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2016, A Year of Change for Not-For-Profit Organisations

2016, A Year of Change for Not-For-Profit Organisations

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Article by Carolyn Jackson

AUDIT, TAX, DIRECTOR, STAPLES RODWAY TARANAKI

Carolyn.Jackson@staplestaranaki.co.nz

There has been a significant change in the financial reporting and audit requirements for charities which commenced from 31 March 2016 year end onward. This has led to much more onerous and prescriptive reporting requirements for Non-Profit organisations. This is a legislative requirement under the Charities Act 2005 but a large number of Charities (and their professional advisers) have underestimated the implications of the changes and have subsequently required help with preparing their financial statements in the correct format.

In this article I will explain how the changes to the reporting framework may affect you and the statutory audit and review requirements based on the various types of non-profit organisations.

WHICH TIER DO YOU BELONG TO?

There are essentially now 4 Tiers of reporting:

  •  Tier 1: Operating expenditure of over $30m and with public accountability
  •  Tier 2: Operating expenditure between $2m and $30m
  •  Tier 3: Operating expenditure under $2m
  • Tier 4: Operating expenditure under $125,000

The impact of the new standards varies based on the expenditure of the organisation but compliance with the new financial reporting framework is mandatory for all registered charities, regardless of size. The new multi-tier framework shown above has different accounting standards applicable to each tier so there is certainly not a one size fits all approach. Firstly you need to understand which tier you fall under and then you can then work out which reporting framework you must follow. Visit www.charities.govt.nz/new-reporting-standards to see the various reporting frameworks.

Please note that if you need help, we are able to assist with the preparation of financial statements in the required format.

WHAT IMPACT WILL THIS CHANGE HAVE ON NON-PROFIT ORGANISATIONS?

A big part of the change for many organisations is that for many entities there was no compulsory framework that previously applied. This may have been an easier option but it certainly wasn’t the best option as accountability was extremely hard as a result. Now organisations are required to be more transparent and consistent around the information that is reported, which in turn will provide consistency of information for Grant providers and other users of the financial statements.

WHAT ARE THE CHANGES TO AUDIT REQUIREMENTS?

In addition to the financial reporting framework changes, registered charities will also have new audit, review and filing requirements imposed upon them. The expenditure thresholds that apply are different to those that apply for the financial reporting obligations as set out above.

  • Over $1m annual operating expenditure – Financial statements must be audited by a qualified auditor
  •  Between $500,00 and $1m annual operating expenditure – Financial statements must be either audited or reviewed by a qualified auditor
  • Less than $500,000 annual operating expenditure – Not required by law to have an audit or review. However, an audit review may be required by the organisation governing documents (e.g trust deed, rules, constitution, or charter) or as a condition of receiving a grant).

As a result of the new financial reporting regime, and depending on what reporting Tier applies to the organisation, the following key areas may be impacted significantly;

  •  Consolidation requirements (due to definition of control contained within IPSAS 6) – this is a complex subject requiring the application of judgment
  • Revenue and Deferred Income
  • Preparation of a Statement of Cash Flows
  • Preparation of a Statement of Service Performance

It has certainly been a year of change for the non-profit sector. Non-profit organisations must ensure that they understand all options available and mustn’t underestimate the importance of planning ahead in order to get the most out of funding opportunities for 2017. It is expected that similar requirements will be introduced for other entities such as incorporated societies (that are not registered charities) as there is currently an Incorporated Societies Bill in progress that will make changes to the Incorporated Societies Act 1908. Watch this space…

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