put off by the language. “Exposure Draft” is simply a term used to describe a document proposing new accounting standards available for public consultation. In other words, it is a consultation document.
The package has been developed by the XRB in consultation with the groups in the not-for-profit sector. It proposes reporting templates; standard reporting formats, accompanied by Guidance Notes. XRB describes these templates as “fill-in-the-box”, which presumably means they are simple to use.
To be honest XRB’s package doesn’t always make for easy reading, but this doesn’t mean the reporting requirements will be difficult.
There appears to be a willingness to assist the sector comply with the new reporting standards, and to receive feedback on package. The XRB, Charities and ANGOA have run a series of seminars on the proposed standards around the country.
The XRB is also seeking comments and feedback on the proposed reporting standards package for not-for-profits.
You can email submissions to or post to the External reporting Board, PO Box 1152, Manners Street Central, Wellington 6142.
Submissions are due by 28 June 2013.
And if all of this wasn’t already enough, the Ministry of Business, Innovation and Employment (MBIE—let’s not forget the acronym there) is seeking submissions to a paper proposing revised mandatory auditing and assurance requirements for large and medium-sized charities.
These proposals are based on the former Ministry of Economic Development (MED) discussion paper released last year, and take into account consultation and feedback on that paper.
Under the revised proposals, large charities will be required to have their financial statements audited. Medium-sized charities will be required to have their financial statements either reviewed or audited.
For the purposes of these proposals, a charity is large if its operating expenditure (OPEX—acronyms again) is $1million or more for both of the two previous financial years. A medium charity will have an operating expenditure between $400,000 and $1million.
The paper has opted for operating expenditure, rather than income or assets, as the criteria for classifying a charity as large or medium. Submissions to this proposal in last year’s discussion paper were mixed, but the Ministry has opted for using OPEX as a single measure as it is simpler, and there was a concern that some charities could have unnecessary assurance requirements if as asset measure was used.
There is support within the sector for many of the proposals in this paper.
Audit and assurance is, for example, an important part of the new reporting framework. One sector concern not addressed by the paper however is the increased costs of compliance and the difficulty, particularly in rural, areas of finding an auditor. It may be too much to expect the Ministry to solve this one, but it remains an issue nevertheless.
Submissions to the discussion document close on 17 May 2013, by email or posted to: Auditing for Large and Medium Registered Charities, Commercial and Consumer Environment Branch, Ministry of Business, Innovation and Employment, PO Box 1473, Wellington.
Social Development Partners will be making submissions to both the XRB and MBIE. We wil,l closer to the time, put out our thoughts for organisations to endorse or make use of in the own submissions, well before the closing date in each instance.
Here endeth the acronyms…
Source: Social Development Partners