new financial reporting for small charities · why not check them out while you’re waiting for us...

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New Financial Reporting for

Small Charities

A webinar for accountants

July 2016Julia Fletcher, DIA

Aimy Luu Huynh, XRB

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Department of Internal Affairs

Introduction

Words from Charities Services and the External Reporting Board (XRB)

Why are we doing this?

The importance of doing it right

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Department of Internal Affairs4

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New Legal Framework

Financial Reporting Act 2013

Financial Reporting (Amendments

to other enactments) Act 2013

- Amendments to Charities Act 2005 – section 42A

All registered charities follow XRB standards

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New Accounting Standards Framework

Accounting Standards Framework consists of separate standards

for For-profit Entities

for Public Benefit

Entities

(Not-for-profit and public sector)

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Not-For-Profit Framework

Tier Entities Standards

1• “Public Accountability”

• Total expenses >$30m

Full PBE Standards

2Total operating expenses

≤$30m

PBE Standards with

disclosure concessions

3Total operating expenses

≤$2m

Simple Format

Standard (accrual)

4Total operating payments

<$125k (where law allows)

Simple Format

Standard (cash)

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Tier Charities

1Total operating

expenses >$30m

2Total operating

expenses ≤$30m

3Total operating

expenses ≤$2m

4Total operating

payments <$125k

Not-For-Profit Framework

<1%

3%

22%

75%

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Simple Format Reporting Standards

Single, standalone standards

Less technical language

Simpler requirements

Common transactions

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Tier 3 Criteria

Less than or equal to $2 million operating expenses– Day to day expenses e.g. grant payments,

depreciation

– Excludes capital payments e.g. physical assets or investments

Accrual-based accounting– Transactions earned or incurred

– Includes debtors and creditors

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Tier 4 Criteria

Under $125,000 operating payments

– Day to day expenses

– Excludes capital payments e.g. physical assets or

investments

Cash-based accounting

– Cash paid and received

– Excludes depreciation

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Overview

Tier 3

SFR Standard: accrual (PBE SFR-A (NFP))

EG A5: template & guidance notes

Spreadsheet & PDF templates (optional)

Tier 4

SFR Standard: cash (PBE SFR-C (NFP))

EG A6: template & guidance notes

Spreadsheet & PDF templates (optional)

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Further Information

www.xrb.govt.nz

[email protected]

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Tier 4 Performance Report

Service Performance

Receipts & Payments

Resources & Commitments

Notes

Entity Information

Non-financial

Financial

Supporting Info

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https://www.xrb.govt.nz/

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Non-financial

Financial

Supporting Info

ServicePerformance

Financial Performance

Financial Position

Policies + Notes

EntityInformation

Cash Flows

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Telling Your Story

Non-financial information Adds richness to our story

Creates better understanding

Who are we? Why do we exist?

What did we do?Why those activities?

ServicePerformance

EntityInformation

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Statement of Service Performance

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Key Features of the Financial Information

Basis of Preparation

o Tier 3 and Tier 4 are different approaches, accrual vs cash

Categories

o How much leeway is there?

o What do we do with grants?

Recognition of certain transactions

o E.g. donated inventories and assets

Related parties

o Particularly prevalent in charities

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Minimum CategoriesThese are the Tier 3 Revenue and Tier 4 Receipt categories.

Tier 3 - Revenue Tier 4 - Receipts

Donations, fundraising and other similar revenue

Donations, fundraising and other similar receipts

Fees, subscriptions and other revenue from members

Fees, subscriptions and other receipts from members

Revenue from providing goods or services

Receipts from providing goods or services

Interest, dividends and other investment revenue

Interest, dividends and other investment receipts

Receipts from the sale of resources

Receipts from borrowings

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Categories – How Much Leeway?The table below shows what can and can’t be done to the categories.

What can I do? Yes No

Rename categories ✓

Add subtotals or headings ✓

Disaggregate categories ✓

Delete unused categories ✓

Merge minimum categories ✓

Add a category called grants and record all grants in it ✓

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Grants

Questions to think about

What was the grant for?

What are the conditions of the grant?

Decisions to make

Which category does the grant get recorded in?

When do I record the grant?

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Grants – Where and When to Record

Tier 3 Treatment Tier 4 Treatment

Category

Grant received for general admin

Record under: Donations, fundraising and other similar revenue

Record under: Donations, fundraising and other similar receipts

Grant received for service provision

Record under: Revenue from providing goods or services

Record under:Receipts from providing goods or services

Recognition

Grant received with no “use or return” condition

Record when grant is received

Record when grant is received

Grant received with a “use or return” condition

Record as a liability initially and record the income and expense as the grant is spent

Record as a receipt, and record the unspent balance as a commitment

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Recognition of Certain Transactions – Tier 3

Source How to record Comments

Donated goods or services Do not record Significant items to be disclosed in the notes

Donated inventory Do not record Can choose to record if there isa readily obtainable market value. If significant, disclose in the notes

Donated property, plant and equipment (including heritage assets)

Current value such as rateable value or government value

If there is no readily obtainable value, then do not record. If significant, disclose in the notes

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Related Party Transactions – Tiers 3 & 4

‘Related parties’ are people who hold decision-making power in the charity and their close family members

Related parties can also be other organisations

Transactions must be stated in the notes; they could be cash or non-cash (in kind) donations

Transparency about these kinds of transactions protects a charity’s reputation

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Audit and Review Requirements

Operating expenditure ≥ $500k = review or audit

Operating expenditure ≥ $1m = audit

Must be done by a “qualified auditor”

Statutory audits/reviews include non-financial information (Entity Information and Statement of Service Performance)

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Reporting Requirements

NB: although Tiers 1 & 2 do not currently need to provide non-financial information, there is an exposure draft on issue at the moment that intends to introduce this requirement in the next couple of years

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New Reporting Standards Assurance Engagement

NRS

Tier

NRS Tier thresholds -

Opex

Non-financial info required

Title of ‘End of year accounts’

SizeStatutory Assurance

Engagement

1 > $30 million No Financial Statements Large Audit

2 ≤ $30 million No Financial Statements Large Audit

3

≤ $2 million Yes Performance Report LargeAudit

(non-financial info included)

< $1 million Yes Performance Report MediumReview or Audit

(non-financial info included)

< $500,000 Yes Performance Report Small None required by law

4 < $125,000 Yes Performance Report Small None required by law

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Help is at Hand

Videoso Overview; Tier 3; Tier 4; Annual Return

Tutorials to Use Excel Templateso Separate Tier 3 and Tier 4 tutorials

Information and Guidanceo Templates; guidance notes; further guidance, example performance

reports, FAQs and a Blog

Peopleo [email protected]

o 0508 charities (0508 242 748)

o DIA Community Operations

o Your accountant

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Department of Internal Affairs28

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Questions?

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new financial reporting for small charities · why not check them out while you’re waiting for us...

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