Audit threshold raised once more

Cabinet has approved a paper by the Ministry of Business, Innovation and Enterprise (MOBIE) recommending that registered charities with more than $500,000 in operating expenditure will be required to commission at least a review by a ‘qualified’ accountant. This is an increase compared to the last draft proposal ($400,000) and more than twice the amount originaly proposed ($200,000). Organisations with operating expenditure of more than $1m will be required to have an audit (originally: $300,000).

The lowering of the bar has likely been caused by significant opposition to the proposal from the not-for-profit sector. The new rule, which is now almost certain to become law, will be effective for Financial Statements for years ending 31 March 2016 and after.

The Ministry estimates that this will add $4.4m in compliance costs to the 11% of registered charities that are affected, but CCA believes it is unlikely to have any impact on the sector at all. The Minstry estimate is based on 20% of registered charities over $500,000 not having filed audit reports with the Charities register, but CCA believes this is due to these reports often not being available by the time Charity reports have to be filed (within six months of the end of the financial year), and that almost 100% of organisations of that size would have audits performed.

Costs may arise if the Ministry’s definition of ‘qualified’ deviates from current legislation. The NZ Institute of Chartered Accountants Act requires all accountants to be qualified and recognises a wide variety of qualifications as suitable. However, Ministry discussion papers appeared to equate ‘qualified’ with being a member of a professional accounting body. This would force affected organisations to the most expensive segment of the market. The wording is unfortunate as it may undermine the public’s confidence in accountants if they are led to believe most are ‘unqualified’.


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