WHAT FINANCIAL REPORTING STANDARDS SHOULD WE APPLY FOR OUR ANNUAL FINANCIAL STATEMENTS?
Yes, we are in a confusing period of change as old reporting standards are replaced by a new Public Benefit Entity (PBE) financial reporting that are mandatory for charities and government funded organisations. If your organisation is a charity then we’d recommend you visiting the External Reporting Board (XRB) web site, and their FAQ section, as referenced below, or do our quiz.
If you are a not for profit, i.e. sports club, but not a registered charity, then you currently have a choice of continuing with what you’re currently doing for annual financial reporting, or adopting the PBE reporting. Please note that it is not mandatory for a non-charity not for profit to adopt the new PBE reporting standards. However, this is currently being discussed by the XRB, and PBE reporting maybe required by all not for profits, sometime soon.
Below is a table of the new PBE financial reporting framework, and minimum statutory requirements:
|TIER||SIZE OF ORGANIZATION||ASSURANCE REQUIREMENTS||BASIS OF PREPARATION|
|2||PBE with,annual expenditure greater than $2 mil, and less than $30 mil||Required to be audited||NZ,International Public Sector Accounting Standard [NZIPSAS] with RDR*|
|3||PBE with annual expenditure greater than $1|
mil, and less than $2 mil
|Required to be audited||PBE Simple Format Reporting accrual|
|PBE with annual expenditure greater than|
$500,000, and less than $1 mil
|Can choose an Audit or Review|
|PBE with annual expenditure greater than|
$125,000 and less than $500,000
|No Audit or Review requirements|
|4||PBE with annual expenditure less than|
|No Audit or Review requirements||PBE Simple Format Reporting cash accounting|
|*RDR – Reduced disclosure requirements for the notes|
to the accounts
WHAT FINANCIAL REPORTING STANDARDS SHOULD WE APPLY FOR OUR ANNUAL FINANCIAL STATEMENTS, if we have more than $2 mil of annual expenditure?
As per the table above, you are required to report as a tier 2 PBE.
FOR A TIER 3 ORGANISATION, WHAT ARE THE IMPORTANT DIFFERENCES IN REPORTING FROM OLD GENERALLY ACCEPTED ACCOUNTING PRACTICE [GAAP] AND THE NEW PBE SIMPLE FORMAT?
You need to prepare a statement of service performance [non financial data on objectives and outcomes], and a statement of cash flows. See the XRB web site reference link for the recommended financial report template.
How CAN WE MINIMIZE OUR AUDITING COST?
The time and cost of auditing is dependent on not only the size and complexity of the organisation’s financial systems, but also the extent of the evidence of management oversight of key reporting, and the accounting control environment on significant transaction streams. If the management oversight is good, and the accounting control environment one in which errors and omissions would be detected by a number of people, then the audit time can be reduced.
How LONG DOES AN AUDIT OR REVIEW TAKE?
About 2 – 3 weeks. For an audit, the time delay can depend on how long it takes to get the confirmation of bank balances, loans, outstanding debtor balances, or other communications where we consider that the information is relevant to the financial statements.
WE’VE LOST SOME ACCOUNTING RECORDS
The loss of vital accounting records will lead to a qualified audit report. i.e. a limitation on our work. You will need to discuss this with us prior to engaging on the audit.
WE HAVE NOT BEEN AUDITED FOR YEARS
An audit need only to be done on the current year. If the deed of constitution requires an audit every year, then the leadership can consider taking a motion to the AGM for the deed to be amended, thus requiring external assurances on financial statements as required by the management, funders, statute, or the members. This is possible where there are no external users of the financial reports.
OUR TRUST DEED / CONSTITUTION REQUIRES AN AUDIT BUT THE MEMBERS OR FUNDERS DO NOT REQUIRE AN AUDIT.
The members can be advised of a motion to change the deed requiring that an external assurance on annual financial statements be done as required by the management, statute, or by the members at any special meeting. Please ensure that you understand the clauses in the deed or constitution around the amending process, and consult a legal representative, if professional guidance is needed.
WE HAVE OUR ACCOUNTS PREPARED BY A CHARTERED ACCOUNTANT SO WILL THE AUDIT or REVIEW FEE BE LESS.
Yes, audit and review fees can be reduced because of the time saved when properly constructed and reconciled financial reports are presented for audit or review. Also, the accountant will provide a file showing how they have reconciled key balances, thus showing some integrity of the accounting systems, and accuracy of some figures reported in the financial statements.
WE ARE A LARGE CHARITY WHO ISSUES DEBENTURES or an INVESTMENT PROSPECTUS TO THE PUBLIC
We are not registered auditors of issuers and these audits are outside our scope of audit work.
OUR TREASURER DOES EVERYTHING
Reliance on one person for all the accounting processing, receipting, and payments does give rise to more auditing work because the risk of errors or omissions are higher. These risks can be minimized if the organization’s governance, receive monthly financial reports showing the actual compared to budget, and a list of payments made.
OUR ACCOUNTING SYSTEMS ARE VERY OLD
Old systems can still be effective. To assess this we would like to see examples of the reports provided to the management committee. We will need a printed trial balance, and general ledger detail, if the accounting system does not export this information to a text file or excel.
WE USE EXCEL FOR ACCOUNTING
This is fine as long as you can clearly show how an opening bank reconciliation, plus total income for the year, less total payments, equals the closing bank reconciliation.
The information in the excel sheets for income and payments details, should be checked off against the bank statements.