Changes in New Zealand reporting environment​

In the last issue of “Be Informed” we discussed the changes that have taken place in the financial reporting environment for ‘Not For Profit’ entities in New Zealand.  With most entities having now adopted the changes, how is the reporting environment now looking, and how well have the new standards been adopted? 

The key change in the environment was that all registered charities are now required to prepare their financial reports under a four tier reporting system.  While those not for profit entities that are not registered charities are not yet caught by the new regime, it is likely that they will be affected once the revised Incorporated Societies Act becomes law.

We described in the previous issue that the changes resulted in many of the smaller charities needing to revise both their internal accounting processes and their financial reporting to comply with the new requirements.  For many organisations this process has proceeded successfully, however we continue to see a reasonably regular flow of charities that were caught unawares by the changes and did not implement the required financial reporting or auditing requirements.  In most cases this was not due to any intent not to comply, however it has resulted in some charities being struck off the Charities Register, with a resulting impact on their ability to continue their operations.  Throughout this year, we have assisted several charities in advising them of the new requirements and performing audits of the last one or two years under the revised regulations, to enable them to re-apply for Charities registration.  This is of course a stressful experience for all involved, particularly when the good intent and results of the charity can be placed at risk due to lack of compliance with reporting and auditing requirements.

For smaller charities, the options are a basic form of cash accounting, or a basic form of accrual accounting.  In both cases, there are “template” financial statements available which are relatively simple to complete.  For the larger entities operating in the “Tier 1” and “Tier 2” sectors, it is recommended that their financial reports are tailored to the nature of the organisation.  One of the more difficult parts of the new reporting has been the Statement of Service Performance, which is a new prime statement for many charities.  Some have had difficulty working out how to complete the document, whereas others have produced lengthy multi-page statements which have then needed some condensing.  The larger Tier 1 and Tier 2 entities, which are required to adopt PBE IPSAS, have also had to perform a careful review of their existing accounting policies to identify any changes needed to meet PBE IPSAS.  In most cases this has not resulted in significant amendments, however there are a number of “hooks” within PBE IPSAS that have caught out some organisations.

The key lesson from this process is that it is important for charities to have a sound accounting system with good processes, and accounting policies that comply with the current requirements.  Those charities that do not have access to some form of professional accounting advice are those that have suffered most.  Whilst it has been rare for there to be fundamental errors, a lack of knowledge has led to some charities incorrectly accounting for revenue, expenses and assets simply as a result of long standing practices which no longer comply.  The process of correcting these is often relatively simple, but involves the charities having the expertise to understand, implement, and apply on an ongoing basis.

The audit and assurance team at William Buck has significant experience in assisting not for profit entities in transitioning to the new standards.  We would be pleased to assist any charities experiencing difficulties, or simply requiring advice.

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