Charity Reporting – Problems

August 2017

Charity Reporting: Top Four Problems

The introduction of the new reporting standards for Charities is certainly not going smoothly. Here’s a selection of our top four problems, which is by no means an exhaustive list:

Outputs and Outcomes not being understood. There is low awareness by both Charities and accountants that a ‘Statement of Service Performance’ (or ‘Statement of Service Activity’ as we call it around here) is now required, and we are yet to see a set of Statements submitted to us by an accounting firm, Chartered or otherwise, that is compliant in this respect. We have to explain what is meant by these terms to almost all clients, and most first drafts that we are getting are general statements about what the organisation is about, not what it has done in concrete and what has been achieved. There is also no understanding that, being part of an accounting standard, this information now has to be included in an audit as well and therefore needs to be backed up by evidence.
XRB Templates. Sometimes perfectly good financial statements are being converted to the XRB templates because the organisation believes these now have to be used, even though they are not nearly as easy to read and the financial information is not very transparent in them. Sometimes organisations give us two sets of statements, one in the ‘usual’ format to be presented to the AGM and one on the XRB-issued template for reporting to Charities.
Xero Tier 3 and 4 Reports. Good on Xero for being the only accounting software to actually make a stab at this. Unfortunately, the figures in these new Xero reports so far never matched the underlying information from the profit & loss report and balance sheet, somehow not pulling through correctly. The Tier 4 report also has non-compliant Notes, some of which can’t be edited. To generate the Tier 3 and 4 reports in Xero involves so much manual work (and are difficult to audit) that it might be better to continue using the ‘normal’ profit & loss, cash statement and balance sheet reports and supplement these with manually generated Entity Information, Statement of Service Activities and Notes. In all likelihood the ‘normal’ financial reports are compliant with the relevant requirements, and if they are not then the Xero-generated Tier 3 and 4 reports won’t be either because they are based on the same information.
Statement of Cash Flows. Called ‘Statement of Receipts and Payments’ in the official Tier 4 documentation, this is now a mandatory part of all Tiers. At the moment only Xero and our CCA spreadsheets can create these in a compliant format, and so far we had to do these for almost all our clients, adding significantly to our ‘normal’ workload. Because this statement is not used by small or medium businesses, and not required for tax purposes, accountants are not used to generating it. Software widely used in small accounting firms (such as MYOB Accountants Office) can generate a Statement of Cash Flows, but it is compliant only with Tier 2, not 3 or 4. Combined with the extra work required on the other Charity-exclusive requirements, already busy smaller accounting firms with only a handful of Charity clients may decide that they don’t need the extra stress…

June-July 2016

XRB Out of Control? (Opinion)

Earlier this month the NZ Trustees Association, a kind of umbrella organisation for people serving as Trustees with about 400 members, sharply criticised the new financial reporting rules saying they had created an ‘absolute windfall for the accountancy profession’, led to ‘sizeable increases’ in audit and accountancy fees, and generally bemoaned ‘financial and resource-based suffocation of small charities’. “There has been a sledgehammer for a peanut reporting system imposed on Charities that will have far-reaching implications for small to medium Charities.” they say.

Meanwhile, XRB is going full steam ahead writing a new accounting standard (and also accompanying audit standard) for a Statement of Service Performance for the higher Tiers, which so far have escaped them. The key problem with this, and the similar requirements for Tier 3 and 4, is that accountants in New Zealand have declared themselves the experts in non-financial reporting as well as financial and, through the audit function, also the arbiters of non-financial performance.

Whether accountants are qualified to do this, and whether they are independent enough from financial concerns to be able to assess non-financial performance objectively, is a subject of some international debate. The debate is not so much about Charities but about social and environmental reporting of corporates, something that some countries, Australia amongst them, have started to legislate around. Some standards have emerged internationally to measure such performance and ensure consistency and truthfulness in reporting, however these standards have not been developed by accountants. The ones gaining traction internationally, such as AccountAbility, or the Global Reporting Initiative are developed by independent not-for-profits, and the independence of these standards from financial reporting standards is largely seen as the basis for their credibility.

Nowhere else have financial and non-financial reporting requirements been mixed up in a suite of accounting standards like they are now for Charities in New Zealand. And nowhere else are small Charities required to follow the kind of stringent reporting regime now being introduced in New Zealand. Most countries require no more than a simple questionnaire to be filled in each year. According to Transparency International, which publishes an international ‘Corruption Barometer’, the not-for-profit sector is being perceived by New Zealanders themselves as one of the least corrupt institutions (well below the media, the business sector or political parties) and the second-least corrupt country in the world. Why the hammer has come down on New Zealand Charities, and where the impetus for these changes came from, has always been the most puzzling aspect of them.

If XRB does, indeed, have the mandate to impose non-financial reporting requirements as they have started doing, Charities may only be the guinea pigs to ensure that when the New Zealand government has to react to international pressure to introduce some mandatory corporate social responsibility reporting, such reporting is firmly in the hands of the accounting profession and is done according to business principles.

Harald