Non-Charities: How Should You Present Your Accounts?
There are no accounting standards governing the financial statements of small not-for-profits that are not Charities. Incorporated Societies must submit financial information each year, including income and expenditure and assets and liabilities, according to the Societies Act. Charitable Trusts have no reporting obligations.
The format usually only becomes an issue if a not-for-profit employs an accountant to compile the financials, or commissions an audit. Accountants are generally bound by their professional standards to apply best accounting practice, and an auditor has to check for compliance with relevant accounting standards. In practice most accountants apply taxation principles to generate such financial statements and this is often accepted by auditors. However, such financial statements will almost certainly be accrual-based.
Although the Financial Reporting standards recently introduced for Charities don’t apply to other not-for-profits, they have given accountants the option of compiling cash-based financial statements in accordance with the Tier 4 standard anyway (without the non-financial information requirements), and auditors can use this as a ‘relevant’ accounting standard. Where CCA has been asked to compile financials for such entities we have done so as this is the most economical solution.
Often not-for-profits generate their own reports, and as long as they are not misleading or hard to comprehend for an outsider we generally accept them at CCA, and audit them in this format. They often do not have Notes as people feel unsure about the technical language often used in those. The Notes are generally a tool to provide information which is not self-evident from the accounts, such as if you have used any unusual ways to arrive at your figures. They don’t have to be – and shouldn’t be – full of jargon.
Radical Changes to Tier 4 Reporting for Charities
New mandatory reporting rules for Tier 4 charities and some other societies come into force for financial years ending 31 March 24 or later. These changes prevent us from continuing to compile your accounts for you in the format we have been using.
The new Tier 4 rules ask charities to – more or less – fill in a form rather than compile a set of financial statements. This form can be found here: https://www.xrb.govt.nz/dmsdocument/4871.
Early experience shows that people are still finding it a bit hard to fill this out without help, despite the guidance provided in the form. CCA will ask Tier 4 clients to fill out all but the cashflow section, which we can do for you. We will pre-fill the form with last year’s information, where this is required. This should hopefully save a bit of back-and-forth about the required information that we wouldn’t know.
We will also be putting on four free online workshops (at this stage) to talk you through filling out the new Tier 4 form. You may well be able to do this all yourself, and not need us or another accountant, which is the intention of the change. Please consider attending one of these if you are a Tier 4 client of ours – it would save a lot of time and probably some cost for you as well.
For most of our existing Tier 4 clients, we will be producing a more meaningful financial (management) report in addition to the completed form. This should not create any more work than what we have done in the past, but will give you better information for planning, funders and internal accountability. We are also very happy to look at any ‘normal’ financial report that you want to create yourself.
Please note that we are not able to audit or review the new forms. We can only give assurance (i.e. audit or review) for a set of financial statements that gives an accurate picture of both, an organisation’s financial activity and position. We can do so for the management report mentioned before, or any report you come up with that has these two components. Please see here for more information.
The changes were made by the External Reporting Board (XRB), and it seems there has been much less consultation with Charities Services than when the reporting system was first introduced in 2016. Charities Services has, at the time of writing, not updated the information on its web site, nor has it changed the required information in the financial part of its annual return form to match the new categories required by XRB. This may get a bit messy….