October – November 2015 Newsletter
Qualified Accountants – CPAs and CAs sorted out for you.
2016 Workshops – A preview of what’s planned next year.
Tax Exemptions – You don’t always have to be a registered Charity to get one.
The Road to 2016 – What’s a related party (and is it any fun?)
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As we’ve reported in the past, New Zealand law no longer recognised just one professional body for accountants (the former NZ Institute of Chartered Accountants, now CAANZ), but any overseas professional body can now apply to the Financial Market Authority (FMA) for the right to licence auditors for statutory audits in New Zealand. This had followed a move by Australia’s largest professional accounting body CPA (not the same as Chartered Accountants Australia) to accredit New Zealand tertiary education institutions for its programme, and since CPA Australia entered the New Zealand ‘market’, CAANZ has radically revamped its own professional programme, which is now virtually indistinguishable from that of CPA Australia.
Both bodies are members of an international accounting association, which regulates what qualifications an accountant needs to have to be a member of a professional accounting body. Unfortunately, those requirements do not include expertise in not-for-profit law, ideas, management or accounting – the accounting world is still largely working with the assumption that accounting and management principles are universal and can be applied to not-for-profit situations in the same way as for business situations.
I have chosen to follow the CPA rather than the CAANZ pathway for two main reasons: CPA is much larger and is operating internationally, being the most trusted professional body in a number of Asian countries especially. Being an immigrant to NZ myself, I like the more international perspective they can provide in their training and professional development. Secondly, CPA takes a more skill-based approach to acquiring work experience, which allowed me to accumulate it while working in the not-for-profit sector.
Professional accounting bodies usually have three types of membership: Associate, full and retired. All have to have relevant accounting qualifications, a tertiary degree (minimum of bachelor), comply with ethical-professional standards and, except for retired members, have to complete professional development each year.
Few not-for-profits have updated their constitutions in light of the law changes, and government departments are also behind. For example, Ministry of Education guidelines for early childhood centres specify that audits must be undertaken by a ‘member of CAANZ’. This means that neither myself nor Nick can undertake audits for certain Ministry of Education-funded services despite having a recognised equivalent qualification (an earnings threshold also applies – we can do smaller ones). Many not-for-profit organisations have a similar clause, and they will have to find an associate, retired or full Chartered Accountant.
Some constitutions even specifically require a ‘Chartered Accountant’, which would imply a full member of CAANZ and CAANZ only.
Given that there is no requirement for Chartered Accountants or CPAs to be conversant in not-for-profit matters (such as the new financial reporting standards for Charities), and membership in itself does not require any audit experience or expertise either, these are not useful rules for not-for-profits. I believe that not-for-profit entities (or government funders) looking for a reliable quality audit should instead look for relevant understanding, experience and knowledge of not-for-profit matters specifically.
Although I believe we are the most qualified and experienced accounting outfit in Christchurch for not-for-profits, CCA sometimes has to turn potential clients away because of such requirements in constitutions or with government (and sometimes other) funders. Maybe it’s time for a re-think?
Workload at CCA
The number of clients continues to grow, and we will pass the 200 mark probably early next year. Despite an additional fulltime staff member (Nick) a sizeable backlog of jobs has accumulated over the last 2-3 months, and many clients have been waiting for six weeks or more. The pile is now getting lower, however, and we should be down to much faster turnaround times by the end of November.
While we are busy all year round, August – October is the busiest time for us for Audit and Financial Statement jobs. For charities, standard-compliant reports have to be filed within six months of the end of your financial year as of next year, and if we are preparing those reports for you it is best if you have all your paperwork together within three months of the end of your financial year, especially if your Statements are also audited. If you have a financial year ending March or before, the earlier we can get your stuff the faster we can turn it around.
We are having three exam-hassled interns at the moment helping us out. Many thanks to Emily Nie, Thorsten Juelich and Sneha Gadhavi, all accounting students with CPIT.
2016 Workshops and Courses
- The not-for-profit administration and management course will run once again in 2016 at Hagley Community College and be facilitated by Harald. Cost is a puny $40 for a whole year (36 sessions). Time is Tuesdays 6pm during school term time. Some of this year’s participants have found jobs in the NFP sector and said the course was a big bonus on their CVs.
The course covers the legal environment of not-for-profits, governance, administration, bookkeeping, compliance (including the new financial reporting standards) and organisational management. It aims to give administrators, managers or members of the governance board of small to medium-sized not-for-profits a good understanding of the key aspects of running a not-for-profit. Some unit/achievement standards may be offered if there is interest. For enrolments see here.
- While we haven’t finalised our workshop programme yet, we will be running our ‘normal’ Grant Accounting and Understanding Financial Statements workshops again, plus a number of others. We will also respond to the financial reporting changes with special workshops from March 2016 onwards, aimed at enabling you to do as much yourself as you can (especially for ‘Tier 4’ Statements).
- In response to the winding up of the Small Business Enterprise Centre and therefore a lack of affordable training options for small business operators, Harald will also offer a full year business ‘start-up’ course
Tax Exemptions for Non-Charities
One of the key advantages of being a registered Charity is an exemption from Income Tax. However for some organisations such a tax exemption is always available whether they are registered as Charities or not. These are:
- Organisations promoting amateur sports (s CW 46 Income Tax Act)
- District improvement societies: most residents associations would come under this exemption (s CW 40(1) Income Tax Act
Some gaming trusts and societies require organisations to be registered charities to be considered for funding, but most funders do not.
Even not-for-profits who do not meet any of the other exemption requirements can usually get an administrative exemption from filing income tax returns, provided their ‘profit’ is less than $1,000. Do get any of these exemptions an organisations needs to write to IRD and attach a copy of their rules. The rules must include a clause that no funds can be drawn from the organisation for private pecuniary benefit.
Some organisations elect not to become registered Charities, even if they qualify and no other tax exemption applies to them. Filing a tax return
The Road to 2016
Monthly feature to prepare for the new Financial Reporting Standards for Charities.
Related Party Transactions.
Disclosure of ‘related party’ transactions will become mandatory for all registered Charities from next year, but it may be relevant for other not-for-profits as well. This is because this disclosure will become ‘Generally Accepted Accounting Practice (GAAP)’, and your financial statements might be prepared according to GAAP even if you are not a Charity.
The new Standards define Related Party Transactions as transactions with anybody who is potentially in a position to influence the management or direction of the organisation. Board or committee members, staff, and close relatives or spouses of either are specifically mentioned. A Related Party does not have to be an individual – it can be another not-for-profit, a business, the local council (for example if they have a representative on your board), or similar.
Related Party transactions will have to be disclosed in the Notes, if:
- They are ‘significant’; or
- They are not significant but they are below market value.
It is important to understand that Related Party transactions do not just apply to money going out. A committee member making a donation to the organisation is also a related party transaction, as is a committee member designing your web site for free (donation of a professional service).
The second bullet point (not significant but below market value) can potentially lead to a lot of clutter on your Notes. Let’s say a committee member buys a new stapler for the office worth $10, but does not want to be reimbursed, this becomes a related party transaction below market value, even though no purpose is served in disclosing this. This particular requirement is an odd departure from the materiality principle otherwise hold dear in the accounting world, and is likely to lead to some organisations simply banning related party transactions altogether for fear of doing something wrong.