Welcome to our webinar session! Things to note before we begin Most of you will be listening using your computer's speaker system by default. Have you done a sound check? This will ensure you can hear the presenter as soon as the broadcast starts, rather than rushing around and missing the start because you experience sound problems at your end. Choose your sound option when the desktop app opens and displays either your computer's audio or your telephone. If at any time during the session you experience sound problems such as echo or feedback you might consider using your phone instead. Can you see the handouts? These are in the Handouts pane at the base of your desktop control panel. Why not check them out while you re waiting for us to get under way. New Financial Reporting for Small Charities A webinar for accountants July 2016 Julia Fletcher, DIA Aimy Luu Huynh, XRB 1
Introduction Words from Charities Services and the External Reporting Board (XRB) Why are we doing this? The importance of doing it right 3 4 2
New Legal Framework Financial Reporting Act 2013 Financial Reporting (Amendments to other enactments) Act 2013 - Amendments to Charities Act 2005 section 42A All registered charities follow XRB standards 5 New Accounting Standards Framework Accounting Standards Framework consists of separate standards for For-profit Entities for Public Benefit Entities (Not-for-profit and public sector) 6 3
Not-For-Profit Framework Tier Entities Standards 1 2 3 4 Public Accountability Total expenses >$30m Total operating expenses $30m Total operating expenses $2m Total operating payments <$125k (where law allows) Full PBE Standards PBE Standards with disclosure concessions Simple Format Standard (accrual) Simple Format Standard (cash) 7 Not-For-Profit Framework Tier 1 2 3 4 Charities Total operating expenses >$30m Total operating expenses $30m Total operating expenses $2m Total operating payments <$125k <1% 3% 22% 75% 8 4
Simple Format Reporting Standards Single, standalone standards Less technical language Simpler requirements Common transactions 9 Tier 3 Criteria Less than or equal to $2 million operating expenses Day to day expenses e.g. grant payments, depreciation Excludes capital payments e.g. physical assets or investments Accrual-based accounting Transactions earned or incurred Includes debtors and creditors 10 5
Tier 4 Criteria Under $125,000 operating payments Day to day expenses Excludes capital payments e.g. physical assets or investments Cash-based accounting Cash paid and received Excludes depreciation 11 Overview Tier 3 SFR Standard: accrual (PBE SFR-A (NFP)) EG A5: template & guidance notes Spreadsheet & PDF templates (optional) Tier 4 SFR Standard: cash (PBE SFR-C (NFP)) EG A6: template & guidance notes Spreadsheet & PDF templates (optional) 12 6
Further Information www.xrb.govt.nz enquiries@xrb.govt.nz 13 Tier 4 Performance Report Tier 4 Performance Report Non-financial Financial Entity Information Receipts & Payments Service Performance Resources & Commitments Supporting Info Notes 14 7
Tier 3 Performance Report Tier 3 Performance Report Non-financial Entity Information Service Performance Financial Financial Performance Financial Position Cash Flows Supporting Info Policies + Notes 15 Telling Your Story Entity Information Who are we? Why do we exist? Service Performance What did we do? Why those activities? Non-financial information Adds richness to our story Creates better understanding 16 8
Statement of Service Performance * 17 Key Features of the Financial Information Basis of Preparation o Tier 3 and Tier 4 are different approaches, accrual vs cash Categories o How much leeway is there? o What do we do with grants? Recognition of certain transactions o E.g. donated inventories and assets Related parties o Particularly prevalent in charities 18 9
Minimum Categories These are the Tier 3 Revenue and Tier 4 Receipt categories. Tier 3 - Revenue Donations, fundraising and other similar revenue Fees, subscriptions and other revenue from members Revenue from providing goods or services Interest, dividends and other investment revenue Tier 4 - Receipts Donations, fundraising and other similar receipts Fees, subscriptions and other receipts from members Receipts from providing goods or services Interest, dividends and other investment receipts Receipts from the sale of resources Receipts from borrowings 19 Categories How Much Leeway? The table below shows what can and can t be done to the categories. What can I do? Yes No Rename categories Add subtotals or headings Disaggregate categories Delete unused categories Merge minimum categories Add a category called grants and record all grants in it 20 10
Grants Questions to think about What was the grant for? What are the conditions of the grant? Decisions to make Which category does the grant get recorded in? When do I record the grant? 21 Grants Where and When to Record Category Grant received for general admin Grant received for service provision Recognition Grant received with no use or return condition Grant received with a use or return condition Tier 3 Treatment Record under: Donations, fundraising and other similar revenue Record under: Revenue from providing goods or services Record when grant is received Record as a liability initially and record the income and expense as the grant is spent Tier 4 Treatment Record under: Donations, fundraising and other similar receipts Record under: Receipts from providing goods or services Record when grant is received Record as a receipt, and record the unspent balance as a commitment 22 11
Recognition of Certain Transactions Tier 3 Source How to record Comments Donated goods or services Do not record Significant items to be disclosed in the notes Donated inventory Do not record Can choose to record if there is a readily obtainable market value. If significant, disclose in the notes Donated property, plant and equipment (including heritage assets) Current value such as rateable value or government value If there is no readily obtainable value, then do not record. If significant, disclose in the notes 23 Related Party Transactions Tiers 3 & 4 Related parties are people who hold decision-making power in the charity and their close family members Related parties can also be other organisations Transactions must be stated in the notes; they could be cash or non-cash (in kind) donations Transparency about these kinds of transactions protects a charity s reputation 24 12
Audit and Review Requirements Operating expenditure $500k = review or audit Operating expenditure $1m = audit Must be done by a qualified auditor Statutory audits/reviews include non-financial information (Entity Information and Statement of Service Performance) 25 Reporting Requirements New Reporting Standards Assurance Engagement NRS Tier NRS Tier thresholds - Opex Non-financial info required Title of End of year accounts Size Statutory Assurance Engagement 1 > $30 million No Financial Statements Large Audit 2 $30 million No Financial Statements Large Audit 3 $2 million Yes Performance Report Large Audit (non-financial info included) < $1 million Yes Performance Report Medium Review or Audit (non-financial info included) < $500,000 Yes Performance Report Small None required by law 4 < $125,000 Yes Performance Report Small None required by law NB: although Tiers 1 & 2 do not currently need to provide non-financial information, there is an exposure draft on issue at the moment that intends to introduce this requirement in the next couple of years 26 13
Help is at Hand Videos o Overview; Tier 3; Tier 4; Annual Return Tutorials to Use Excel Templates o Separate Tier 3 and Tier 4 tutorials Information and Guidance o Templates; guidance notes; further guidance, example performance reports, FAQs and a Blog People o nrs.charities@dia.govt.nz o 0508 charities (0508 242 748) o DIA Community Operations o Your accountant 27 28 14
Questions? 29 15