It’s official: Tier 4 groups must use prescribed terms.

The External Reporting Board (XRB), creators of the mandatory accounting standards for Charities, have ruled that Charities must use the prescribed titles and terms in Tier 4 reports, even if the same reports have different names in other Tiers.

Tiers 1,2 and 3 are expressly allowed to use their own terms in the standards.

This means that Tier 4 groups must call assets ‘resources’ and liabilities ‘commitments’ in their official reporting. They also must use the title ‘Statement of Receipts and Payments’ for the statement that is identical to the Statement of Cash Flows in all other Tiers.

Christchurch Community Accounting has advocated being consistent in the naming of comparable statements, using statement names that reflect an organisation’s not-for-profit nature, and using terms that are in common use where possible.

We have changed our internal Tier 4 templates to reflect this ruling.

Charities Services (Department of Internal Affairs) has rejected some Tier 4 entities’ reports, telling organisations that their reports are ‘missing’ a Statement of Receipts and Payments and/or Statement of Resources and Commitments when these were present but given a different name. Tier 4 entities whose reports have been rejected for ‘missing’ statements should change the titles (this can be done by hand) and re-submit.

We have also had a report from a Tier 3 Charity that has submitted entirely compliant statements of having those statements rejected. The Charity had not used the XRB templates. When the Charity called, Charities Services had to admit that they had made a mistake and subsequently accepted the statements.

Any Charity that has their Statements rejected would probably be best advised to ask for clarification first as it is possible that a mistake has been made.

Some other accountants that we talked to suspect that Charities Services is trying to enforce the use of the (optional) templates issued by the XRB, probably for administrative reasons, by making it hard for organisations to submit anything else.

CCA is of the opinion that the XRB-issued templates are too confusing for the type of readers generally interested in small charities, and make financial information harder to understand because the key information a reader would be interested in is hidden away in Notes. This view is shared by many of the charities and accountants we work with. Complicated reports generally undermine accountability as fewer people understand the financial situation the organisation is in.

CCA is also critical of preceding financial statements with non-financial information as the templates do.  This draws attention away from financial information at a time when financial information should be the focus, such as when a treasurer tables the report at an AGM.  CCA-generated reports put the financial information first for this reason and use relevant categories on the face of the statement rather than in the Notes.