Update on Accounting Requirements for Registered Charities. October 2014

Transcription

1 Update on Accounting Requirements for Registered Charities October

2 Topics New framework legal and accounting Feedback from consultation The reporting entity Overview of simple format reporting standards Getting ready Further information Support from Charities Services 2

3 New Framework Legal and Accounting 3

4 New Legal Framework New Legislation enacted Nov 2013: Financial Reporting Act 2013 Financial Reporting (Amendment to Other Enactments) Act 2013 Significant changes for registered charities 4

5 New Legal Framework Amendments to Charities Act 2005 Requires charities to follow XRB Standards Financial statements to be filed with Charities Services Allows small charities to use cash accounting Takes effect from: 1 April

6 Summary New Legal Framework The law determines WHO must report The WHO = registered charities The XRB determines WHAT to report The WHAT = XRB Standards Charities Services monitor and enforce the WHO doing the WHAT 6

7 New Legal Framework Accounting Infrastructure Reform Bill 2013 Assurance for charities financial statements Charity Size Total operating expenditure $1m Total operating expenditure $500k Assurance Required Audit Audit or Review Total operating None Expected to take effect from: 1 April 2015 expenditure <$500k 7

8 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) 8

9 Not-For-Profit Framework Tier Entities Standards 1 Public Accountability Total expenses >$30m Full PBE Standards 2 Total expenses <$30m PBE Standards with disclosure concessions 3 Total expenses $2m Simple Format Standard (accrual) 4 Total operating payments <$125k (where law allows) Simple Format Standard (cash) 9

10 Not-For-Profit Framework Default is Tier 1 May opt to report in accordance with lower Tier when criteria met If opt into a lower Tier and circumstances change some leeway for moving up If subsequently have public accountability (as defined) Tier 1 in that year 10

11 Not-For-Profit Framework Tier 3 Criteria Does not have public accountability as defined; and Has total expenses less than or equal to $2 million. Total expenses includes grant expenses and losses Total expenses are total expenses of the group 11

12 Not-For-Profit Framework Tier 4 Criteria Permitted by legislation Total operating payments less than $125,000 in each of 2 preceding years Operating payments do not include capital payments for example, purchase of resources (physical assets or investments) or repayment of borrowings 12

13 Feedback from Consultation on Simple Format Reporting 13

14 Feedback from Consultation Submissions received 41 submissions on the Tier 3 NFP Standard 26 submissions on the Tier 4 NFP Standard Majority received from preparers and users 14

15 Feedback from Consultation What you liked Standards tailored to size and circumstances Performance report - both financial and non-financial information Allowed to Tell Our Story Less technical language used Guidance notes and optional template 15

16 Feedback from Consultation What you didn t like Cash accounting for grants, donations and fundraising revenue (Tier 3) Fixed categories of revenue/receipts and expenses/payments Definition of related parties What we changed Accrual accounting revenue unless use or return condition Minimum categories with more flexibility Includes related entities 16

17 Feedback from Consultation What you didn t like Statement of Service Performance Requirement to prepare a statement of cash flows (Tier 3) What we changed Simplified for Tier 4 outputs only Clarified what is required No change Clarified required and optional information 17

18 The Reporting Entity 18

19 The Reporting Entity Registered Charity file financial statements with Charities Services What is included in financial statements (i.e. what is the boundary of the reporting entity)? 19

20 The Reporting Entity The boundary of the reporting entity Activity A Trading Operation Registered Charity Bank Account No. 2 Activity B Include all transactions, balances and activities of the entity 20

21 The Reporting Entity Head Office Joint Venture Charity ABC Company XYZ Branch Trust 21

22 The Reporting Entity Head Office Branch Office Branch Office Branch Office 22

23 Simple Format Standards Overview 23

24 Overview Simple Format Reporting Standards Single, standalone standards Less technical language Simpler requirements Common transactions 24

25 Overview Reporting Objective: Tell Our Story Who are we? Why do we exist? What did we do? When did we do it? What did it cost? How was it funded? How did we account for our activities? What do we need to continue? 25

26 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) 26

27 Simple Format Standards Getting Ready 27

28 Getting Ready Start by considering: What is the reporting entity? Including any relationships with other entities What Tier of financial reporting? 28

29 Getting Ready Performance Report Minimum Components Tier 3 (accrual) Entity Information Statement of Service Performance Statement of Financial Performance Statement of Cash Flows Statement of Financial Position Accounting Policies Notes Tier 4 (cash) Entity Information Statement of Service Performance (outputs only) Statement of Receipts & Payments Statement of Resources and Commitments Notes 29

30 Getting Ready Entity Information Who are we? and Why do we exist? Purpose or mission Structure (including governance) Reliance on volunteers and donated goods or services 30

31 Getting Ready Statement of Service Performance Why do we exist? What did we do? Mainly non-financial Outcomes - impact on society (optional for Tier 4) Outputs - goods or services delivered during the year 31

32 Getting Ready Financial Information GST exclusive or inclusive No offsetting Tier 3 entity can opt up to Tier 2 for a type of transaction Budgets/plans Report in NZD 32

33 Getting Ready Statement of Receipts and Payments (Tier 4) Operating receipts and payments and capital receipts and payments Minimum categories of receipts and payments 33

34 Getting Ready Statement of Financial Performance (Tier 3) Prepared on an accruals basis Minimum categories of revenue and expenses Revenue with use or return condition Goods/services received in kind 34

35 Getting Ready Statement of Cash Flows (Tier 3) Movements in cash during the period Operating activities (by category) Investing and financing activities (by category) 35

36 Getting Ready Statement of Financial Position (Tier 3) What we own? What we owe? Opening position Minimum categories Reserves Significant donated assets 36

37 Getting Ready Statement of Resources and Commitments (Tier 4) List no need to balance Resources, commitments and other information Significant items 37

38 Getting Ready Statement of Accounting Policies (Tier 3) What are your policies at the moment? Are these allowed under the standard? 38

39 Getting Ready Notes (Tier 3) Related party transactions (also Tier 4) Property, plant and equipment Goods or services in kind Significant donated assets Significant grants and donations Reserves 39

40 Getting Ready Other (Tier 3 and Tier 4) Comparative information Transitional provisions 40

41 Further Information 41

42 Further Information This is your button 42

43 Further Information We have prepared a handout to help you start getting ready Get Ready 43

44 Questions 44

45 Supporting charities in New Zealand for stronger communities

46 Charities Services works to Promote public trust and confidence in the charitable sector Encourage good governance and management Encourage and promote the effective use of charitable resources Department of Internal Affairs

47 Public trust and confidence Transparency and accountability of charities is key to creating trust and confidence The Charities Register contains information about charities and is open in order to create transparency The Annual Return process provides for on-going accountability Department of Internal Affairs

48 Annual Return Charities will still need to complete an Annual Return Asks for more information Helps to understand the sector as a whole Maintains the Charities Register Currently under review to bring the financial questions in line with the new standards Thinking with sector representatives about: how to simplify the process; what information is useful to the sector and about the sector Department of Internal Affairs

49 Monitoring charities Most charities want to do the right thing Emphasis on education and information Future assurance check 50% random selection 50% risk-based approach Focusing on the new standards and across the Charities Act 2005 Department of Internal Affairs

50 DIA compliance framework Don t want to comply/wilfully negligent Don t want to comply but will if we pay attention Use full force of the law Deter non-compliance through detection Compliance (investigations and audit) Try to comply but don t always succeed Assist you to comply Education/advice Willing to comply Make compliance simple and straightforward and supply guidance and advice Application process Department of Internal Affairs

51 Preparation is key Change can be challenging Recognise the variety of charities and the largely volunteer workforce in the sector Help is at hand templates resources advisory support Start now with preparation Department of Internal Affairs

52 Voluntary deregistration Think carefully if considering voluntary deregistration Tax consequences apply if after 12 months assets are not passed on to another charity Reporting standards will apply to all Incorporated Societies in future Some funders are already looking to require all applicants to provide financial statements in line with the new standards Department of Internal Affairs

53 Support to Charities 3 to 5 year capability building plan Face to face workshops March May 2015 Online resources including print and video Local expertise through DIA Community Advisors and other local capability builders Update your charity contact details, encourage others to do the same Department of Internal Affairs

54 Key things to consider: The reporting entity: Think about the boundary of your entity Do you have relationships with other entities for financial reporting purposes? Elect which Tier to report under: Tier 3: no public accountability and total expenses less than or equal to $2m? Tier 4: no public accountability and total operating payments less than $125,000 in each of 2 preceding years? Non-financial information: Start collecting information to complete the entity information section Define your outcomes (optional for Tier 4) Outcomes: what your entity is seeking to achieve in terms of its impact on society Define your outputs, quantify to extent practicable Outputs: goods or services delivered during the year. Put in place systems to record actual outputs delivered Financial information Minimum categories to report Grants with conditions - identify and track such grants Do you know what you own? Do you know what you owe? Significant donated assets - identify and value such assets Schedule of Property, plant and equipment (Tier 3) Related parties identify and record transactions with them Do you receive significant goods or services in kind? Describe these For more information contact: info@charities.govt.nz phone 0508 CHARITIES ( )

55 Thanks for Coming 54