August 2015

August 2015 Newsletter

This Issue

Audits – How much assurance do we need?

Accounting Software – Xero vs MYOB – do you know your choices and your risks?

The Road to 2016 – We don’t like the word ‘Performance’, so we’re looking for better ones.

CAs Trading Unfairly – Chartered Accountants found to have breached the Fair Trading Act.

Time to ease up on Audits?

CCA conducts a lot of audits or financial reviews for not-for-profits. Sometimes this is done to assure members or the organisation, but mostly it is done because funders ask for them.

Audits are expensive. While CCA has made the direct cost a lot more affordable for many groups, there are significant indirect costs as well, especially the time spent gathering information for the auditor and answering their questions.

The conundrum for auditors is that they are expected to perform the audit following International Auditing Standards (IAS) – in fact, if they are members of a professional accounting body they do not have the option of doing it any other way. IASs were developed primarily for the audits of large commercial entities for the purpose of assuring investors. The biggest threat for those auditors is businesses who deliberately use illegal accounting practices to mislead investors, and auditors can be sued by those investors if they don’t find out! It is this risk which drives the tremendous level of scrutiny and ‘professional scepticism’ required of an auditor.

It does not particularly help to do a ‘review’ instead of an audit. A ‘review’ is not a ‘soft audit’, as many believe. It is meant to be based predominantly on interviews and enquiries rather than on verifying specific transactions and accounts. It has some key drawbacks: for one, areas which funders probably would want to be scrutinised, such as spending from public donations or categorisation of expenditure, may receive little or no attention in a ‘review’. And secondly, it is unclear what level of assurance a review actually gives: can a funder assume from a positive review opinion that it is more likely than not that the Financial Statements are correct? Or can they assume that they are ‘mostly’ correct (if so, in what areas might they be incorrect)?

Funders and other users of not-for-profits are also rarely concerned whether or not accounting standards have been followed in every detail, and in fact a large proportion of those users have only a very poor understanding of what the various details in those Financial Statements actually mean. The International Accounting Standards Board makes it quite clear that the ‘General Purpose Financial Statements’ that are the subject of an audit are not meant to be used by non-accountants for decision-making – they are prepared for an audience with considerable financial nous.

I believe that both funders and community groups could get more value if funders would issue guidelines of what exactly they want assurance about, and what level of confidence they require (auditors generally work towards a 99% confidence level, which is not likely to be needed for such purposes). Such ‘Limited Scope’ audits would bring the cost of audits down while still providing the assurance needed, and – because it reduces the potential liability auditors face – would also widen the number of accountants that not-for-profits could go to.


Accounting Software – What should you Use?

At CCA we spend a lot of time helping clients to troubleshoot problems with accounting software. The problem is very rarely a bug in the software (although that happens, too) but misunderstanding how things work in it.

To use any accounting software you must have some understanding of accounting, especially of categorising income and expenditure. Accounting software does not replace this knowledge – it only helps to apply it.

The two key players in the market are still MYOB and Xero. All their packages do the basics right: ‘Profit & Loss’ report, Balance Sheets, GST returns and the likes. MYOB offers its ‘Account Right’ package in various shapes and forms as a combined desktop-Cloud application (meaning it runs on your computer, but synchronises with a central server). It also offers a less well-known cloud-only application called ‘Essentials’ (see here for comparison:, which is the direct competitor to Xero for the same market.

The key benefits of Essentials are that it is cheap ($23 per month, discounts available for community groups) and comes with a free integrated Payroll module for one person (you pay extra for more persons). It is somewhat more intuitive to use than Xero and a little easier to navigate. The key drawback is that at present it does not have any tracking functionality (which many not-for-profits like to use for grant expenditure tracking). For small to medium community groups, who can cope without a tracking facility, this is the best value for money for cloud accounting.

MYOB no longer seems to sell its cheaper ‘Basic’ and ‘Standard’ versions of Account Right. The ‘Plus’ and ‘Premier’ versions are powerful, but in excess of what most not-for-profits would need, and pricey ($ 69/month). They also have payroll functionality integrated.

Xero ( is cloud-based accounting software, which starts from $25, but there are limits on entries for this price which would be too low for almost all community groups. The next level, equivalent to the entry-level ‘Essentials’ costs $50 per month and if you want to add Payroll you’ll be paying $75. Xero may also offer discounts to community groups.

Xero is quite powerful software and offers functionality over and above that of MYOB Essentials. For example it has asset register and depreciation functionality – however, this is usually incorrectly used, and very hard to correct when mistakes have been made.

Both major players are pushing had to get you into the Cloud – which offers them a continuous revenue stream, but comes with new risks for you:

  • Both are private companies and as such can fail. Xero’s share price has fallen by 40% in the last 12 months, MYOB’s by 20%. What happens if either of them cannot pay their subcontractors who are hosting your data on their servers is anybody’s guess.
  • You are fully dependent on the internet working to access your data.
  • It is difficult to switch: usually you cannot take your old data into the new accounting software, and will manually have to enter new opening balances.

To give yourself at least some protection from losing your data you should make sure that you back up some of it to a real hard drive. The most useful regular backup to do is the General Ledger (detail) in Excel format, as this is the report which contains all individual transactions for the year. Unfortunately, neither accounting software offers a simple click-of-a-button backup, so you need to run this report and then manually save it to a location on your computer.

If you have doubts about the Cloud there are some software companies still offering desktop-only applications: Reckon (the old ‘QuickBooks):, or MoneyWorks ( If you own an older version of MYOB, it will continue working happily on your desktop even with Windows 10. Unfortunately there is as yet no good open-source (i.e. free) accounting software, and no not-for-profit-specific one either.

The Road to 2016

Monthly feature to prepare for the new Financial Reporting Standards for Charities.

Not Performing – and Proud of it?

‘Performance’ is a key word in the new Tier 3 and 4 financial reporting standards, occurring more than 200 and more than 100 times in the Standards respectively, and far more frequently than in Tier 2/1 standards.

In the financial context the word has unfortunate connotations of competition, cost-cutting and profit-making motives that Charities are usually careful to avoid. The good news is that organisations do not have to use the ‘default’ titles for their new compliance reports. Here’s some ideas for alternatives:

Title in Reporting Standards Other Possible Titles
Performance Report (n.b. term used in the Standards to refer to the whole report) ·         Financial and Service Statements

·         Compliance Statements/Report

·         Activity Statements/Report

Statement of Service Performance ·         Statement of (Service) Activities

·         Statement of Achievements

·         Chairperson’s Report

·         Statement of Outputs & Outcomes

·         Report on Outputs and Outcomes

Statement of Financial Performance ·         Statement of Funding (n.b.: used by CCA)

·         Statement of Financial Activity

·         Statement of Funds Received and Applied

Chartered Accountants Breach Fair Trading Act

The New Zealand Institute of Chartered Accountants (now CAANZ – Chartered Accountants Australia/New Zealand) has been found by the New Zealand High Court to have breached the Fair Trading Act, and avoided a ruling of defamation only because the claimant could not prove financial loss.

The case had been brought by CPA Australia, another professional accounting body active in New Zealand, in response to claims made about it in NZICA advertising and in speeches by their CEO. The claims were found to not be based in fact and Justice Dobson described NZICA CEO Kirsten Patterson’s assertions as having a ‘level of carelessness [that] verges on recklessness’.

CPA Australia is one of the largest accounting bodies in the world with more than 150,000 members across Australia and Asia-Pacific, compared to NZICA’s 30,000 (the combined CAANZ has about 90,000).

NZICA hailed the judgment a success as no damages had been awarded to CPA.